ICC Digital Library Forum

I would like to seek some expert help on this issue.

We receive a MT700 message from a bank asking us to issue LC on behalf of them. The said bank didn't say any words in the MT message, just put their name in the field "Applicant Bank" of the MT700.

As per our understanding, we have an contract or agreement with the said bank to issue LC.

I just want to ask :whether this is good enough for us to protect our interest if the utlimated applicant refuses to pay for any clean doc. certified by us (the re-issuance bank).

Thanks and regards

I offer the following personal thoughts on the matter:

1. ‘Applicant bank’ is not a term used in UCP500. Nonetheless, I believe it is reasonable to assume those provisions of UCP500 that can be considered as having an impact on the issuing bank’s contractual relations with an applicant (for example, Articles 3, 4, 13, & 15) would also apply to an issuing bank’s contractual relations with an ‘applicant bank’ (unless the contract impliedly or expressly provided to the contrary).

2. In the absence of a written agreement (a contract) between an applicant bank and an issuing bank, that sets out (among other things) the recourse rights of the issuing bank, I would anticipate that the issuing bank’s recourse rights would be a product of the terms implied in the unwritten contract by the law to which the contract is subject. Under English law, I would expect the courts to hold that an issuing bank has at least an implied right to recover from the applicant bank sums paid out in accordance with the credit provisions, using principles similar to that in agent-principal relations (even though the relationship between the two banks would not be that of agent & principal).

Therefore, I believe the answer to your question lies in the law to which the unwritten contract between your bank and the applicant bank is subject.

3. To avoid the problems that can occur with unwritten contracts, I regard it as vital to have a written agreement with an applicant bank, similar to that one would have with an applicant, before issuing a credit on behalf of an applicant bank.

I trust this is of (some) assistance.

[edited 8/21/01 1:40:04 PM]
[edited 8/21/01 1:45:07 PM]

FAR EAST BANKING PRACTICE NOT IN UCP 500

The UCP 500 is a bit slow to catch up with the Far East banking practice in the eighties maybe because at that time no representative from the Far East is in the ICC Working Parties.

NOW SITUATION HAS IMPROVED

We proposed to Mr. Charles del Busto to change this situation and he did a lot of things before he retired as a Chairman of the ICC Banking Commission. Now we have a lot of bankers from the Far East actively involved in ICC Working Parties, such as Mr. SHAN jian-bao of Everbright Bank in China (who has made a lot of very good suggestions since he took up the Vice-Chairmanship of the ICC Banking Commission in 2000) and Mr. SOH Chee Seng (now actively involved in SBPED project) from OCB Bank in Singapore. They were so busy attending the meetings in the evenings that they had no time to accept our dinner invitation in Paris.

APPLICANT BANK FOR CHINA TRADE

We have the practice of "applicant bank" in Hong Kong for many years already, maybe being brought into the picture by the fast development of China Trade after the economic reforms in China in the nineties.

Some banks in Hong Kong do not wish to lose their good China trader customers to a competitor who has the authority to issue DC for China trade purpose. Some DCs are transferred and with back-to-back arrangement to maximise their use.

Bankers in Hong Kong are very innovative. They resolve this problem by the "applicant bank" approach. The bank would request a branch of a Chinese bank in Hong Kong to issue the DC required by the applicant bank's customer. The two banks would then split the commission 50/50 - a win-win strategy.

APPLICANT BANK DISPUTE

We have handled one applicant bank dispute from Hong Kong in which the applicant bank denies any responsibility as an applicant and claims itself merely as an agent of the buyer, its customer, when something goes wrong, for example, the buyer goes bankrupt.

With our intervention, the dispute is finally settled with both banks splitting their losses.

"APPLICANT BANK" NOW INCLUDED IN ISP 98

With this experience, during the drafting stage of the ISP 98, we proposed to Professor James E. Brynes of IIBLP USA to include the "applicant bank" concept in ISP 98 and he did. Now in ISP 98 we find the definition of an applicant as:

"Applicant" is a person who applies for issuance of a standby or for whose account it is issued, and includes (i) a person applying in its own name but for the account of another person or (ii) an issuer acting for its own account.

"COCKTAIL DC" TO PROTECT CLIENTS

That is why sometimes we propose to our clients to incorporate some of the ISP 98 Articles in a DC subject to UCP 500 for such reasons. We call this a "Cocktail DC" and Professor Brynes is amused with such a term. However, a word of caution here, this should be a job for an expert.
We think the UCP 600, or however name it may be called, should follow the ISP 98 in certain respect.

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[edited 10/16/02 9:24:28 PM]