trust receipts for release of goods and discrepant documents

[NormandDArcy]

I’m curious how banks approach the matter of release of goods against a trust receipt. Do they subsequently insist the applicant sign the release is against his automatic acceptance of “any/all” discrepancy/ies? If so, when the relative documents are received, does the bank check them? If so, does the bank advise the noted discrepancy/ies, if any, to the applicant? Looking forward to comments from fellow bankers as to how they handle trust receipts with regards to discrepant documents.

[NigelHolt]

Norman,

I am assuming you are referring to instances where a Credit stipulates goods are consigned to an issuing bank and the applicant wishes to take delivery of them prior to the documents being received by the issuing bank under the credit.

I would anticipate that:
1. most bankers would not describe the document that the applicant signs for this arrangement as a ‘trust receipt’, but as an ‘indemnity’ or similar.
2. a term of the indemnity would be that the applicant undertakes to take up any documents presented in connection with the goods regardless -if presented under the Credit- of any discrepancies.
3. given 2. above and the possible legal consequences of having authorised delivery of the goods to the applicant, most bankers would not examine the documents for compliance other than possibly with regard to the amount of the drawing.

Jeremy

[edited 6/13/2006 8:19:43 PM]

[NormandDArcy]

Thanks for your reply Jeremy. Now another question with regards to the amount: If the invoiced amount exceeded the credit value, would you pay the credit value or the invoiced value? (Assuming the issuing bank could not recover the invoice value from the applicant.)

[NigelHolt]

Norman,

Firstly your question seems to pre-suppose the documents are presented under the Credit. Of course, they may be presented outside the Credit e.g. as a conventional documentary collection and thus the Credit be wholly irrelevant.

Secondly, I am afraid I cannot say with any certainty what decision I personally would make -if it were my responsibility to do so- if I worked for a bank that adopted the practice under discussion here and found that having authorised release of the goods to the applicant the seller was claiming more than the Credit value but that the applicant was unable to pay the amount claimed. It would very much depend on the specific circumstances and, I imagine, I might well call on lawyer’s advice if the amount at stake was substantial. However, I can say that I would be very conscious of the possible reputational damage to the bank non-payment of the amount claimed could cause.

Jeremy

[KimChristensen]

Hi there

This one may be of interest in this connexion:

http://focus.dcprofessional.com/Dcpro-L ... cator=7.10

Best regards
Kim

[JimBarnes]

I heard Jeremy call for a lawyer's advice.

The called lawyer is likely to say that UCP500 does not answer many of the questions here. The lawyer is also likely to say that the bank should examine any subsequent presentation under UCP500 to avoid preclusion, so that the bank's exposure is limited to whatever applicable law provides based on what the bank already did to induce the carrier to deliver the goods.

Then the lawyer will do the usual and ask questions about precisely what the bank did that induced the carrier to release the goods to the applicant. In this regard, applicable law may treat the bank as responsible to the shipper, but limit the remedy against the bank to actual damages, which might be more or less than the amount demanded on presentation of the relevant transport document.

Regards, Jim Barnes

[PradeepT_old]

Dear Norman,

I couldn't help but remember an instance where one of the banks known to me had landed themselves in a precarious situation in a documentary collection transaction. The importer presented invoices for HK $ 150,000, took a shipping indemnity, cleared the goods and vanished. The Bank was comfortable since importer provided cash collateral by way of 100% margin. But when the original documents arrived, the only difference in the documents was that the invoice indicated an amount of US $ 150,000. Whatever the difference between USD and HKD that time, the bank faced innumerable problems while the importer was untraceable.

Well, it happens. In a Documentary Credit situation, banks would take a counter-indemnity from the importer to accept documents irrespective of any discrepancy. Obviously when the amount of actual invoice is more than that presented by the importer, there is a fraud perpetrated by importer or exporter or both in collusion. That’s why, in today's world, it is important to reinforce the KYC norms.

I am also reminded of an article by my friend Soh Chee Seng which can be accessed via the following link

http://focus.dcprofessional.com/DCpro-L ... 123000.xml

Best regards,

Pradeep Taneja,
Bahrain