ICC Digital Library Forum

*originally posted by hktong@yahoo.com

Query:
Is it reasonable for Bank XYZ, Hong Kong Branch to collect their non-financing commission and handling commission (i.e. USD4, 000.00) from the beneficiary?

Background:
Applicant: AAA Company in New York
Beneficiary: BBB Company in Hong Kong
Invoice amount: USD1, 500,000.00

L/C issuing bank: Bank XYZ, New York Branch
Presenting bank: PPP Bank, Hong Kong Branch

This credit is available with bank by negotiation in Hong Kong
All bank charges outside L/C issuing bank are for beneficiary account.

The credit mentions the Bank XYZ, Hong Kong hold the payment instruction and disposal the documents. If the presenting bank delivery the documents to L/C issuing bank directly, L/C issuing bank will deduct the penalty from the proceeds and has no responsibility the delay payment.

Presenting bank has to submit the documents to Bank XYZ, Hong Kong Branch for payment in accordance with the above condition.

As a result, the beneficiary only got USD1, 560,000.00 back from the presenting bank as USD4, 000.00 being the handling commission and non-financing commission was deducted by the Bank XYZ, Hong Kong Branch.

Beneficiary protested to Bank XYZ, Hong Kong.

Bank XYZ, Hong Kong Branch and Presenting Bank, PPP Bank, stated that it is very reasonable for Bank XYZ, Hong Kong Branch to collect these commissions. Bank XYZ, Hong Kong Branch collect the commissions in accordance with the General Rule provided by Hong Kong Association of Bankers.

Beneficiary's arguments:
(1) The credit does not nominate Bank XYZ, Hong Kong Branch as a negotiation bank as the credit is available with any bank by negotiation in Hong Kong. It is likely that Bank XYZ, Hong Kong Branch is a payment bank, reimbursement bank or an agent bank of L/C issuing bank, Bank XYZ, New York.

(2) As the credit only allows to present the documents to Bank XYZ, Hong Kong Branch and it also does not mention Bank XYZ, Hong Kong Branch will deduct handling commission from invoice value, it is a responsibility of L/C issuing bank for bearing handling commission deducted by Bank XYZ, Hong Kong Branch.

(3) ICC Publication 613 R.380 as a reference.

Welcome your ideas and comments

Credit stated that charges outside issuing bank's country were for account of beneficiary. Credit also stated that documents have to be given handed over to XYZ bank in Hong Kong. This bank being outside the country of the LC issuing bank will look to the beneficiary for collecting their charges, whatever be their role in the chain. Beneficiary ought to have known this when it accepted the Credit. Therefore beneficiary is liable to pay XYZ bank's charges. Whether USD4000 was reasonable, I am not in a position to commend as I am not located in Hongkong. In my view local practices will dictate how much is to be collected.
N.D. George
Head of Trade Finance
National Bank of Fujairah
P.O. Box 2979
Dubai,
email: georgend@emirates.net.ae

The banking charges in letter of credit operations in Hong Kong must comply with the General Rules issued by the Hong Kong Association of Banks, which is the body to regulate banking charges to ensure that they are reasonable and fair. The enquirer should write to this Association for their comments.

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