A senior banker made a statement while delivering a training course on trade finance that "if the letter of credit is advised to a correspondent bank (advising bank) who in turn is instructed to route the L/C to the beneficiary through another bank (advise through bank)then this final bank is just handling the L/C and consequently the 7 banking business days for advising the beneficiary on the fate of documemts does not apply to that bank". The L/C is subject to UCP500
I would like to share opinions on this stunning statement.
[edited 7/1/01 10:09:44 PM]
Advise Through Bank
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AbdullahAlSugair
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larryBacon
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Advise Through Bank
There is a danger that this statement is taken out of context. There can only be one advising bank, so this must first be determined. Then the nominated bank must be determined (unless it is open). The maximum 7 banking days lies with the nominated bank, not the advising bank (Article 13 b).
Advise Through Bank
TWO ADVISING BANKS, POSSIBLE BUT RARE
It is possible that two advising banks may be involved under certain special situations, such as for the first advising bank, there is no branch in the place of the beneficiary. This issue comes in ocassionally in the ICC Banking Commission casual discussion forum and LC experts present admit that two advising banks are possible, although this is quite rare.
DEFINITION OF A NOMINATED BANK
The definition of a nominated bank (most participants, particularly the traders, to our LC workshops are not aware of this) is in UCP 500 sub Article 10 (b). Hence an advising bank is NOT a nominated bank, as rightly pointed out by Mr. Bacon above. If it is, it is merely due to the fact that this same bank is ALSO a nominated paying, deferred paying, accepting or negotiating bank.
UCP 500 sub Articles 13 (b), 14 (b) & (d), regarding refusal notice, are applicable to the issuing bank, confirming bank and the nominated bank only. Sub Article 14 (e), regarding sanctions and preclusion, applies to the issuing bank and the confirming bank only (NOT ALSO to the nominated bank this time because it is not a prime payment obligator. It is an agent of the issuing bank to perform on its behalf its payment obligation overseas). Articles 13 & 14 therefore do not concern the advising bank, although the same advising bank may take up other roles such as being ALSO the nominated bank or confirming bank.
Thinking logically, an advising bank has no duty to examine the documents for this role, then how can it be required to give refusal notice? It can only forward the refusal notice message from the issuing bank, confirming bank or the nominated bank, to the beneficiary, its customer (This is particularly so for the second advising bank).
As far as an advising bank is concerned, UCP 500 is silent on the timing and manner in forwarding a refusal notice. Under such circumstance, this would be governed by the local or applicable law.
DUE DILIGENCE AS A BANKER'S DUTY
However, UCP 500 is not everything. It is wrong to look to the UCP 500 to resolve all the problems, as we have said many times. From our view, a bank, besides taking "reasonable care", must ALSO exercise "due diligence", according to a "vintage" collection in our private consultancy library - ICC Publication "Special Report Due Diligence" by the Intrernational Maritime Bureau, an ICC organisation.
So as an advising bank, it must perform the forwarding of the refusal notice, a very important message, with due diligence, although this is not mentioned in the UCP 500.
As we are not a judge, we would only guess that a judge may require an advising bank to pass on this important refusal notice message "without delay" to fulfill the advising bank's "due diligence" duty. This may be even shorter than "a reasonable time not to exceed 7 banking days" under the UCP 500. At the end of the day, the advising bank (whether it is the first or the second advising bank) has to answer to the court why it takes "three banking days safe harbor" (famous banking practice originated from the USA. By the way, do you agree that "Pearl Harbor", which is now on the movie screen, is not a safe USA harbor, at least during 1939-42?) to forward such a simple message to the beneficiary, its valued customer for which it owes a due diligence duty.
We are from www.tolee.com
[edited 7/3/01 5:03:46 AM]
It is possible that two advising banks may be involved under certain special situations, such as for the first advising bank, there is no branch in the place of the beneficiary. This issue comes in ocassionally in the ICC Banking Commission casual discussion forum and LC experts present admit that two advising banks are possible, although this is quite rare.
DEFINITION OF A NOMINATED BANK
The definition of a nominated bank (most participants, particularly the traders, to our LC workshops are not aware of this) is in UCP 500 sub Article 10 (b). Hence an advising bank is NOT a nominated bank, as rightly pointed out by Mr. Bacon above. If it is, it is merely due to the fact that this same bank is ALSO a nominated paying, deferred paying, accepting or negotiating bank.
UCP 500 sub Articles 13 (b), 14 (b) & (d), regarding refusal notice, are applicable to the issuing bank, confirming bank and the nominated bank only. Sub Article 14 (e), regarding sanctions and preclusion, applies to the issuing bank and the confirming bank only (NOT ALSO to the nominated bank this time because it is not a prime payment obligator. It is an agent of the issuing bank to perform on its behalf its payment obligation overseas). Articles 13 & 14 therefore do not concern the advising bank, although the same advising bank may take up other roles such as being ALSO the nominated bank or confirming bank.
Thinking logically, an advising bank has no duty to examine the documents for this role, then how can it be required to give refusal notice? It can only forward the refusal notice message from the issuing bank, confirming bank or the nominated bank, to the beneficiary, its customer (This is particularly so for the second advising bank).
As far as an advising bank is concerned, UCP 500 is silent on the timing and manner in forwarding a refusal notice. Under such circumstance, this would be governed by the local or applicable law.
DUE DILIGENCE AS A BANKER'S DUTY
However, UCP 500 is not everything. It is wrong to look to the UCP 500 to resolve all the problems, as we have said many times. From our view, a bank, besides taking "reasonable care", must ALSO exercise "due diligence", according to a "vintage" collection in our private consultancy library - ICC Publication "Special Report Due Diligence" by the Intrernational Maritime Bureau, an ICC organisation.
So as an advising bank, it must perform the forwarding of the refusal notice, a very important message, with due diligence, although this is not mentioned in the UCP 500.
As we are not a judge, we would only guess that a judge may require an advising bank to pass on this important refusal notice message "without delay" to fulfill the advising bank's "due diligence" duty. This may be even shorter than "a reasonable time not to exceed 7 banking days" under the UCP 500. At the end of the day, the advising bank (whether it is the first or the second advising bank) has to answer to the court why it takes "three banking days safe harbor" (famous banking practice originated from the USA. By the way, do you agree that "Pearl Harbor", which is now on the movie screen, is not a safe USA harbor, at least during 1939-42?) to forward such a simple message to the beneficiary, its valued customer for which it owes a due diligence duty.
We are from www.tolee.com
[edited 7/3/01 5:03:46 AM]
Advise Through Bank
I consider any responsibility of an advising bank to pass a notice to the effect that documents are refused “without delay” as quite different to the “reasonable time” issue for giving a refusal notice and so the reasoning re.”safe harbour” etc. as inappropriate.
Pavel Andrle
Pavel Andrle
Advise Through Bank
HASTY REMARKS MAY LEAD TO CONFUSIONS
Mr. Pavel Andrle's remarks appear to respond to our previous opinions. If that is the case, many thanks for his concern and care about our opinions. However, we would request him to read carefully our whole message and not to interpret words in isolation before he makes any remarks thereon which otherwise may create confusions amongst viewers on what we are trying to say.
We welcome disagreements which enable all of us to learn and grow but misunderstanding, particularly comments based on misunderstanding (arising out of generalisation, assumptions, interpret in isolation and the like) would not be desirable.
"DUE DILIGENCE" (NOT "WITHOUT DELAY", "REASONABLE TIME" OR "SAFE HARBOR") FOR AN ADVISING BANK
In our previous opinions, we are actually trying to say that the advising bank is NOT involved in either "without delay", "reasonable time" or "safe harbor" isssues under Articles 13 & 14 of UCP 500 DESPITE these words ARE USED in our message as EXAMPLES.
The duty for an advising bank is "DUE DILIGENCE" (on top of traditional "reasonable care") as required by certain local legislations and a supporting publication from ICC has been quoted in our opinions. This is in fact what we are trying to convey. It is then up to a court of law to adjudicate what "due diligence" actually means - "without delay", "real time" or something else?
We are from http://www/tolee.com
[edited 8/19/01 3:59:24 PM]
Mr. Pavel Andrle's remarks appear to respond to our previous opinions. If that is the case, many thanks for his concern and care about our opinions. However, we would request him to read carefully our whole message and not to interpret words in isolation before he makes any remarks thereon which otherwise may create confusions amongst viewers on what we are trying to say.
We welcome disagreements which enable all of us to learn and grow but misunderstanding, particularly comments based on misunderstanding (arising out of generalisation, assumptions, interpret in isolation and the like) would not be desirable.
"DUE DILIGENCE" (NOT "WITHOUT DELAY", "REASONABLE TIME" OR "SAFE HARBOR") FOR AN ADVISING BANK
In our previous opinions, we are actually trying to say that the advising bank is NOT involved in either "without delay", "reasonable time" or "safe harbor" isssues under Articles 13 & 14 of UCP 500 DESPITE these words ARE USED in our message as EXAMPLES.
The duty for an advising bank is "DUE DILIGENCE" (on top of traditional "reasonable care") as required by certain local legislations and a supporting publication from ICC has been quoted in our opinions. This is in fact what we are trying to convey. It is then up to a court of law to adjudicate what "due diligence" actually means - "without delay", "real time" or something else?
We are from http://www/tolee.com
[edited 8/19/01 3:59:24 PM]