Documents presented under transfer
Letter of credit claiming in Euros even though there was a clause in the credit stipulating that claim was to be made in USD at an agreed rate. (Forward contract set up by the first beneficiary of the transfer L/C and rate agreed with the second benefeficiary). The payment instuction wasn't picked up as a discrepancy.
Payment was made 3 months later at maturity date as per the documentary schedule in Euros, hence the forward contract in place for this lc was not uptaken. In the meantime there was an vast move in the EUR/USD exchange rate.
Would there be any recourse to the foreign bank or the second beneficiary or is there sole reliance on the integrity of second beneficary to return excess funds?
Documentary Schedule presented with incorrect currency claim
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GeraldineDaly
- Posts: 8
- Joined: Fri Apr 05, 2019 5:13 pm
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larryBacon
- Posts: 689
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Documentary Schedule presented with incorrect currency claim
A payment instruction which is not rejected, is, by default, accepted, regardless of the instructions in the DC. In addition, a failure to reject, indicates that the instruction is accepted by the bank to be in full compliance with the DC. Assuming the 7 day rule operates, there is no opportunity for correction of this.
To put it another way, if the Forex movement had been the opposite, would the bank seek out the bene to pay him extra ?
Laurence
To put it another way, if the Forex movement had been the opposite, would the bank seek out the bene to pay him extra ?
Laurence
Documentary Schedule presented with incorrect currency claim
DC IS INDEPENDENT FROM CONTRACTS, FOREX CONTRACT INCLUDED
Purely from the DC perspectives, we agree with Laurence’s opinion that a payment in Euros by an issuing bank in a transferred USD DC is irreversible when the Euro/USA exchange rate swings to the second beneficiary’s favour since a DC is independent from the Forex contract made by the parties, or any contract.
‘HARSHIP’ CLAUSE IN CONTRACT MAY HELP TO RESTORE TRADE EQUILIBRIUM
Having said that, as a consultant, this does not mean the end of the world, if the parties have done their homework and do something to cope with such situations. If they have put into their contracts the ICC “Hardship” terms, then if circumstances change after signing the contracts, making one party earning something he does not deserve, or another party being placed unfavourable, then the trade equilibrium is destroyed. Under such situation, the ICC Rules say that the excess gain from forex should be returned to the losing party in order to restore the trade equilibrium.
UNJUST ENRICHMENT MAY ALSO HELP
A lawyer may suggest the losing party to claim under the doctrine of “unjust enrichment”. But one must determine the applicable law first and then see if there is such a concept in that local law. In USA unjust enrichment is popular but the law of each state may be different, from the Federal Law as well as from the laws of other states.
www.tolee.com
[edited 9/4/02 7:37:51 PM]
Purely from the DC perspectives, we agree with Laurence’s opinion that a payment in Euros by an issuing bank in a transferred USD DC is irreversible when the Euro/USA exchange rate swings to the second beneficiary’s favour since a DC is independent from the Forex contract made by the parties, or any contract.
‘HARSHIP’ CLAUSE IN CONTRACT MAY HELP TO RESTORE TRADE EQUILIBRIUM
Having said that, as a consultant, this does not mean the end of the world, if the parties have done their homework and do something to cope with such situations. If they have put into their contracts the ICC “Hardship” terms, then if circumstances change after signing the contracts, making one party earning something he does not deserve, or another party being placed unfavourable, then the trade equilibrium is destroyed. Under such situation, the ICC Rules say that the excess gain from forex should be returned to the losing party in order to restore the trade equilibrium.
UNJUST ENRICHMENT MAY ALSO HELP
A lawyer may suggest the losing party to claim under the doctrine of “unjust enrichment”. But one must determine the applicable law first and then see if there is such a concept in that local law. In USA unjust enrichment is popular but the law of each state may be different, from the Federal Law as well as from the laws of other states.
www.tolee.com
[edited 9/4/02 7:37:51 PM]
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GeraldineDaly
- Posts: 8
- Joined: Fri Apr 05, 2019 5:13 pm
Documentary Schedule presented with incorrect currency claim
Further Development
It has turned out that the second beneficiary's bank had discounted the drawing at the outset. Therefore, the bank have received the benefit of the fx movement rather than the 2nd beneficiary.
Does this make any difference to the first beneficary's case?
It has turned out that the second beneficiary's bank had discounted the drawing at the outset. Therefore, the bank have received the benefit of the fx movement rather than the 2nd beneficiary.
Does this make any difference to the first beneficary's case?
Documentary Schedule presented with incorrect currency claim
Now even if the bank is the party that is actually benefited from the exchange rate fluctuations, the comments made by us previously may still apply.
QUALIFICATION OF “UNJUST ENRICHMENT”
However, this kind of "unjust enrichment" is not covered by the UCP 500 or the ISBP. So it should be adjudicated by the court of law, and not by ICC DOCDEX that is based on UCP and other ICC Rules.
Is such profit qualified for "unjust enrichment"? This is a legal issue, which only the Judges can determine.
As Laurence has pointed out in his posting, how about if the bank makes a loss? Can it claim on the parties?
This query is a good example to demonstrate that trading is not as simple as one thinks.
www.tolee.com
[edited 9/12/02 5:46:52 PM]
QUALIFICATION OF “UNJUST ENRICHMENT”
However, this kind of "unjust enrichment" is not covered by the UCP 500 or the ISBP. So it should be adjudicated by the court of law, and not by ICC DOCDEX that is based on UCP and other ICC Rules.
Is such profit qualified for "unjust enrichment"? This is a legal issue, which only the Judges can determine.
As Laurence has pointed out in his posting, how about if the bank makes a loss? Can it claim on the parties?
This query is a good example to demonstrate that trading is not as simple as one thinks.
www.tolee.com
[edited 9/12/02 5:46:52 PM]
Documentary Schedule presented with incorrect currency claim
Have I got it right?
1. Transferable Credit issued in EURO.
2. Credit transferred in EURO with condition that reimbursement claim be made in USD.
3. Middleman, First Beneficary had established forward option contract with bank.
4. Reimbursement Claim issued in EURO – though reimbursement claim anticipated in USD as Credit stipulated reimbursement claim should be made in USD
5. Reimbursement claim/schedule received in EURO (though Credit specified claim should be made in USD). As credit transferred in EURO and docs presented in EURO the Nominated Bank did not notice or make any observations but issued notice that settlement or reimbursement would be effected in EURO on maturity date in 3 months – key point.
6. Bank settles reimbursement in EURO on maturity date whereas it was intended at time of issuance of Credit that the settlment would be effected in USD based on a claim for USD as stipulated in the Credit as issued.
Now it transpires that there is a forex loss with the ‘close out’ of the forward option contract? Of course the middleman or first beneficiary does not want to accept this loss on the close out as it was not his fault.
In my view the nominated bank which processed the claim received in EURO, and confirmed the maturity date …and effect reimbursement in EURO should absorb this loss, in the first instance.
However, as the reimbursement claim/schedule was submitted by presenting bank in EURO (though Credit specified reimbursement claim should be made in USD) I believe, that in the second instance, you have the possibility of pursuing the 2nd beneficiary and/or the presenting bank as the Credit as issued had a condition that the currency of the reimbursement claim under the transferred credit be made in USD, whereas they actually made the reimbursement claim in EURO …….
In the context of maintaining good ongoing correspondent banking relations I would not be at all surprised to see you achieve a positive result!
Hope this is of assistance!
Vincent
1. Transferable Credit issued in EURO.
2. Credit transferred in EURO with condition that reimbursement claim be made in USD.
3. Middleman, First Beneficary had established forward option contract with bank.
4. Reimbursement Claim issued in EURO – though reimbursement claim anticipated in USD as Credit stipulated reimbursement claim should be made in USD
5. Reimbursement claim/schedule received in EURO (though Credit specified claim should be made in USD). As credit transferred in EURO and docs presented in EURO the Nominated Bank did not notice or make any observations but issued notice that settlement or reimbursement would be effected in EURO on maturity date in 3 months – key point.
6. Bank settles reimbursement in EURO on maturity date whereas it was intended at time of issuance of Credit that the settlment would be effected in USD based on a claim for USD as stipulated in the Credit as issued.
Now it transpires that there is a forex loss with the ‘close out’ of the forward option contract? Of course the middleman or first beneficiary does not want to accept this loss on the close out as it was not his fault.
In my view the nominated bank which processed the claim received in EURO, and confirmed the maturity date …and effect reimbursement in EURO should absorb this loss, in the first instance.
However, as the reimbursement claim/schedule was submitted by presenting bank in EURO (though Credit specified reimbursement claim should be made in USD) I believe, that in the second instance, you have the possibility of pursuing the 2nd beneficiary and/or the presenting bank as the Credit as issued had a condition that the currency of the reimbursement claim under the transferred credit be made in USD, whereas they actually made the reimbursement claim in EURO …….
In the context of maintaining good ongoing correspondent banking relations I would not be at all surprised to see you achieve a positive result!
Hope this is of assistance!
Vincent
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GeraldineDaly
- Posts: 8
- Joined: Fri Apr 05, 2019 5:13 pm
Documentary Schedule presented with incorrect currency claim
Thanks for the sound advice Vinnie. We agree that the best solution for all parties concerned in terms of bank relations would be to split the difference.