Hallo,
We have opened a Stand-by letter of credit by mt 700 (therefore subject to UCP 500 rules) stipulating that
1) only commisisons and charges of issuing bank are for applicant's account
2) each payment effected by us in favour of beneficiaries refering to this stand-by letter of credit no... will reduce the stand-by letter of credit accordingly.
We have than effected the payment to advising bank in full cancellation of this l/c
by mt 100 clearly stating that this payment is in full cancellation of our standby letter of credit no....
The advising (beneficiary's bank) is now claiming from us their commissions and charges based un article 18 of UCP 500 pretending that the l/c has never been utilised.
We do not think that in this case article 18 may be used as payment under dtand-by letter of credit has been effected!
What is your opinion?
Maya
mayametias@bcp-bank.com
article 18
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EricLONGEPIERRE
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larryBacon
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article 18
Hello Maya & welcome to the Forum
Regardless of the reducing balance clause in the LC, it can only be cancelled with the agreement of the bene. MT100 evidence of payment cannot be regarded as relevant, as this does not take account of the need for agreement of the bene.
Unless the advising bank has received a MT707 cancelling the LC and taken instructions from the bene to agree to cancel it, the advising bank must take the view that the LC is unutilised.
Laurence
Regardless of the reducing balance clause in the LC, it can only be cancelled with the agreement of the bene. MT100 evidence of payment cannot be regarded as relevant, as this does not take account of the need for agreement of the bene.
Unless the advising bank has received a MT707 cancelling the LC and taken instructions from the bene to agree to cancel it, the advising bank must take the view that the LC is unutilised.
Laurence
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EricLONGEPIERRE
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- Joined: Fri Apr 05, 2019 5:17 pm
article 18
Hallo Laurence,
Thanks for your reply. I may see your point, however do you have any ICC article or opinion to stand for your statement?. It seems to me, that it is very commun to reduce or cancel stand-by letters of credit by direct payments (by means of mt 100 or mt 756, clearly mentioning in reduction/cancellation of said lc) and to include these clauses in the lc. If beneficiaries should give their agreement for cancellation/reduction each time, this could be very dangerous for the applicant and there would be no sense to effect payment before l/c expires without drawing.
Thanks for your reply. I may see your point, however do you have any ICC article or opinion to stand for your statement?. It seems to me, that it is very commun to reduce or cancel stand-by letters of credit by direct payments (by means of mt 100 or mt 756, clearly mentioning in reduction/cancellation of said lc) and to include these clauses in the lc. If beneficiaries should give their agreement for cancellation/reduction each time, this could be very dangerous for the applicant and there would be no sense to effect payment before l/c expires without drawing.
article 18
Without any responsibility/liability my personal views regarding the original posting are:
Based on the information provided, and the inferences I draw from it, it would seem that the advising bank has not had the opportunity to recover its advising charge and, if appropriate, confirming commission and amendment charges. Therefore, it appears to me your bank is obliged to pay it/them.
Incidentally, I do not consider that your standby has been <utilised>, even if your voluntary payment, made in the absence of any drawing by the beneficiary, has had the effect of reducing your liability to nil (and I see no reason why it should not). To me <utilisation> of a standby/ doc credit/guarantee etc requires action by the beneficiary and here there would appear to have been none.
Based on the information provided, and the inferences I draw from it, it would seem that the advising bank has not had the opportunity to recover its advising charge and, if appropriate, confirming commission and amendment charges. Therefore, it appears to me your bank is obliged to pay it/them.
Incidentally, I do not consider that your standby has been <utilised>, even if your voluntary payment, made in the absence of any drawing by the beneficiary, has had the effect of reducing your liability to nil (and I see no reason why it should not). To me <utilisation> of a standby/ doc credit/guarantee etc requires action by the beneficiary and here there would appear to have been none.
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larryBacon
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article 18
Jeremy,
I agree with most of what you have to say, but I consider that the liability of the issuing bank remains to the full extent of the LC, until expiry.
In other words, regardless of payments already made, the bene could make the necessary presentation and claim against the SLC, and assuming documentation in order, payment must be made via the SLC. Thus the liability of the issuing bank remains extant until expiry as in a standard LC.
Laurence
I agree with most of what you have to say, but I consider that the liability of the issuing bank remains to the full extent of the LC, until expiry.
In other words, regardless of payments already made, the bene could make the necessary presentation and claim against the SLC, and assuming documentation in order, payment must be made via the SLC. Thus the liability of the issuing bank remains extant until expiry as in a standard LC.
Laurence
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
article 18
Maya,
it would be foolhardy to work with SLC without a history of acceptable trade already existing between applicant and bene.
If the bank wishes to reduce the risks, I suggest SLC with no partial shipment and limited timescale for presentation. Alternatively, allow timed, quantified, partial shipments again with limited timescale for presentation. This, of course, puts pressure on the applicant to make immediate payments outside of the SLC.
A further option to reduce risks from the bank's or applicant's viewpoint is to make the SLC Revocable.
Laurence
it would be foolhardy to work with SLC without a history of acceptable trade already existing between applicant and bene.
If the bank wishes to reduce the risks, I suggest SLC with no partial shipment and limited timescale for presentation. Alternatively, allow timed, quantified, partial shipments again with limited timescale for presentation. This, of course, puts pressure on the applicant to make immediate payments outside of the SLC.
A further option to reduce risks from the bank's or applicant's viewpoint is to make the SLC Revocable.
Laurence