Note

Only the Initiator had submitted documents related to this decision.

This decision was rendered without the participation of the Respondent.

Parties

Initiator: Company H (Principal)

Respondent: Bank J (Collecting bank)

Background and transaction

The remitting bank sent, as instructed by the Initiator, documents for collection subject to URC 522, on 26 February 2014 to a branch of the Respondent. The collection instruction was "documents against payment", tenor was stated to be "at sight". The collection instructions also included a request to collect interest from the drawee and also stated: "do not waive the collection of interest and charges if refused".

The collecting bank did not acknowledge receipt of the collection at that time. The Initiator learned (e-mail evidence dated 18 March 2014 available to Experts) from their freight forwarders that the goods had been released to the drawee, bills of lading were received and goods were cleared through customs by the consignee (the drawee). It was evident, from the carrier´s tracking and tracing report (a photocopy available to Experts), that the carrier released the particular container covered by the bill of lading on 14 March 2014.

The remitting bank, having being informed about the release of the goods by the Initiator, repetitively contacted the collecting bank (through SWIFT messages) and demanded immediate payment as per their collection schedule instructions. In the respective SWIFT messages (i.e. messages dated 28 April 2014, 12 May 2014, 14 May 2014) the remitting bank informed the collecting bank that the goods were already cleared by the drawee on 14 March 2014 by submitting the original bill of lading, and that the drawee could have taken delivery of the goods only with the original bill of lading released by the correspondent bank (i.e. the collecting bank). Therefore, as the documents were to be released only against full payment of the collection amount, the remitting bank demanded immediate payment as per their schedule instruction.

In the SWIFT message dated 15 May 2014, the remitting bank informed the collecting bank about the exact details how the collection had been delivered to them (DHL courier receipt No., the address, received by whom, date of the delivery: 27 February 2014) and demanded the advice of the status of the collection and the execution of the payment. This detailed information was provided as requested by the collecting bank: this SWIFT message dated 15 May 2014 suggests that it was a reply to a SWIFT MT799 dated 14 May 2014 received from the collecting bank via the above mentioned SWIFT address (SWIFT MT799 dated 14 May 2014 was not included in the documentation provided to the Experts).

The message was followed by further SWIFT messages (dated 16 May 2014 and 28 May 2014) in which the remitting bank reiterated its position, refused to pay the charges of USD500, as apparently requested by the collecting bank in its message dated 14 May 2014 (see above), and demanded immediate payment without any deductions.

The remitting bank, in its further tracing SWIFT message (dated 17 June 2014), stated that they learned about an email (dated 9 June 2014, the copy of the e-mail was not provided to the Experts) sent by the client services department of the collecting bank which stated that "original documents were erroneously sent to the branch which were turned over to the drawee". In this message the remitting bank also refuted the claim apparently made by the collecting bank that they assumed no responsibility whatsoever for the documents, which were mailed to an address other than its xxx, address.

The collecting bank informed the remitting bank in its message dated 23 June 2014 that the drawee and the drawer were negotiating on the collection value, however this was denied by the principal in its letter dated 24 June 2014 given to the remitting bank, which in turn informed the collecting bank (SWIFT message dated 24 June 2014) and underscored that the payment (with interest and charges) was to be made through the bank only.

The collecting bank in its SWIFT message dated 27 June 2014 acknowledged receipt of the collection. They also stated that: "as per our broadcast message sent in the past, all the documents are to be sent to the xxx address and not to any branch, the following instruction was not followed by your good bank and instead the documents were sent to the branch. This is an inevitable situation for us, and since our instructions were not followed, a commercial dispute has risen and a penalty of USD 500.00 is to borne by your good bank".

The remitting bank in its SWIFT message dated 30 June 2014 claimed that the collecting bank was in breach of URC 522 sub-article 1 (c) as, if they had opted not to handle the collection, they should have informed the remitting bank without delay. However, no message to that effect was received from the collecting bank. Furthermore, the collecting bank apparently released the documents to the drawee in a breach of the collection instructions. Consequently, the remitting bank reiterated its claim for immediate payment.

The claims made by the remitting bank were further repeated by SWIFT messages dated 11 July 2014 and 29 July 2014. However, the collecting bank only replied on 16 October 2014 stating that: "the drawee and the drawer are negotiating on this collection value".

The Initiator sent (cover letter dated 19 January 2015) a summary of the case from its perspective and its legal position to the four different addresses of the collecting bank.

Issues

1. As the collection instructions were "documents against payment", the collecting bank was bound to observe these express instructions and may only release the documents to the drawee against payment.

2. The fact that the drawee took delivery of the goods by production of the bill of lading was self-evident that the collecting bank had already released the documents to the drawee. It followed that the collecting bank was bound to pay the collection amount under the law of conversion.

3. The claim by the collecting bank that the drawer and the drawee were negotiating over the collection amount was refuted. Any discussion, settlement, arrangement or negotiation between the principal and drawee would not affect the collecting bank´s liability to pay under the collection. This was because under URC 522, the collecting bank was only obliged to follow instructions given by the remitting bank, not any other person, including the drawee.

4. The attempt by the collecting bank to discharge its liability by alleging that it assumed no responsibility for the documents as they were mailed to a branch address, rather than to an address in 'xxx' contrary to its broadcast message sent in the past, was unsustainable and was in breach of the collection mandate accepted by the collecting bank under URC 522.

5. In any event, if the branch of the collecting bank was not responsible for handling the collection, it should have passed the documents to the handling unit in 'xxx' or returned them to the remitting bank, instead of releasing them to the drawee. The fact that the branch instead chose to release the documents to the drawee is obviously a serious breach of the collection mandate accepted by the collecting bank under the URC 522. Accordingly, the collecting bank was fully liable for all the damages suffered by the drawer, which were solely caused by the collecting bank´s gross negligence or wilful misconduct.

Documents submitted

1) Request for the DOCDEX decision addressed to ICC International Centre for Expertise;

2) Copies of e-mails sent by the drawer to the Initiator regarding the collecting bank address;

3) Copy of the collection schedule sent by the remitting bank to the collecting bank (the respondent);

4) Copy of e-mails sent by the freight forwarders to the Initiator regarding the release of the goods to the drawee;

5) Copy of the relevant bill of lading;

6) Copy of the carrier´s tracking and tracing report;

7) Copy of the letter from the Initiator to the remitting bank informing them about the release of the goods to the drawee;

8) Copies of SWIFT messages sent by the remitting bank to the collecting bank (dated 28 April 2014, 12 May 2014, 14 May 2014, 15 May 2014, 16 May 2014, 28 May 2014, 17 June 2014, 24 June 2014, 30 June 2014, 11 July 2014, 28 July 2014, 29 July 2014);

9) Copies of SWIFT messages sent by the collecting bank to the remitting bank (dated 23 June 2014, 27 June 2014, 16 October 2014);

10) Copy of the letter from the Initiator to the remitting bank advising that no negotiations are taking place with the drawee regarding the collection;

11) Copy of the letter dated 19 January 2015 addressed to the four addresses of the collecting bank;

12) Copy of the DOCDEX decision No. 283.

Analysis

The documentary collection was expressly made subject to ICC rules URC 522. As per URC 522 sub-article 1(a): "they are binding on all parties thereto unless otherwise expressly agreed or contrary to the provisions of a national, state or local law and/or regulation which cannot be departed from."

URC 522 sub-article 1(b) states that: "Banks shall have no obligation to handle either a collection or any collection instruction or subsequent related instructions."

However, as per URC 522 sub-article 1 (c): "If a bank elects, for any reason, not to handle a collection or any related instructions received by it, it must advise the party from whom it received the collection or the instructions by telecommunication or, if that is not possible, by other expeditious means, without delay."

It was evident that the collecting bank (i.e. none of the units of the collecting bank which were involved in the handling/communication with the remitting bank) never refused to handle the collection instructions received from the remitting bank, much less "without delay". It was, therefore, construed that the collecting bank fully accepted its role as per URC 522 and the collection instructions and was fully obliged to strictly follow the rules and collection instructions in its entirety.

Collection instructions regarding release of documents were: "documents against payment". As per URC 522 sub-article 4 (a) (i): "Banks are only permitted to act upon the instructions given in such collection instruction and in accordance with these Rules."

The collecting bank, as documentary evidence suggests, released documents to the drawee without obtaining payment of the collection amount and respective interest, in direct breach of the collection instructions and URC 522.

The collecting bank, by releasing documents to the drawee (without payment of the collection amount and interest), which included all originals of the bill of lading, enabled the drawee to access the goods without paying for them. The collecting bank would be, for such an act, liable under the applicable law (law of conversion). However, its applicability, scope and extent of such liabilities were a matter of applicable law and thus outside the purview of this Decision.

URC 522 sub-article 4 (a) (iii) clearly states: "Unless otherwise authorised in the collection instruction, banks will disregard any instructions from any party/bank other than the party/bank from whom they received the collection."

Consequently, any discussion, agreements, partial or full settlement of the goods value, etc. between the principal and the drawee were outside the scope of the collection itself, and therefore entirely irrelevant. The collecting bank must strictly follow the collection instructions received from the remitting bank in compliance with the applicable URC 522 rules. The collecting bank was not allowed to follow any instructions from anybody else, including those from the drawee (unless so expressly authorized by the remitting bank).

The interpretation of the above mentioned rule is very strict. For instance, see the previous DOCDEX Decision No. 283, which concerned non-return of documents, sent for collection under URC 522. The collecting bank argued that the collection amounts were already paid by advance payments via money transfers, allegedly being well-established practice between the drawee and the principal. The Experts in that case held that: "However, even if these payments were done, they were effected outside the scope of these collection transactions and do not have any impact on the liabilities/responsibilities of the collecting bank in relation to the respective collections. Unless the express authority was asked for and obtained by the collecting bank from the remitting bank, the former had no right to release the documents to the drawee without payment under the collections. The URC is not solely a tool benefiting the principal; it is also an important instrument to protect the other parties (i.e. banks), especially when a financing has been made." Experts of this panel fully agree with those observations.

No evidence had been presented to the Experts to confirm that the alleged broadcast (with the information to which unit of the collecting bank documents for collection are to be submitted) was sent and received by the remitting bank in the past. However, even if this was the case, the Experts did not opine that this would constitute a valid justification for the manifest breach of URC 522.

In practice, collections are often sent to branches by remitting banks as instructed by their customers (the principals). Many banks execute (documentary) collections through their branches (which hold the respective account(s) for the drawee, provide relevant credit facilities, etc.). Certainly, other banks might establish a different, more centralized approach, e.g. having specialized processing units. However, it is practically impossible for other banks in different parts of the world to be fully aware of those arrangements, to keep record of each and every relevant broadcast, and to monitor and fully follow all changes to those internal arrangements of other banks. Situations, when documents for collection would still be sent to a branch or a different unit of the collecting bank are practically inevitable.

Each bank is responsible for acts of its branches and other units, as the case may be. If the documents for collection are received by a branch or a unit which is not entitled to handle the collection as per the relevant internal regulations, it has a responsibility to act accordingly (to seek an advice from the relevant specialized unit, to pass the documents to the relevant processing unit, or to decline to handle the collection and to act in accordance with URC 522 sub-article 1(c): "it must advise the party from whom it received the collection or the instructions by telecommunication or, if that is not possible, by other expeditious means, without delay.", and then possibly return the collection documents to the remitting bank).

The collecting bank (the respective branch) clearly did not act in good faith and did not exercise reasonable care as required by URC 522 article 9.

The collecting bank (by its branch) in this case violated URC 522 rules, and the collection instructions, by releasing documents to the drawee without payment. Even if the documents were not released to the drawee, the mere fact that they were not returned to the remitting bank would make them liable for the collection amount and the interest (as concluded by the Experts in the DOCDEX case No. 283, fully agreed to by this Experts´ panel).

This outcome was also supported by other decision made in DOCDEX Case No. 306 and, for example, the conclusion of ICC Banking Commission Opinion R497.

Conclusion

The Respondent by its acts consented to the collection instructions and applicable URC 522 rules. By releasing the documents (and/or not returning them) without payment of collection amount and the relevant interest, the Respondent breached URC 522 and the collection instructions. The Respondent was, therefore, liable for the payment of the collection amount and the relevant interest (calculated as per the collection schedule). Any other damages, compensation for other cost (DOCDEX fee, any legal cost, etc.) were outside the scope of the Decision.

This Decision was rendered unanimously.