Parties to the query

Claimant: Principal

Respondent: Collecting Bank

Detailed description

The Claimant was the principal of eight documentary collections, all subject to the URC 522, including instructions for payment on a sight basis.

The collections were sent to the Respondent by a remitting bank, and each set of documents included a Phytosanitary Certificate.

No payment was made for any of the transactions. However, it was apparently reported that the containers containing the relevant goods had been delivered to the buyer.

At a later date, it was determined that the Respondent had delivered the original Phytosanitary Certificates to the buyer.

It would appear that the buyer used these certificates, along with other records, to obtain release and physical possession of the goods without any payment.

No authorisation for such release was ever requested by the Respondent to the Remitting Bank.

Accordingly, the Claimant demanded the return of all original documents in order to have the right of control over the goods, but the Respondent refused cooperation for several weeks. Eventually, the documents were returned, but without the original Phytosanitary Certificates.

The Respondent admitted that it had released all original phytosanitary certificates to the buyer, but justified such act as normal local practice which allows a collecting bank not to follow the URC 522 sub-article 4 (b) (vii) and, instead, adopt a different practice or take instructions from anyone to release any document.

The main issue, amongst others, was whether the Respondent was liable for violation of the URC 522 due to release of the eight original Phytosanitary Certificate(s), which allowed the buyer to clear customs and obtain possession of eight containers of goods without payment.

Analysis

The URC 522 sub-article 1 (a) states that the rules 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.

It was highlighted that there was no known documentary reason for which the Respondent could release the documents, and that the Respondent should have acted according to the original collections instructions.

Furthermore, unless there were clear legal provisions and or regulatory requirements in the buyer’s country to allow the release of cargo and or goods without original documents and or proof of payment, the Respondent must act in accordance with the original collections instructions.

Based on an analysis of the submitted documentation, no evidence existed that supported the claim by the Respondent that it could adopt a practice to violate the collection instructions and, thereby, release the documents as a “usual and customary practice”.

The URC 522 sub-article 4 (a) states that banks are only permitted to act upon the instructions given in such collection instruction, and in accordance with the URC 522.

It was cited that there was no local practice allowing the Respondent to breach sub-article 4 (a).

The URC 522 sub-article 4 (b) (vii) states that the terms of delivery for documents can only be against payment and/or acceptance, or against other terms and conditions as stipulated in the collection instruction.

There is no URC 522 rule that allows a collecting bank to deliver documents, even partially, failing full payment, unless expressly authorised by the collection instruction or a subsequent amended instruction.

The URC 522 sub-article 5 (a) states that presentation is the procedure whereby the presenting bank makes the documents available to the drawee as instructed.

In view of the fact that the collection instruction explicitly stipulated that the documents could only be released against payment, the documents could only be released to the buyer once full payment had been made by the buyer to the Respondent for subsequent remittance to the remitting bank.

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

Based on the information received, the actions taken by the Respondent did not demonstrate that it had acted in good faith and with the reasonable care required to protect the interests of the Claimant. The Respondent was not in a position to ignore or waive the collections instructions and the relevant provisions of the URC 522.

Decision

The release of documents without payment was a violation of the collection instructions, with the result that the Respondent was liable for the consequences of its acts.

The Respondent was required to release the commercial documents to the Buyer only against full payment of the collection value and to keep custody of unpaid documents.