ICC Digital Library Forum

FRESH QURIES RECIVED. WE POST IT AS RECEIVED.

1. A letter of credit was established in favour of a beneficiary in country X. The credit called for B/L to be made out to the order of the issuing bank A, however the B/L was wrongly made out to the order of another bank B. Upon receipt of the B/L, the issuing bank raised it as a discrepancy & advised the applicant accordingly. The applicant accepted the discrepancy but now the question is whether bank A can endorse on the reverse of B/L & pass title to their applicant?

THE QUERY

A bill of lading (B/L) was wrongly consigned to Bank B instead of Bank A as stated in the DC. The Applicant accepted this discrepancy. What should Bank A do under such circumstance?

ONE SIMPLE FIRM ANSWER

A simple firm answer is "No" because Bank A is not a party in the Bs/L. Even if it had made its endorsement nevertheless, it is not a valid one because Bank A, being a non-party, has no "capacity to act", to borrow a legal term here.

MANY OTHER ALTERNATIVES TO CONSIDER

To go deeper into the issues, we treat this as a query in an advanced level workshop and hence provide many answers instead of one firm answer as preferred by some too-practical-minded participants. There are many alternatives for the parties to consider.

(1) To avoid risk for the parties, the best way, also the academic approach, is to ask the shipper to surrender the three original Bs/L to the carrier (where the carrier may also need a LOI countersigned by a bank) in exchange of another set of original Bs/L consigned to Bank A.

We do not wish to analyse here the position of each party as this would be very lenghty. However, this is not a practical solution as the presentation must be withdrawn and the re-presentation may be after expiry of the DC. There are other risks as well but we leave them to the members to figure them out as we have to keep this message brief.

(2) A more practical solution is to ask Bank B to endorse the Bs/L to Bank A. But we would not recommend Bank B to do so, taking part in the transaction as one party in a B/L for no benefits at all. A party in a B/L may face claims by the carrier if the charges or demurrage cannot be claimed from other parties, such as the shipper, due to bankruptcy or other reasons. Then Bank B may face claims for helping Bank A.

PURELY A COMMERCIAL DECISION

Whether Bank B wishes to do this or not is entirely a commercial decision. From our experience in resolving DC disputes in China Trade, some banks in Hong Kong that are eager to enter the lucrative China market are willing to help the branches of Chinese Banks in Hong Kong to earn their support in China to apply for the bank licence to operate in China. So this is not a UCP or Carriage of Goods by Sea Act issue but rather a commercial decision.

A BILLIONAIRE'S SOLUTION

(3) Since the query is from Saudia Arabia, there may be an Arabian solution too. We heard many years ago that a billionarie Arabian customer does not border to write complain letters for bad service. He just buys the hotel and fires the manager. So the applicant, the beneficiary or Bank A may buy the shipping company, and/or Bank B alright.

With due respect to Saudi Arabia, we just wish to create some jokes to this otherwise boring technical query. Please don't take this seriosuly.

Happy New Year!

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 4:43:04 PM]

Firstly I presume that we are dealing with a negotiable, assignable B/L and not an Express B/L or its ilk.

I favour T.O. Lee's first option, but with a slight variation. It is assumed that the beneficiary has no objection to the B/L being corrected to the order of the correct bank. Most ocean carriers will have agents in each of the ports to which their vessels sail. Such an agent, with the agreement of the issuer of the B/L and the beneficiary, could alter the B/L to agree with the credit.

This, I think, is the most practical solution, but as T. O. Lee says, there are others.

Laurence

Laurence,

Thanks for your input. However, as a banker, you may not know the complexity that your proposed "Variation to a Theme by T. O. Lee" would bring.

There are couple of points for you to consider from our previous involvement in similar circumstances.

(1) You have missed out the most important party, the Shipper, who is the only party in the B/L that has the right to authorise change of the name of the Consignee in the B/L.

(2) A careful Consignee, Bank B, although having the power to endorse the Bs/L to any party it may prefer, would not make such endorsement to Bank A, unless it is defintely sure that the Shipper also agrees to this, to avoid troubles. But the Shipper is a stranger not located in the importing country where the Beneficiary, Bank B and the Shipping Agent domicile.

(3) An Agent of the Carrier in the port of discharge may have limited power not covering such exceptional cases/tasks.

(4) Some shipping agents would not like to carry out such instructions in order to avoid risks, such as

(a) The Carrier may have already sold the ship to other parties.

(b) The Carrier is being sued by other parties and the ship may face arrest by an order of a court.

(c) The Issuing Bank afterwards refuses the waiver due to poor financial condition of the Applicant and the Shipper asks for a return of the documents. Then the Applicant may say: "Hey! Give me back the Bs/L in the ORIGINAL FORMAT as they are presented. You have no right to add, delete or change their data content or to dispose of my documents (releasing them to Bank B for endorsement or to the Shipping Agent for re-issue in the form of switched B/L) without my due authorization".

(d) Or after payment dishonour by the Issuing Bank, the Shipper changes the name of the Consignee back to itself or to a third party to whom the goods are re-sold. Some issuing banks may have the banking practice to refuse to endorse a B/L originally consigned to the order of an issuing bank after payment dishonur and return of the documents back to the presenter. If Bank A refuses to sign on the B/L after an endorsement is made by Bank B to Bank A, then the Shipper cannot get another set of Bs/L issued from the Carrier. And other complications and risks which we do not wish to continue here to make this message brief.

(5) Other points worth considering are:

(a) Such actions may not be covered by the insurance policy of the Shipping Agent.

(b) There is no indemnity from the Carrier or other parties.

(6) The Shipping Agent receives only a small fees that would not justify taking such high risks. Some agents we know would say:"Why should I get myself into all these troubles and risks where I do not have any benefits out of it? We are not running the Red Cross. We are in business'.

(7) Again this is a commercial decision. If the Shipping Agent wishes to get all the agency business from the Carrier in the region or to fish for the other big businesses from the gigantic Beneficiary, then this is another ball game.

(8) In the Discussion Forum you are welcome for your inputs as a banker. However, in the real transaction, as a banker, we would advise you not to make any proposal to the parties for something which is outside your scope of expertise. Again, this is also a commercial decision of your bank. And don't forget to involve your lawyers, whether internal or external, to cover your own personal risks. A hero in a bank does not get any medal of honour.

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 8:21:32 PM]

T. O.

First let me clarify some assumptions :

My previous posting was based on the usual assumptions that there was no unusual difficulties with the transaction such as arrest of the ship, change of agents etc. If we try to find difficulties in a given theoretical situation, it is easy to do so. This is not to say that we should not be prudent in checking if such conditions prevail, but in most cases, such exceptional conditions are rare.

I have also assumed the usual situation where the beneficiary is synonymous with the shipper. Thus when I said that agreement of the beneficiary was necessary, I assumed that the beneficiary was also the shipper. If there was any difficulty in using a local agent to change the B/L, the B/L could be returned by courier for correction to the issuing agent, before dishonour, and with agreement of the beneficiary/shipper. This may result in discrepancy due to late presentation, but this is more likely to be acceptable to the applicant than the current complex situation with the incorrect bank on the B/L.

Your natural assumption that I am a banker is incorrect. I am an international trade consultant and lecturer, although I have worked in international banks. Thus I have looked at this from the beneficiary's perspective in suggesting the most expedient probable solution. I have not suggested that this is the only solution, but hopefully the one most likely to be acceptable to all, with the minimum of effort.

Laurence

Laurence,

Sorry that we have misinterpreted your profile, being a consultant rather than a banker.

The purpose of our last posting is not to challenge your proposed solution, which supports ours anyway. What we are trying to do is to alert the parties of the possible risks attached to it. We have seen a lot of these "rare to happen" situations in our consultancy career. That is why we say: "There are couple of points for you to consider from our previous involvement in similar circumstances" to bring some points for you to consider. Please read our good intention positively.

As we are a firefighter, it is only natural that in our vision, every house is not safe. Unfortunately this vision is not readily shared by people in the street.

http://www.tolee.com

[edited 1/5/02 5:00:48 PM]

T. O.

I agree that it is necessary to alert people to the dangers. If there is one chance in a thousand of encountering this problem, this does not mean that we should check it only once in a thousand. To be certain of finding it we must check every one.

Laurence