ICC Digital Library Forum

To avoid responses drifting away from our original intent, we have to make certain clarification on the role of a transferring bank here.

The definition of a transferring bank is according to Sub-Article 48 (a) of UCP 500.

To be more precise, we are talking about the duty of a transferring bank PURELY FROM THIS ROLE ALONE and not from other roles that it also play, for example, being also a nominated bank (as a result of Sub-Article 48 (a) )or a confirming bank.

In a nutshell, opinions should be made AS IF the transferring bank WERE NOT a nominated bank or a confirming bank, although the transferring bank as described in Sub-Article 48 (a) must be a nominated bank. However, this does not stop us from discussing the duty of a transferring bank alone, treating it AS IF it WERE NOT a nominated bank or confirming bank.

Its role as an advising bank has nothing to do with document examination. That is why we allow the transferring bank in our query to be also an advising bank.

Members are encouraged to share with us their local banking practices on this issue and also state the justification or reasons why on such practices.

www.tolee.com

[edited 7/26/02 4:19:49 PM]

T.O.,

I find your posting somewhat confusing, as I believe that:
A) A transferring bank, that is not the issuing bank, must be -by virtue of sub-Art 48a- a nominated bank as envisaged in sub-Art 10bi and;
B) When documents are presented to a transferring bank they are presented to the transferring bank in its role as nominated bank, i.e. a bank authorised to take up and settle complying documents.
Consequently, the transferring banks obligations in examining documents flow from whether or not it has confirmed the credit. Therefore, if it has not confirmed the credit (and indicated this to the first & second beneficiaries) it is under no obligation to examine the documents (and give an opinion as to whether or not they are complying), whereas if it has confirmed the credit it is under an obligation to examine the documents and take them up if complying.

Jeremy

Jeremy,

WE NEED ONLY OPINIONS BASED ON THE ROLE OF A TRANSFERRING BANK ALONE

You are right to point out that according to UCP 500 Sub-Article 48 (a) a transferring bank is also a nominated bank. We all are clear about this. What we are trying to say is that since this bank plays two roles, or even three roles, if it also confirms the credit, we do not wish to receive opinions based on the other roles played by the same bank, the transferring bank, otherwise comments will be based on the role of a nominated bank, or even from the role of a confirming bank. That is not an opinions we need, as everybody knows that a nominated bank or a confirming bank has the duty to examine documents, once it agrees to play this role upon request from the issuing bank.

In a nutshell, opinions should be made AS IF the transferring bank WERE NOT a nominated bank or a confirming bank, although, as you have rightly pointed out, the transferring bank as described in Sub-Article 48 (a) must be a nominated bank. However, this does not stop us from discussing the duty of a transferring bank alone, treating it AS IF it WERE NOT a nominated bank or confirming bank. Its role as an advising bank has nothing to do with document examination. That is why we allow the transferring bank in our query to be also an advising bank.

To take your comments seriously, we have edited our original text in the query to remove any possible doubts of our original intent.

Jeremy, thank you for your personal (kindly clarify with or without obligations, joking!) opinions based on the role of the transferring bank alone and thanks for opening the discussions. We expect more would come along. We hope you would also explain the reasons why the transferring bank has not a duty to examine the documents.

WHAT SOME AGGRESSIVE BANKS WOULD DO IN THE MARKETPLACE

We raise this query because in practice, we have seen some aggressive banks that are not nominated banks, would still transfer the credits upon request. Some would examine the documents upon request by the customers.

Some banks that play only the role of a presenting bank would examine the documents upon request by their customers.

TWO PURPOSES FOR RAISNG A QUERY

As we have observed that after the World Cup 2002, it is quiet in the Discussion Forum. We wish to create some worthy issues for us to warn up again. By the way, when one raises a query, he may have two purposes. First, he does not know the answer. Second, he knows the answer but he would like to know the opinions of other members as well, to broaden his horizon.

So members are encourage to post more queries here for us to discuss. If one does say it, nobody would know which is your purpose.

www.tolee.com

[edited 7/26/02 4:25:15 PM]

Jeremy and Others,

To make our original query more focused, what is your personal opinion regarding examination of documents, if the DC is freely negotiable and the Advising Bank A is requested by the issuing bank to transfer the DC to a second beneficiary, whilst Bank B negotiates the documents?

For discussion sake, never mind why Bank A does not do the negotiation, which under normal circumstance, it should. This may be possible as in our ten-year experience in the consulting field, anything may happen. The marketplace does not necessarily follow the UCP 500. Everybody follows the Murphy's Law, although no body puts it in his agreement or agrees to be bound by this Law.

www.tolee.com

[edited 7/26/02 4:45:16 PM]

T.O.,

Regarding your 2nd posting:

All I can say is that I would find it bizarre that a bank that fell outside the provisions of sub-Art 48a would seek to effect what it described as a transfer of a credit. Presumably in law such a transfer would be inoperative, at least against the issuing, and any confirming, bank. As such a ‘transferring’ bank would be acting outside UCP I would not care to speculate what its obligations towards the first & second beneficiary would be, other than to say they would be a product of the express & implied terms of the contract (if any) with these parties.

Regarding your 3rd posting:

Freely negotiable transferable credits can be particularly problematical if presentation of documents is not made to the specifically authorised transferring bank. I would expect such a bank to require presentation of the original credit advice at the time the transfer request is made so that the transfer can be endorsed thereon, thereby preventing the first beneficiary from presenting the original credit advice with documents for the full credit value to another bank for negotiation.

If I were such a (potential) other negotiating bank and was presented with an unendorsed freely negotiable transferable credit, I would give serious consideration to contacting the authorised transferring bank first to check the credit had not been transferred, unless I had no doubt as to the beneficiary’s integrity.

Also, if a freely negotiable transferable credit has been transferred, I do not see how the second benef, and therefore the first benef, can make presentation to a bank other than the transferring bank.

Have a good weekend.

Jeremy

A "SIEGFRIED" BANK THAT KNOWS NO FEAR

You have pointed out part of the risks that the "Siegfried" Bank (Siegfried is a hero in Richard Wagner's Opera "Der Ring des Nibelungen" who knows no fear) exposes itself by transferring credit in which it is not the authorized transferring bank. We have seen a lot of these aggressive banks in some part of this world and we do not wish to name the places for sensitivity reasons. Please don't argue with the facts.

Although we thank you very much for your taking your valuable "bread and butter" time to express your opinions here on the risks side, however, you have not yet answered the issue. That is "the duty for examination of documents whether or not applicable also to" such "Siegfried" Banks.

We have to clarify that by using a German fairy tale hero, we do not imply that German banks are reckless. We use Siegfried just because this is a well-known character that knows no fear. That is also the reason why he could enter a ring of fires to wake up one of the Valkyries, Brunnhilde, and won her as his wife (whom he, under influence of a drug, later "transferred" his wife to Gunther in exchange of Gunther's sister Gutrune ) and could be able to use the heavenly sword Notung to kill the dragon Fafner guarding the Rhine Gold.

For those bankers who know about the insider tips to book a ticket in the Bayreuth Wagner Festival, could you share it with us? Our email is experts@tolee.com

www.tolee.com

[edited 7/28/02 4:57:28 PM]

T.O.,

I thought I had answered the question -to the full extent that I could- by saying that as an unauthorised ‘‘transferring’ bank would be acting outside UCP I would not care to speculate what its obligations towards the first & second beneficiary would be, other than to say they would be a product of the express & implied terms of the contract (if any) with these parties’.

Jeremy

I'll enter the ring of fire here.

I don't think the UCP places an obligation on the transferring bank to examine documents, so, the literal answer to the question is "No."

There was a question raised about whether documents could be presented to anyone other than the transferring bank. We frequently issue "buyers' L/Cs" where the first beneficiary is a buying agent for the applicant and requests what we call a "full transfer" wherein he waives, up front, the right to substitute documents. In this case, no value is added by the second beneficiary presenting documents to the transferring bank. We include a clause in our transferable L/Cs that requests the transferring bank
(1) to notify both us, as issuer, if the first beneficiary waives his right to substitute documents and to inform us of the name of the second beneficiary, and
(2) to include language in the transfer indicating that these rights have been waived and the transfer negotiating bank may present documents directly back to us.

Our clause indicates that, in the absence of a notification as described above that the first beneficiary has effected a full transfer, we will only accept documents from the transferring bank. And, of course, the documents must be in the name of the first beneficiary unless the transferring bank certifies to us that the first beneficiary failed to present substitute documents on first demand.

All of this is in our clause because the UCP doesn't cover this scenario. We used to get documents presented to us by transfer negotiating banks with no indication as to whether the first beneficiary had been contacted regarding his right to substitute documents. We did not know whether he had waived his rights, failed to substitute documents on first demand, or still had his rights and the transfer negotiating bank (who was not the transferring bank) was assuming we would contact the first beneficiary in this regard. Indeed, I know of several cases at other banks where the last-described scenario was the case, but the issuer assumed it was one of the other two and proceeded to pay, only to hear from the first beneficiary's lawyer later. As the UCP is incomplete in this regard, we put the language in each L/C.

But back to the question: It is true the transferring bank will receive documents in their role as nominated bank, and a nominated bank is under no obligation to examine documents, let alone negotiate them. But a transferring bank (in the "normal" scenario) will be expected to contact the first beneficiary regarding substitution of documents. (Under our L/Cs, this is required by the clause we've inserted. It is the standard expectation, but not a UCP requirement.) I believe this bank is inviting trouble if they allow substitution of documents without examining them. It is certainly feasible that the second beneficiary's documents comply with the transfer but the first beneficiary's documents cause discrepancies with the original credit. (I can describe cases where I know this to have happened.) So, although it is not required by the UCP, I feel a transferring bank had better examine documents, for their own protection. Our policy is to always do so and we even include our charge for document examination in our transfer fee. Furthermore, our transfer request form covers the situation where the second beneficiary's documents comply but the first beneficiary's documents don't as the UCP gives the right to substitute invoices and drafts to the first beneficiary without saying they have to comply with the L/C.

Perhaps you can tell that I think the UCP could use expansion in its treatment of transferable L/Cs. While we're at it, we can remove the requirement that the transferring bank has to be nominated by the issuer. I never had a problem with "freely transferable" L/Cs, as we had under UCPs before the 500. I just want the transferring bank to notify me when they make a transfer, so I know who is going to be contacting the first beneficiary regarding substitution of documents.

Buddy Baker
[edited 11/20/02 7:23:59 PM: clarification]