Parties to the query

Claimant: Principal

Respondent: Presenting Bank

Detailed description

A total of thirteen documentary collections were sent by the remitting bank to the Respondent, all of which were subject to the URC 522.

Ten of the collections included an instruction for the delivery of documents against the drawee’s acceptance and the avalisation of the Respondent.

The remaining three collections included an instruction that the documents were to be released against acceptance of a draft but with no requirement for avalisation by the Respondent.

Apart from providing a statement that certain invoices had been endorsed, the Respondent provided no feedback in respect of acceptance, non-acceptance, or non-payment, nor did it inform the remitting bank of any information regarding avalisation.

Instead, the Respondent alleged fraud against the Claimant, alleging that the drawee had effected payments directly to the Claimant for a number of the collections. However, no evidence of the actual payments was provided.

It was questioned whether the Respondent had handled the collections in accordance with the collection instructions and the URC 522, and whether it was obligated to honour. An allegation of fraud was also raised by the Respondent against the Claimant.

Analysis

Although the process of “avalisation” is not covered by the URC 522, it was stated that this is a widely used and understood practice and falls under the auspices of international standard banking practice, thereby requiring a presenting bank to act in accordance with such instruction and to honour its commitment on the maturity date.

It was pointed out that the statement by the Respondent that certain invoices had been endorsed was ambiguous and left doubt as to actual avalisation by the Respondent.

However, it was clear that many of the drafts were definitely not avalised.

Whilst it was acknowledged that submitted documentation appeared to evidence that application had been made by one of the drawees for certain payments to be made to the Claimant, this did not evidence that any of the payments had actually been made by the Respondent.

The URC 522 sub-article 1 (c) states that 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 which it received the collection or the instructions by telecommunication or, if that is not possible, by other expeditious means, without delay.

The URC 522 sub-article 4 (a) states that all documents sent for collection must be accompanied by a collection instruction indicating that the collection is subject to the URC 522 and giving complete and precise instructions, and that banks are only permitted to act upon the instructions given in such collection instruction, and in accordance with these Rules.

The URC 522 article 9 states that banks will act in good faith and exercise reasonable care.

It was identified that the Respondent had not acted in accordance with the provisions of the above articles/sub-articles of the URC 522 with respect to 10 of the collections for which the Respondent was instructed to only release documents in accordance with the collection instructions.

Furthermore, the Respondent had not provided any status information to the remitting bank, despite numerous chaser messages.

On the basis that the Respondent had chosen to handle the collections, it must provide the necessary status advice as stipulated in the URC 522 sub-article 26 (c).

For clarity in respect to the definition of a presenting bank, reference was made to the URC 522 sub-article 3 (a) (iv) which states that the presenting bank is the collecting bank making presentation to the drawee.

In respect of the allegation of fraud made by the Respondent against the Claimant for three of the collections, it was reiterated that despite application for payment by the drawee, no actual payment could be proved by the Respondent.

Decision

It was concluded that the Respondent was obligated to honour the 10 collections for which banker’s avalisation was required.

The allegation of fraud for the three remaining collections was deemed as outside the scope of the URC 522.