Parties to the query

Claimant: Drawer

Respondent: Collecting Bank

Detailed description

On behalf of the Claimant, the remitting bank sent documents on a collection basis to the Respondent, subject to the URC 522.

Initially the Respondent was asked to avalise the bill of exchange which they declined and, instead, requested that the documents be released against acceptance.

This was not accepted by the remitting bank which stated that the documents were not to be delivered to the drawee but should be kept at the counters of the Respondent at the remitting banks disposal.

A few days later, the remitting bank informed the Respondent to release documents to the drawee against payment in local currency, with the Respondent undertaking to pay in foreign currency after receiving local authorities’ approval.

The Respondent advised that drawee’s written undertaking was duly accepted but failed to pay or return the original documents.

The Claimant informed the remitting bank that documents had been released by the Respondent to the drawee. Despite numerous messages from the remitting bank to the Respondent seeking clarification on this issue, no response was received from the Respondent.

In view of the fact that the Respondent acted outside the authority and instructions given by the remitting bank, confirmation was sought that the Respondent was in breach of its obligation as a collecting bank.

Analysis

The URC 522 sub-article 1 (a) states that the rules shall apply to all collections where such rules are incorporated into the text of the collection instruction.

The initial refusal by the respondent to avalise the bill of exchange was acceptable under the URC 522 sub-article 1 (b) which states that banks have no obligation to handle any collection instructions, and sub-article 1 (c) which states that if a bank elects not to handle a collection instruction, it must advise the party from which it received such instruction, which is exactly what occurred.

Pursuant to the revised collection instructions, the Respondent was only to release the documents to the drawee against payment in local currency. This was in line with the URC article 17 which states that in the case of documents payable in the currency of the country of payment (local currency), the presenting bank must, unless otherwise instructed in the collection instruction, release the documents to the drawee against payment in local currency only if such currency is immediately available for disposal in the manner specified in the collection instruction.

However, if the Respondent was not agreeable to act in accordance with the revised instructions, then it should have informed the remitting bank, which it did not do so. Instead, the Respondent informed the remitting bank that the drawee’s written undertaking had been duly accepted whilst ultimately failing to pay or, alternatively, to return the documents when subsequently so requested by the remitting bank.

Decision

The URC 522 required the Respondent to inform the remitting bank without delay if it chose not to act following its collection instructions. By releasing documents to the drawee without receiving payment, the Respondent did not follow the collection instructions and was liable for this breach and for failing to return the documents it received based on those instructions.