Dear Laurence,
The world is a risky place!
Especially for an importer instructing a bank to issue a shipping guarantee or similar. Therefore the importer should consider it carefully before doing so (knowledge about supplier, commodity, country etc). This is not a game, and actions has a consequence. When you i.e. “interfere” with the L/C instrument, and requires release of the goods before the original b/l is received, you expose yourself to risk.
I can inform you that the local (Danish) applications of release of goods that I know of, is very specific, in stating, that by releasing the goods, the obligation by the bank to pay exists, regardless of any defaults with the documents and/or the goods. Consequently the company (importer) can not refuse to pay.
The “check” you mention, seems logic from practical reasons, but as I have argued above this is different from the examination of documents required by UCP 50 article 13a.
Best regards
Kim
Discrepant Documents and Shipping Guarantee
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KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
Discrepant Documents and Shipping Guarantee
Let's say the documents are enfaced with the following discrepancy:
'all original Bs/L not presented. Instead, a certificate from benef is presented attesting that the originals have been couriered to applicant'
It appears later on that these originals were never received by the applicant and were lost.
Is the issuing bank bound to pay in that case despite that it will be unable to obtain release of its indemnity for missing B/L?
Antoine Samaha
'all original Bs/L not presented. Instead, a certificate from benef is presented attesting that the originals have been couriered to applicant'
It appears later on that these originals were never received by the applicant and were lost.
Is the issuing bank bound to pay in that case despite that it will be unable to obtain release of its indemnity for missing B/L?
Antoine Samaha
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JudithAutié
- Posts: 195
- Joined: Fri Apr 05, 2019 5:20 pm
Discrepant Documents and Shipping Guarantee
I knew it was there somewhere, but just couldn't find it.
In the documents sent for approval for the Moscow Banking Commission there is the clear and unequivocal statement in Opinion 470/TA.578 which reads
quote
In a letter of credit transaction, if an issuing bank is instrumental in the release of the underlying goods, whether by ...or
the issuance of a letter of guarantee,
they wil be obliged to take up the underlying documents, once presented (if not already in their possession) irrespective of any discrepancies contained therein.
unquote
Altho I was not at the Moscow meeting, I presume that this opinion was endorsed at that time.
Who was at the meeting who can confirm the opinion was adopted?
Regards
Judith
[edited 11/10/2004 9:11:41 AM]
In the documents sent for approval for the Moscow Banking Commission there is the clear and unequivocal statement in Opinion 470/TA.578 which reads
quote
In a letter of credit transaction, if an issuing bank is instrumental in the release of the underlying goods, whether by ...or
the issuance of a letter of guarantee,
they wil be obliged to take up the underlying documents, once presented (if not already in their possession) irrespective of any discrepancies contained therein.
unquote
Altho I was not at the Moscow meeting, I presume that this opinion was endorsed at that time.
Who was at the meeting who can confirm the opinion was adopted?
Regards
Judith
[edited 11/10/2004 9:11:41 AM]
Discrepant Documents and Shipping Guarantee
Hi Judith,
This Opinion was not endorsed by the Banking Commission.
The US delegates strongly disagreed with the wording of the conclusion.
So, the Officers of the Banking commission invited further comments from the National Committees to be submitted by 12th November.
The opinion will be "on the table"
again at the next BC meeting.
FYI
TA 575 was also withdrawn for resubmission
This Opinion was not endorsed by the Banking Commission.
The US delegates strongly disagreed with the wording of the conclusion.
So, the Officers of the Banking commission invited further comments from the National Committees to be submitted by 12th November.
The opinion will be "on the table"
again at the next BC meeting.
FYI
TA 575 was also withdrawn for resubmission
Discrepant Documents and Shipping Guarantee
Antoine's post reminded me of case study. Similar scenario in that an indemnity was issued and when documents were presented, the B/Ls (3/3 were required) were missing. Then, a documentary collection arrived with the 3/3 set of B/Ls. So, in order to get the B/Ls to present to the carrier to release the liability under their guarantee, the issuing bank was supposed to pay AGAIN. The issuing bank refused to do this, and the remitting bank came back and said that the issuing/collecting bank was now required to pay as the remitting bank had information from the carrier that an indemnity was issued. What a pickle! It turns out that the beneficiary/drawer was in league with the applicant/drawee to defraud the issuing bank.
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Discrepant Documents and Shipping Guarantee
Thank you Lisa, for another good example of the dangers inherent in this. It does not take much imagination to create a variation of your example, whereby Bills are drawn or endorsed in favour of another party and presented at the port of import after goods have been released under indemnity. The bank indemnity would then be called upon to pay the full value of the goods.
This scenario may or may not involve the importer paying for the Bills under URC. The collecting bank may have no knowledge that payment has already been made, ostensibly against these Bills, by another bank under UCP.
Laurence
This scenario may or may not involve the importer paying for the Bills under URC. The collecting bank may have no knowledge that payment has already been made, ostensibly against these Bills, by another bank under UCP.
Laurence
Discrepant Documents and Shipping Guarantee
As Leo said that US delegates diasgreed with the conclusion regarding a similar case at Moscow Meeting.Their disagreement based on the fact that the indemnity is a case between the issuing bank and shipping company whereas credit conform docs is between issuing bank and benef/confirming bank.
They said if the docs are not compliant,payment would not be done and Their responsibility for the issuance of the indemnity is just to SC not to the benef.
I actually don't agree with this view but I have a question for you.
If you were the Issuing bank and released the goods for value of usd 100.000 to the importer through an indemnity and where you received the docs with the invoice value usd 1.000.000 regarding the same shipment, what would be your action ?
Yahya,
They said if the docs are not compliant,payment would not be done and Their responsibility for the issuance of the indemnity is just to SC not to the benef.
I actually don't agree with this view but I have a question for you.
If you were the Issuing bank and released the goods for value of usd 100.000 to the importer through an indemnity and where you received the docs with the invoice value usd 1.000.000 regarding the same shipment, what would be your action ?
Yahya,
Discrepant Documents and Shipping Guarantee
I have to say I’ve found this discussion very useful indeed. Having considered the different postings and thought about the matter some more, I certainly look upon this ‘issue’ with a very different eye than I did a few days ago.
I think one has to distinguish between the issuing banks rights and obligations in respect of (1) the applicant and (2) the presenter of the documents.
With respect to the applicant, the rights and obligations of the issuing bank will logically be a product of the contract, e.g. of counter-indemnity, that the applicant entered into with the credit issuing bank (CIB) to procure the issuing or joining-in of the indemnity in favour of the carrier to cover it for delivering the goods in the absence of a bill of lading (a ‘bill of lading indemnity’ or ‘BLI’). If the CIB is sensible (see later), the contract will oblige the applicant to accept, or at least give the CIB the right, to take up the documents not withstanding any discrepancies in the documents. (This term will have no bearing on the question of fraud.) Such a contract term must -in logic- relieve the CIB of the duty to examine the documents for compliance, unless exceptional circumstances pertain. Regarding exceptional circumstances, as LisaVC has most helpfully identified, there may be occasions where the CIB needs to examine the documents for compliance (e.g. partial drawing AND outstanding unaccepted amendments or Article 41 considerations). If, in these circumstances, the documents are discrepant then logic again suggests the CIB would notify the presenter of the discrepancies but state that notwithstanding them the CIB is taking them up.
With respect to the presenter, this is where I do my major volte face. The question of the CIB’s obligations and rights with respect to the presenter, if it facilitates release of the goods, is undoubtedly not covered by the UCP and will not be covered by the terms of the credit. The contract with the beneficiary & any nominated bank (& I shall assume one or other is the presenter) simply is for the taking up and settling of facially complying documents or the procedures to be followed for the refusal of non-facially complying ('discrepant')documents. Therefore, if the CIB facilitates release of the goods but refuses discrepant documents, I cannot see how the presenter can sue the CIB for breach of contract (unless they can successfully argue there has been a breach of an implied term of the credit contract*). Ergo, it does not follow that because the CIB has facilitated release of the goods that it is automatically obliged, in law, to take up and settle the documents.
If the CIB does not take up discrepant documents, I believe that the presenter would only have a cause of action against the CIB if it could show it had suffered loss by virtue of the CIB’s actions. In the case of goods delivered against a BLI the cause of the presenter’s loss would, it seems to me, be the carrier delivering the goods to the applicant without a B/L, rather than the CIB having issued or joined-in the BLI. (This would of course be different where, on goods consigned to the CIB, the CIB gave the carrier a delivery order.) Thus, the presenter’s cause of action would lie against the carrier and not the CIB. However, the amount of that loss, as determined by the courts, might -I would have thought- be less than (e.g. sub-standard goods), the same or -quite likely- more than the amount of the drawing (the presenter’s legal costs, for example, could be substantial and might be awarded against the carrier). Once judgment was made against the carrier (assuming it was) the carrier would then logically make demand on the CIB under the BLI. The amount demanded would logically not just include the amount paid to the presenter by the carrier, at the court's order, but also the costs incurred by the carrier, which also might be substantial (e.g. its own legal costs, costs relating the its vessels having been impounded etc.). Thus, the CIB might end up paying substantially more than the amount of the original drawing.
In summary:
1. I do not now consider it axiomatic that a CIB is, in law, obliged to take up the documents if they are discrepant where the CIB has facilitated the release of goods.
2. However, the CIB could find it very expensive if they do not.
3. The CIB’s liability, if any, will:
A. in the case of a BLI, be to the carrier and be a product of the amount of the loss –if any- incurred by the carrier for wrongful delivery (if it is adjudged to have done so) or,
B. in the case of goods consigned to the CIB, the amount of the loss suffered by the presenter by virtue of the CIB giving the carrier a delivery order.
Therefore, my reply to Yahya’s highly pertinent question would be: it all depends.
All the above is a personal opinion given without any liability or responsibility on my part.
*Incidentally, it seems quite reasonable to me that where goods are consigned to a CIB to argue that it is an implied term of the credit contract that the CIB will only authorise the carrier to deliver the goods to the applicant once documents for the value of the goods, as set out in the credit, have been taken up by the CIB.
Toodle pip.
[edited 11/10/2004 9:08:44 PM]
[edited 11/11/2004 7:42:22 AM]
I think one has to distinguish between the issuing banks rights and obligations in respect of (1) the applicant and (2) the presenter of the documents.
With respect to the applicant, the rights and obligations of the issuing bank will logically be a product of the contract, e.g. of counter-indemnity, that the applicant entered into with the credit issuing bank (CIB) to procure the issuing or joining-in of the indemnity in favour of the carrier to cover it for delivering the goods in the absence of a bill of lading (a ‘bill of lading indemnity’ or ‘BLI’). If the CIB is sensible (see later), the contract will oblige the applicant to accept, or at least give the CIB the right, to take up the documents not withstanding any discrepancies in the documents. (This term will have no bearing on the question of fraud.) Such a contract term must -in logic- relieve the CIB of the duty to examine the documents for compliance, unless exceptional circumstances pertain. Regarding exceptional circumstances, as LisaVC has most helpfully identified, there may be occasions where the CIB needs to examine the documents for compliance (e.g. partial drawing AND outstanding unaccepted amendments or Article 41 considerations). If, in these circumstances, the documents are discrepant then logic again suggests the CIB would notify the presenter of the discrepancies but state that notwithstanding them the CIB is taking them up.
With respect to the presenter, this is where I do my major volte face. The question of the CIB’s obligations and rights with respect to the presenter, if it facilitates release of the goods, is undoubtedly not covered by the UCP and will not be covered by the terms of the credit. The contract with the beneficiary & any nominated bank (& I shall assume one or other is the presenter) simply is for the taking up and settling of facially complying documents or the procedures to be followed for the refusal of non-facially complying ('discrepant')documents. Therefore, if the CIB facilitates release of the goods but refuses discrepant documents, I cannot see how the presenter can sue the CIB for breach of contract (unless they can successfully argue there has been a breach of an implied term of the credit contract*). Ergo, it does not follow that because the CIB has facilitated release of the goods that it is automatically obliged, in law, to take up and settle the documents.
If the CIB does not take up discrepant documents, I believe that the presenter would only have a cause of action against the CIB if it could show it had suffered loss by virtue of the CIB’s actions. In the case of goods delivered against a BLI the cause of the presenter’s loss would, it seems to me, be the carrier delivering the goods to the applicant without a B/L, rather than the CIB having issued or joined-in the BLI. (This would of course be different where, on goods consigned to the CIB, the CIB gave the carrier a delivery order.) Thus, the presenter’s cause of action would lie against the carrier and not the CIB. However, the amount of that loss, as determined by the courts, might -I would have thought- be less than (e.g. sub-standard goods), the same or -quite likely- more than the amount of the drawing (the presenter’s legal costs, for example, could be substantial and might be awarded against the carrier). Once judgment was made against the carrier (assuming it was) the carrier would then logically make demand on the CIB under the BLI. The amount demanded would logically not just include the amount paid to the presenter by the carrier, at the court's order, but also the costs incurred by the carrier, which also might be substantial (e.g. its own legal costs, costs relating the its vessels having been impounded etc.). Thus, the CIB might end up paying substantially more than the amount of the original drawing.
In summary:
1. I do not now consider it axiomatic that a CIB is, in law, obliged to take up the documents if they are discrepant where the CIB has facilitated the release of goods.
2. However, the CIB could find it very expensive if they do not.
3. The CIB’s liability, if any, will:
A. in the case of a BLI, be to the carrier and be a product of the amount of the loss –if any- incurred by the carrier for wrongful delivery (if it is adjudged to have done so) or,
B. in the case of goods consigned to the CIB, the amount of the loss suffered by the presenter by virtue of the CIB giving the carrier a delivery order.
Therefore, my reply to Yahya’s highly pertinent question would be: it all depends.
All the above is a personal opinion given without any liability or responsibility on my part.
*Incidentally, it seems quite reasonable to me that where goods are consigned to a CIB to argue that it is an implied term of the credit contract that the CIB will only authorise the carrier to deliver the goods to the applicant once documents for the value of the goods, as set out in the credit, have been taken up by the CIB.
Toodle pip.
[edited 11/10/2004 9:08:44 PM]
[edited 11/11/2004 7:42:22 AM]
Discrepant Documents and Shipping Guarantee
Many thanks to all conributors - all make very interesting reading.
My personal view is that the Documentary Credit and the Shipping Guarantee are 2 different transaction, and although obviously related, need to be treated separately by the bank. If documents are discrepant, then the bank should refuse to pay. The shipper has the shipping guarantee against which to claim payment, and should be the only route for the shipper to obtain reimbursement for the merchandise.
Anthony Busuttil
Malta
My personal view is that the Documentary Credit and the Shipping Guarantee are 2 different transaction, and although obviously related, need to be treated separately by the bank. If documents are discrepant, then the bank should refuse to pay. The shipper has the shipping guarantee against which to claim payment, and should be the only route for the shipper to obtain reimbursement for the merchandise.
Anthony Busuttil
Malta
Discrepant Documents and Shipping Guarantee
Anthony,
I do not understand your comment that ‘The shipper has the shipping guarantee against which to claim payment’. Surely the BLI was issued in favour of the carrier and therefore the shipper does not have any rights under it?
Jeremy
I do not understand your comment that ‘The shipper has the shipping guarantee against which to claim payment’. Surely the BLI was issued in favour of the carrier and therefore the shipper does not have any rights under it?
Jeremy