THIS IS A FRESH QUERY WE RECEIVED WHICH I BELIEVE GIVE A BLOOD INJECTION TO THE ORIGINAL ONE STARTED BY LAURENCE. MAY GOD BLESS US ALL!
Has an advising bank A got the right to insert a clause to the LC
they advised which reads “This credit is valid only when used in conjunction with our notification of LC advice No. 12345 dated 2 Jan 02”? Does it mean that the negotiating bank N must sight A's notification advice together with the actual credit before they can consider negotiating the L/C?
Advising Bank's additional requirements
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Advising Bank's additional requirements
The Advising Bank A is going too far by adding special terms in the DC and asking for presentation of an additonal document not specified in the DC.
(1) Bank A has no right to determine whether the DC is valid or not, since it has no payment undertaking in the DC. This is the right for the Issuing Bank, the issuer, not the adviser, which is only a post office box.
(2) "If it does as it is told, it is safe; if it declines to do anything else, it is safe; if it departs from the conditions laid down, it acts at its own risk". This is the famous dictum by Lord Sumner (some sharp-eyed participants in our workshops would query whether "Sumner" is a typo error. Well it is certainly not! We have checked with many textbooks and the Lloyd' Law Report.) in the famous UK case of Equitable Trust Co. of New York v. Dawson Partners Ltd.
(3) Such terms and the additional document are not valid and hence they are not enforceable by other parties because the party that issues them, Advising Bank A, has no capacity to act.
(4) If we were the Beneficiary, we would simply ignore such invalid terms and additional document and present to the issuing bank directly, which is a right for the Beneficiary.
(5) The Negotiating N, as it is not also the Advising Bank A, may ignore such terms and additional document and may also present directly to the Issuing Bank.
Disclaimers
The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.
http://www.tolee.com
[edited 1/3/02 5:38:51 PM]
(1) Bank A has no right to determine whether the DC is valid or not, since it has no payment undertaking in the DC. This is the right for the Issuing Bank, the issuer, not the adviser, which is only a post office box.
(2) "If it does as it is told, it is safe; if it declines to do anything else, it is safe; if it departs from the conditions laid down, it acts at its own risk". This is the famous dictum by Lord Sumner (some sharp-eyed participants in our workshops would query whether "Sumner" is a typo error. Well it is certainly not! We have checked with many textbooks and the Lloyd' Law Report.) in the famous UK case of Equitable Trust Co. of New York v. Dawson Partners Ltd.
(3) Such terms and the additional document are not valid and hence they are not enforceable by other parties because the party that issues them, Advising Bank A, has no capacity to act.
(4) If we were the Beneficiary, we would simply ignore such invalid terms and additional document and present to the issuing bank directly, which is a right for the Beneficiary.
(5) The Negotiating N, as it is not also the Advising Bank A, may ignore such terms and additional document and may also present directly to the Issuing Bank.
Disclaimers
The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.
http://www.tolee.com
[edited 1/3/02 5:38:51 PM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Advising Bank's additional requirements
My original posting concerned what I consider as an extreme example of advising banks adding spurious clauses to L/Cs, without authority to do so. Hatem's example may not be as easy to deal with as suggested by T.O Lee. If the L/C is presented to the negotiating bank with a superimposed clause from the advising bank to the effect that this L/C is not valid unless accompanied by the advising bank's notification, the negotiating bank cannot determine without sight of bank A's notification whether such notification has any bearing on the L/C. It may be, e.g., that such notification is based on a pre-advice and is contingent on the establishment of the authenticity of the issuer of the L/C.
Thus we have a "Catch 22" situation where bank N should not need sight of the notification from bank A, but the only way to be sure of this is to sight the notification !
OTHER EXAMPLES
Some banks take it upon themselves to rewrite the UCP. I have seen a standard L/C advice letter containing clauses such as :
1. This letter of advice must be attached to all presentations ....
2. All original documents presented must be headed original ....
The first one attempts to impose unnecessary work on the beneficiary. In cases where the advising and negotiating banks are one, although attachment of the advising letter is unnecessary, the absence of such would result in more work for the beneficiary in arguing with the advising/negotiating bank. In my experience, if the bank displays its lack of expertise in insisting on such attachment, any logical arguments with them are likely to be a waste of time.
Again the second one imposes a condition contrary to the UCP, and uncalled for in the issued L/C. Similarly, where the advising and negotiating bank are one, it may involve the beneficiary in less work to comply with the unauthorised "amendment" to the L/C than to attempt to demonstrate the error to the advising bank.
The difficulty for the beneficiary is similar to my original posting where he does not have the option of requesting an amendment deleting the requirement for originals to be headed "Original", as this does not exist as a requirement of the L/C as issued.
Laurence
Thus we have a "Catch 22" situation where bank N should not need sight of the notification from bank A, but the only way to be sure of this is to sight the notification !
OTHER EXAMPLES
Some banks take it upon themselves to rewrite the UCP. I have seen a standard L/C advice letter containing clauses such as :
1. This letter of advice must be attached to all presentations ....
2. All original documents presented must be headed original ....
The first one attempts to impose unnecessary work on the beneficiary. In cases where the advising and negotiating banks are one, although attachment of the advising letter is unnecessary, the absence of such would result in more work for the beneficiary in arguing with the advising/negotiating bank. In my experience, if the bank displays its lack of expertise in insisting on such attachment, any logical arguments with them are likely to be a waste of time.
Again the second one imposes a condition contrary to the UCP, and uncalled for in the issued L/C. Similarly, where the advising and negotiating bank are one, it may involve the beneficiary in less work to comply with the unauthorised "amendment" to the L/C than to attempt to demonstrate the error to the advising bank.
The difficulty for the beneficiary is similar to my original posting where he does not have the option of requesting an amendment deleting the requirement for originals to be headed "Original", as this does not exist as a requirement of the L/C as issued.
Laurence
Advising Bank's additional requirements
My personal views, without responsibility/liability, are:
I think it is important to distinguish between an advising bank adding conditions to the credit instrument itself (which I would deprecate) and an advising bank laying down additional conditions that must be met before it would be prepared to carry out its nominated bank role. This is what I believe Abdulkader was saying. I certainly do not see any legal barrier to a bank doing this on an unconfirmed credit (I do not regard the fact that it may be inconvenient to the beneficiary as being the overriding factor; the advising bank must look to its own interests first and foremost). Also, while -given the terms of sub-Article 9b- I can see theoretical objections to a nominated bank making its confirmation conditional on ‘extra-credit’ requirements being met, I cannot see in practice this should be a legal problem provided those requirements were not inconsistent with the credit provisions. In other words, I do not believe the issuing bank could escape liability to the nominated bank for a complying presentation in this situation.
Also, I would have thought many of these ‘extra-credit’ requirements were, in fact, merely re-minders/clarifications of the credit provisions. It is, for example, quite common for credits to include endorsement provisions (previous discussions refer). In addition, following on from the ‘Glencore’ case, the view was formed -at least in the UK- that in order to be treated as an original document, and thus compliant with sub-Article 20b under English law, any non-hand-written or non-typed document had to bear the word ‘original’. Despite the ICC ‘Decision’ regarding originality and the ‘Kredietbank’ case, many U.K. banks still seem to hold to this view. Pointing this out at the advising stage reduces the chances of rejection, which is in the beneficiary’s interest.
I think it is important to distinguish between an advising bank adding conditions to the credit instrument itself (which I would deprecate) and an advising bank laying down additional conditions that must be met before it would be prepared to carry out its nominated bank role. This is what I believe Abdulkader was saying. I certainly do not see any legal barrier to a bank doing this on an unconfirmed credit (I do not regard the fact that it may be inconvenient to the beneficiary as being the overriding factor; the advising bank must look to its own interests first and foremost). Also, while -given the terms of sub-Article 9b- I can see theoretical objections to a nominated bank making its confirmation conditional on ‘extra-credit’ requirements being met, I cannot see in practice this should be a legal problem provided those requirements were not inconsistent with the credit provisions. In other words, I do not believe the issuing bank could escape liability to the nominated bank for a complying presentation in this situation.
Also, I would have thought many of these ‘extra-credit’ requirements were, in fact, merely re-minders/clarifications of the credit provisions. It is, for example, quite common for credits to include endorsement provisions (previous discussions refer). In addition, following on from the ‘Glencore’ case, the view was formed -at least in the UK- that in order to be treated as an original document, and thus compliant with sub-Article 20b under English law, any non-hand-written or non-typed document had to bear the word ‘original’. Despite the ICC ‘Decision’ regarding originality and the ‘Kredietbank’ case, many U.K. banks still seem to hold to this view. Pointing this out at the advising stage reduces the chances of rejection, which is in the beneficiary’s interest.
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Advising Bank's additional requirements
Jeremy,
I agree that many UK banks adopt the "Glencore" position regarding original documents instead of the ICC Decision. I am of the opinion that this may in the main be due to Glencore receiving far more publicity and therefore being more widely known than the ICC Decision.
However, my main objection concerns banks who add clauses to L/Cs without the authority to do so. For example, if advising banks favour the Glencore position over the ICC Decision, they are at liberty to communicate their position to prospective beneficiaries. In my opinion, they are not entitled to add conditions to the L/C to this effect, which I have seen done.
THE FOOT IN THE DOOR
The effect of some of these unwarranted additions to the L/Cs may be minimal, but if we tacitly accept them, we establish the principle by default that they are entitled to take such actions.
Laurence
I agree that many UK banks adopt the "Glencore" position regarding original documents instead of the ICC Decision. I am of the opinion that this may in the main be due to Glencore receiving far more publicity and therefore being more widely known than the ICC Decision.
However, my main objection concerns banks who add clauses to L/Cs without the authority to do so. For example, if advising banks favour the Glencore position over the ICC Decision, they are at liberty to communicate their position to prospective beneficiaries. In my opinion, they are not entitled to add conditions to the L/C to this effect, which I have seen done.
THE FOOT IN THE DOOR
The effect of some of these unwarranted additions to the L/Cs may be minimal, but if we tacitly accept them, we establish the principle by default that they are entitled to take such actions.
Laurence
Advising Bank's additional requirements
Laurence,
ADVISING BANK IS DICKING ITS OWN GRAVE
We have to warn those advising banks that have the habit of adding or changing the terms in the DC they advise without the approval or knowledge of the issuing bank. They are one foot in the grave.
BEING DRAGGED AS A PARTY IN A LAWSUIT
In case of trade disputes, the parties may drag the advising bank into the lawsuits and the issuing bank may say to the advising bank: "Hey! This is not my DC! You add something on my DC without my approval and knowledge". The other parties may also say:" Hey!This is also not the DC that we should have got!".
The situation is more serious if the DC has been transferred or against which a baby DC has been issued. The advisng bank may also face lawsuits from the transferring bank as well as the baby DC issuing bank, which may not necessarily be the same advising bank, although normally they should be the same bank.
From a risk management point of view, this is a disaster.
http://www.tolee.com
[edited 1/9/02 3:46:12 AM]
ADVISING BANK IS DICKING ITS OWN GRAVE
We have to warn those advising banks that have the habit of adding or changing the terms in the DC they advise without the approval or knowledge of the issuing bank. They are one foot in the grave.
BEING DRAGGED AS A PARTY IN A LAWSUIT
In case of trade disputes, the parties may drag the advising bank into the lawsuits and the issuing bank may say to the advising bank: "Hey! This is not my DC! You add something on my DC without my approval and knowledge". The other parties may also say:" Hey!This is also not the DC that we should have got!".
The situation is more serious if the DC has been transferred or against which a baby DC has been issued. The advisng bank may also face lawsuits from the transferring bank as well as the baby DC issuing bank, which may not necessarily be the same advising bank, although normally they should be the same bank.
From a risk management point of view, this is a disaster.
http://www.tolee.com
[edited 1/9/02 3:46:12 AM]
Advising Bank's additional requirements
Laurence,
When it comes to an advising bank adding conditions to a credit instrument, I believe you, T.O. and I are in accord.
As to Glencore, from my discussions with other UK clearing banks, the problem is not lack of publicity for the ICC Decision, but whether:
1) The principles enunciated in the Kredietbank case by the Court of Appeal can be relied upon, given that -to some- they appear to conflict with the earlier judgement given by the Court of Appeal in the Glencore case;
2) The ICC ‘Decision’ is effective under English law, given it is an interpretation of a sub-Article on which the English courts have already ruled, i.e. the ICC Decision cannot overrule English law. Matters are not helped by the Decision demonstrably contradicting sub-Article 20b in at least one respect.
Regards, Jeremy
When it comes to an advising bank adding conditions to a credit instrument, I believe you, T.O. and I are in accord.
As to Glencore, from my discussions with other UK clearing banks, the problem is not lack of publicity for the ICC Decision, but whether:
1) The principles enunciated in the Kredietbank case by the Court of Appeal can be relied upon, given that -to some- they appear to conflict with the earlier judgement given by the Court of Appeal in the Glencore case;
2) The ICC ‘Decision’ is effective under English law, given it is an interpretation of a sub-Article on which the English courts have already ruled, i.e. the ICC Decision cannot overrule English law. Matters are not helped by the Decision demonstrably contradicting sub-Article 20b in at least one respect.
Regards, Jeremy