I have a somewhat ”annoying” case where I would appreciate your input.
A standby LC issued subject to UCP 500 includes the following:
:47A: ADDITIONAL CONDITION
UNDER OUR FULL RESPONSIBILITY, PLEASE ISSUE A STANDBY LETTER OF CREDIT BY ORDER OF COMPANY XX (APPLICANT) IN FAVOUR OF COMPANY YY (BENFICIARY).
…
AS SECURITY FOR YOUR ISSUANCE OF ABOVE MENTIONED GUARANTEE WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX
…
THE STANDBY CREDIT IS AUTOMATICALLY RENEWED FOR A ONE YEAR PERIOD UNLESS BANK YY (ISSUING BANK) ONE MONTH PRIOR TO EXPIRY INFORM YOU THAT THE STANDBY LETTER IS NOT TO BE RENEWED.
:71B: CHARGES
ALL COMMISSION AND CHARGES OUTSIDE ISSUING BANK, INCLUDING REIMBURSING BANK'S CHARGES,ARE FOR BENEFICIARIES
Now – this standby LC (counter guarantee) was issued in 2001. Apparently the advising bank (who issued the guarantee towards the beneficiary) claimed and received their charges in 2001 and 2002. From and including 2003 they charged the beneficiary on a yearly basis for their “standby commission fee” – but apparently never received payment.
Beginning 2007 all charges are claimed form the issuing bank – who up until that point did not know that all charges since 2003 had not been paid.
And so the question: As per article 18,c the instructing party (in this case the bank issuing the counter guarantee), is liable for the charges. However are there any “exceptions” to that rule?
Like in this case where it has not been informed in 4 years that the beneficiary is in fact not paying any charges – and would have been able to stop the standby from being renewed?
Would you know of any precedent cases regarding such matter?
Thanks in advance.
Kim
UCP 500, article 18,c
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KimChristensen
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UCP 500, article 18,c
Kim,
It is not usual for such a stdby to state that the charges are for account of beneficiaries. More often than not it is for the applicant's account. But if the charges are not paid by the beneficiaries, it is logical to return to the issuing bank. Actually if the stdby was not used by the beneficiaries because things went all right, it would be unfair to him to pay the charges.
Daniel
It is not usual for such a stdby to state that the charges are for account of beneficiaries. More often than not it is for the applicant's account. But if the charges are not paid by the beneficiaries, it is logical to return to the issuing bank. Actually if the stdby was not used by the beneficiaries because things went all right, it would be unfair to him to pay the charges.
Daniel
UCP 500, article 18,c
Kim,
As it’s you, here goes.
Firstly, the beneficiary of the ‘inward’ standby, to which 71B is presumably referring, is -I anticipate- the ‘outward’ standby issuing bank and not the beneficiary of the outward standby (just as the ‘issuing bank’, referred to in 71B, is logically the inward standby issuing bank and not the outward standby issuing bank). I cannot see 71B has anything expressly to say on the question of the commissions arising from issue of the outward standby.
Secondly, should it nonetheless be considered that the inward standby is saying that the beneficiary of the outward standby must pay the commission for its issue (a consideration with which I can sympathise), then I would regard it as untenable to argue that notice of non-payment of this commission by the outward standby beneficiary could have materially affected the inward standby issuing bank’s (or applicant's) decision as to whether or not to give notice of non-renewal.
However, the answer must ultimately be a question of what the applicable law has to say on the question, including any statutory limitation period on the recovery of debts.
Regards, Jeremy
[edited 4/12/2007 3:04:44 PM]
As it’s you, here goes.
Firstly, the beneficiary of the ‘inward’ standby, to which 71B is presumably referring, is -I anticipate- the ‘outward’ standby issuing bank and not the beneficiary of the outward standby (just as the ‘issuing bank’, referred to in 71B, is logically the inward standby issuing bank and not the outward standby issuing bank). I cannot see 71B has anything expressly to say on the question of the commissions arising from issue of the outward standby.
Secondly, should it nonetheless be considered that the inward standby is saying that the beneficiary of the outward standby must pay the commission for its issue (a consideration with which I can sympathise), then I would regard it as untenable to argue that notice of non-payment of this commission by the outward standby beneficiary could have materially affected the inward standby issuing bank’s (or applicant's) decision as to whether or not to give notice of non-renewal.
However, the answer must ultimately be a question of what the applicable law has to say on the question, including any statutory limitation period on the recovery of debts.
Regards, Jeremy
[edited 4/12/2007 3:04:44 PM]