Not all quieries are covered by rules or opinions. In those situations, I think that good sense prevail. My personal opinion is therefore the following.
Bank A has opened a transferrable L/C. Bank B has notified 1st beneficiary by adding their confirmation. Having accepted to confirm the credit Bank B has already taken it's risks. Bank B has also agree to transfer the credit to a 2nd beneficiaries. I therefore cannot understand why Bank B should not indicate to Bank C that they transfer the credit by adding their confirmation, thus to allow at least 2nd beneficiaries bank to evaluate where their banks and country risks are. In addition to that, why should bank B disclose this fact to Bank C since by doing so it does not change at all it's position having added it's confirmation.
Roland
Confirmation of transferable credit
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Confirmation of transferable credit
Dear Abdulkader,
1. The extract you have quoted from opinion R482 which states that “The type of advice is dependent on the instructions in the original credit as to WHETHER OR NOT THE CREDIT WAS TO BE CONFIRMED AND WHETHER THE ADVISING AND NOMINATED TRANSFERRING BANK AGREED TO SUCH A REQUEST.” does not, in my opinion, infer that the transferred potion has to be confirmed should the transferring bank has confirmed the original credit. The idea is that the original credit should contain instructions from the issuing bank to confirm the credit or any portion thereon. Is the crucial because some bank may consider the transferred potion as a separate credit and may confirm such transferred potion upon the request of the beneficiary.
2. As for confirmation charges, I would look to it in a different way. If the beneficiary requested confirmation then the confirming bank would be entitled for the CC for the whole amount regardless of any transferred portion. The beneficiary who substitutes his invoices may avail of the original credit far much better than the second beneficiary who could be paid by the transferring bank in his capacity as a nominated bank.
However, this begets a difficult question under the following scenario.
What if the second beneficiary submitted complying documents to the transferring bank and during the interval of substitution of documents by the first beneficiary, the issuing bank financially deteriorated, could the first beneficiary avail of the original confirmed credit? Definitely yes, however if the credit was not confirmed
3. For the sake of clarity I have allocated to your three banks scenario bank the following codes.
Issuing bank X
Confirming bank Y
Advising nominated bank Z
I think that Z should not be so naïve to advise the transferred portion in the manner you stated, otherwise it may run the risks of having communicated wrongful information to the second beneficiary and therefore might eventually be liable towards him for what he has acted upon.
However, on another aspect to this scenario, is that we have two banks:
Issuing bank X
Confirming/transferring bank Y
What if? Y bank confirmed the credit to the first beneficiary, transferred 85% of the credit to a second beneficiary without adding confirmation. Second beneficiary submitted compliant documents to the transferring bank and became entitled for payment under the transferred potion. However buy the time the first beneficiary substituted his invoices, the issuing bank has sustained a major financial drawback or there was an upheaval in the country of the issuing bank and therefore the reimbursement under original credit was minimal, would the transferring bank pay against the documents of the first beneficiary and abstain from paying to the second?
Although from strictly letters of credit point of view I realize that this would seem acceptable, I find it unreasonable to deprive second beneficiary from availing if what he has practically implemented; shipping a merchandise worth of 85% of the credit.
I don’t mind if this scenario might be construed as against my argument, because my intention is to get the maximum benefit from this discussion.
Dear Leo
I am not against the confirming the transferred portion that why in my first post I said, “While I do understand that this might be a course of normal action this issue is not covered specifically in UCP 500 as such.”
My argument is about rights of the transferring bank to add its confirmation or not.
1. The extract you have quoted from opinion R482 which states that “The type of advice is dependent on the instructions in the original credit as to WHETHER OR NOT THE CREDIT WAS TO BE CONFIRMED AND WHETHER THE ADVISING AND NOMINATED TRANSFERRING BANK AGREED TO SUCH A REQUEST.” does not, in my opinion, infer that the transferred potion has to be confirmed should the transferring bank has confirmed the original credit. The idea is that the original credit should contain instructions from the issuing bank to confirm the credit or any portion thereon. Is the crucial because some bank may consider the transferred potion as a separate credit and may confirm such transferred potion upon the request of the beneficiary.
2. As for confirmation charges, I would look to it in a different way. If the beneficiary requested confirmation then the confirming bank would be entitled for the CC for the whole amount regardless of any transferred portion. The beneficiary who substitutes his invoices may avail of the original credit far much better than the second beneficiary who could be paid by the transferring bank in his capacity as a nominated bank.
However, this begets a difficult question under the following scenario.
What if the second beneficiary submitted complying documents to the transferring bank and during the interval of substitution of documents by the first beneficiary, the issuing bank financially deteriorated, could the first beneficiary avail of the original confirmed credit? Definitely yes, however if the credit was not confirmed
3. For the sake of clarity I have allocated to your three banks scenario bank the following codes.
Issuing bank X
Confirming bank Y
Advising nominated bank Z
I think that Z should not be so naïve to advise the transferred portion in the manner you stated, otherwise it may run the risks of having communicated wrongful information to the second beneficiary and therefore might eventually be liable towards him for what he has acted upon.
However, on another aspect to this scenario, is that we have two banks:
Issuing bank X
Confirming/transferring bank Y
What if? Y bank confirmed the credit to the first beneficiary, transferred 85% of the credit to a second beneficiary without adding confirmation. Second beneficiary submitted compliant documents to the transferring bank and became entitled for payment under the transferred potion. However buy the time the first beneficiary substituted his invoices, the issuing bank has sustained a major financial drawback or there was an upheaval in the country of the issuing bank and therefore the reimbursement under original credit was minimal, would the transferring bank pay against the documents of the first beneficiary and abstain from paying to the second?
Although from strictly letters of credit point of view I realize that this would seem acceptable, I find it unreasonable to deprive second beneficiary from availing if what he has practically implemented; shipping a merchandise worth of 85% of the credit.
I don’t mind if this scenario might be construed as against my argument, because my intention is to get the maximum benefit from this discussion.
Dear Leo
I am not against the confirming the transferred portion that why in my first post I said, “While I do understand that this might be a course of normal action this issue is not covered specifically in UCP 500 as such.”
My argument is about rights of the transferring bank to add its confirmation or not.
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Confirmation of transferable credit
Dear Hatem,
In my opinion, in a transferable credit, the confirming bank carries the same obligation of the issuing bank whether it’s towards the 1st beneficiary or the 2nd beneficiary. The designated transferring bank that has added its confirmation to the original credit doesn’t need another approval from the issuing bank to disclose to the 2nd beneficiary that it has added its confirmation to the original credit. It may not also refuse the 1st beneficiary’s request to indicate in the transferred portion that it has added its confirmation to the original credit.
I would agree that the transferred portion may be confirmed by another third bank if allowed in the original credit (e.g. advising bank of the 2nd beneficiary if different from the confirming bank of the original credit) but it would be a redundant request if the confirming bank of the original credit is requested to do so by the issuing bank.
If a third bank is the advising and designated transferring bank, it should indicate in its advice of transfer the issuing bank and the confirming bank (if any) of the original credit – specially if it has been requested to do so by the 1st beneficiary. Such designated transferring bank would not, in my opinion, require to obtain the confirming bank’s approval to disclose that to the 2nd beneficiary.
regards
[edited 3/5/03 1:51:15 PM]
In my opinion, in a transferable credit, the confirming bank carries the same obligation of the issuing bank whether it’s towards the 1st beneficiary or the 2nd beneficiary. The designated transferring bank that has added its confirmation to the original credit doesn’t need another approval from the issuing bank to disclose to the 2nd beneficiary that it has added its confirmation to the original credit. It may not also refuse the 1st beneficiary’s request to indicate in the transferred portion that it has added its confirmation to the original credit.
I would agree that the transferred portion may be confirmed by another third bank if allowed in the original credit (e.g. advising bank of the 2nd beneficiary if different from the confirming bank of the original credit) but it would be a redundant request if the confirming bank of the original credit is requested to do so by the issuing bank.
If a third bank is the advising and designated transferring bank, it should indicate in its advice of transfer the issuing bank and the confirming bank (if any) of the original credit – specially if it has been requested to do so by the 1st beneficiary. Such designated transferring bank would not, in my opinion, require to obtain the confirming bank’s approval to disclose that to the 2nd beneficiary.
regards
[edited 3/5/03 1:51:15 PM]
Confirmation of transferable credit
This is very interesting issue. The answer is simple - at least in my view -there is only one L/C. This Credit was confirmed by the nominated transferring bank. If the confirming bank accepts the request to transfer the L/C from the first beneficiary, then it transfers the Credit according to its instructions not deviating from the article 48. As the Credit was already confirmed, it can transfer only confirmed (or portion of ) Credit.
Pavel Andrle
[edited 3/17/03 3:52:06 PM]
Pavel Andrle
[edited 3/17/03 3:52:06 PM]