Payment due after expiry of L/C

[JudithAutié]

An L/C was opened by an European branch of a foreign country and confirmed by a French bank, validity May 1st 2006.

The credit was available by mixed payment, and 15 pct was payable as follows :

"15 pct of fca amount payable against presentation of final acceptance certificate issued by ....(applicants) but latest 24 months after shipment date, which ever comes earlier even if this L/C has expired "

Confirming bank is refusing to pay, since L/C being expired they state the credit has no legal existance and therefore their undertaking is caduc.

Issuing bank also has not paid.

Any opinions?
Thanks
Judith

[DimitriScoufaridis]

Judith,

I have seen various versions of such credits where the applicant has the upper hand since he is the one issuing the certificate, be it acceptance or authorization for payment. Unfortunately a lot of them are poorly structured and this why at the time of payment problems arise. I believe there are a couple of points that need to be clarified here:

1. Presentation of the final acceptance certificate. When? During the LC validity?
2. If the acceptance certificate is not presented within the LC validity are you saying that payment is then required to be made clean, i.e. 24 months after shipment date? I’m assuming the shipment date is known to you.

Dimitri

[KimChristensen]

Dear Judith,

I agree with Dimitri – and have in fact had many such cases where that last part – for some reason –seems to be causing problems

I am not 100% sure about this one – but feel confident about the following:

“Expiry” relates to the date for presentation (UCP 600 sub-article 6(d)(i)).
In this case there are two situations that would trigger the issuing (and confirming) banks obligation to pay the 15%:

1: The presentation of the acceptance certificate, or
2: 24 months after shipment date.

So even where no acceptance certificate is presented the issuing and confirming bank should pay 24 months after shipment date (I assume determined at the presentation of the transport document).

The fact that the payment date is after the expiry of the LC does not change the payment obligation.
The LC even says “even if this L/C has expired” – so the position of the issuing and confirming banks makes no sense. It would be like arguing that the issuing bank would not be obligated to pay on a deferred payment LC where the date of maturity lies after the date of expiry … not right

Best regards
Kim

[DanielD]

Despite the fact some banks do it, common sense dictates that the balance of 15% be not confirmed by the nominated bank. The reason is the one described by Dimitri.
Daniel

[NigelHolt]

Judith,

The words ‘even if this L/C has expired’ would seem to me strongly to suggest the issuing bank envisaged having a ‘post-expiry date’ obligation. With respect to the confirming bank, if they did not make clear documents had to be presented on or before expiry they are logically in the same boat. Can’t be more definite than that.
[edited 9/25/2008 4:48:37 PM]

[JudithAutié]

Thanks for all your comments

I also think that since the L/C was very specific about payment after expiry date, and particularly since it did not require presentation of any document for this "default" payment, that both the issuing bank and the confirming bank still have an obligation for payment.

If I were the confirming bank, I would have specified that my confirmation would cease on expiry date, if I did not wish to pay after expiry. Absent such a restriction on my confirmation, I would consider that my undertaking to pay extended up to the date payment was due.

Thanks again for your imput.
Judith