I would like to be sure that I clearly understand the meaning of point A of article 48 of UCP.
According to this article only Nominated Bank can transfer LC?
Let's imagine, that Bank A issued a transferable LC in f/o Bank B (I bnf's bank). Documents should be presented to Bank A. Can Bank B transfer LC in f/o II bnf? or Bank B should give an instructions to transfer LC to Bank A?
You kind assistance will be appreciated.
Transferrable LC
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SaltanatIztleuova
- Posts: 5
- Joined: Fri Apr 05, 2019 5:27 pm
Transferrable LC
My personal view is that I believe sub-Article 48a is saying that where a credit is available with:
1. ANOTHER BANK, i.e. a nominated bank per sub-Article 10bi (however, in the case of a freely negotiable credit the transferring bank needs to be ‘specifically authorised in the Credit’), that bank is authorised to ‘make the credit available in whole or in part to one or more other Beneficiary(ies)’. Therefore, the nominated bank (Bank B in your example) would not need to pass on the first beneficiary’s transfer instructions to the issuing bank (Bank A in your example).
2. The issuing bank ALONE (i.e. there is not any nominated bank), only the issuing bank may transfer the credit and that therefore the first beneficiary would have to deliver their transfer instructions to the issuing bank, i.e. any advising bank (Bank B in your example) would not be authorised to ‘make the credit available in whole or in part to one or more other Beneficiary(ies)’ (irrespective of the inconvenience this could cause to a beneficiary in another country).
In other words, I personally believe that in 1 above the ‘Transferring Bank’ is the nominated bank (Bank B) and in 2 above the ‘Transferring Bank’ is the issuing bank (Bank A).
[edited 8/23/01 3:26:34 PM]
1. ANOTHER BANK, i.e. a nominated bank per sub-Article 10bi (however, in the case of a freely negotiable credit the transferring bank needs to be ‘specifically authorised in the Credit’), that bank is authorised to ‘make the credit available in whole or in part to one or more other Beneficiary(ies)’. Therefore, the nominated bank (Bank B in your example) would not need to pass on the first beneficiary’s transfer instructions to the issuing bank (Bank A in your example).
2. The issuing bank ALONE (i.e. there is not any nominated bank), only the issuing bank may transfer the credit and that therefore the first beneficiary would have to deliver their transfer instructions to the issuing bank, i.e. any advising bank (Bank B in your example) would not be authorised to ‘make the credit available in whole or in part to one or more other Beneficiary(ies)’ (irrespective of the inconvenience this could cause to a beneficiary in another country).
In other words, I personally believe that in 1 above the ‘Transferring Bank’ is the nominated bank (Bank B) and in 2 above the ‘Transferring Bank’ is the issuing bank (Bank A).
[edited 8/23/01 3:26:34 PM]
Transferrable LC
THE NOTION OF AUTHORISED TRANSFERRING BANK
Jeremy interprets sub Article 48 (a) from the perspective of a DC with and without a nominated bank. He is correct but we do not think that is a complete interpretation of this sub Article.
Our interpretation of the NOTION OF AUTHORISED TRANSFERRING BANK reflected by this sub Article is
(only step-by-step detailed explanation of our thoughts, not trying to lecture, please understand):
(1) Only DC marked TRANSFERABLE may/can be transferred.
(2) Only an AUTHORISED TRANSFERRING BANK may/can transfer the DC.
(3) If the DC is available for sight/deferred payment, acceptance or RESTRICTED negotiation, only the NOMINATED BANK (please refer to sub-Article 10 (b) for its definition) is the AUTHORISED TRANSFERRING BANK.
(4) If the DC is available for OPEN OR UNRESTRICTED negotiation, it follows from sub-Article 10 (b) that ANY BANK would then be the NOMINATED BANK (and then WOULD ALSO BE THE AUTHORISED TRANSFERRING BANK, and such a situation is not to be desired).
(5) To close this loophole known to the UCP 500 Working Party led by Mr. Charles del Busto, this sub Article 48 (a) ALSO requires the issuing bank to nominate an AUTHORISED TRANSFERRING BANK (perferably at the time of issue to avoid confusions) to have the exclusive right of transferring the DC although it is also available for OPEN negotiation by any bank.
(6) In a DC only available with the issuing bank itself, in that case the issuing bank can do anything it likes as it is its own DC after all. So the notion of AUTHORISED TRANSFERRING BANK may be either unnecessary or simply does not exist, from a logical point of view.
(7) Please bear in mind that, as contrary to what some participants in our workshops think, nomination of an AUTHORISED TRANSFERRING BANK after issue of the DC cannot be deemed to be an amendment.
In fact, this query is a hot item in our DC workshops worldwide. So we have given a lot of time to analyse it with a magnifying glass (sharing experience not advertising).
So the enquirer should be able to find his own answer from above.
Jeremy, although you disagree, this is another good example to support that the UCP 500 cannot be easily and readily understood without the guidance of an experienced mentor. We have our mentors too who will be well treated.
We are from http://www.tolee.com
[edited 11/8/02 12:46:47 AM]
Jeremy interprets sub Article 48 (a) from the perspective of a DC with and without a nominated bank. He is correct but we do not think that is a complete interpretation of this sub Article.
Our interpretation of the NOTION OF AUTHORISED TRANSFERRING BANK reflected by this sub Article is
(only step-by-step detailed explanation of our thoughts, not trying to lecture, please understand):
(1) Only DC marked TRANSFERABLE may/can be transferred.
(2) Only an AUTHORISED TRANSFERRING BANK may/can transfer the DC.
(3) If the DC is available for sight/deferred payment, acceptance or RESTRICTED negotiation, only the NOMINATED BANK (please refer to sub-Article 10 (b) for its definition) is the AUTHORISED TRANSFERRING BANK.
(4) If the DC is available for OPEN OR UNRESTRICTED negotiation, it follows from sub-Article 10 (b) that ANY BANK would then be the NOMINATED BANK (and then WOULD ALSO BE THE AUTHORISED TRANSFERRING BANK, and such a situation is not to be desired).
(5) To close this loophole known to the UCP 500 Working Party led by Mr. Charles del Busto, this sub Article 48 (a) ALSO requires the issuing bank to nominate an AUTHORISED TRANSFERRING BANK (perferably at the time of issue to avoid confusions) to have the exclusive right of transferring the DC although it is also available for OPEN negotiation by any bank.
(6) In a DC only available with the issuing bank itself, in that case the issuing bank can do anything it likes as it is its own DC after all. So the notion of AUTHORISED TRANSFERRING BANK may be either unnecessary or simply does not exist, from a logical point of view.
(7) Please bear in mind that, as contrary to what some participants in our workshops think, nomination of an AUTHORISED TRANSFERRING BANK after issue of the DC cannot be deemed to be an amendment.
In fact, this query is a hot item in our DC workshops worldwide. So we have given a lot of time to analyse it with a magnifying glass (sharing experience not advertising).
So the enquirer should be able to find his own answer from above.
Jeremy, although you disagree, this is another good example to support that the UCP 500 cannot be easily and readily understood without the guidance of an experienced mentor. We have our mentors too who will be well treated.
We are from http://www.tolee.com
[edited 11/8/02 12:46:47 AM]
Transferrable LC
My personal views are:
1. I agree with points 1-5 above.
2. I agree that the words ‘the bank authorised to pay, incur a deferred payment undertaking, accept or negotiate etc’ do seem rather odd if they are intended to extend to an issuing bank. However, I do think there is a reasonable force in the proposition that an issuing bank is a bank ‘authorised to pay, incur a deferred payment undertaking [or] accept’.
3. If this proposition is wrong, I do not see how -by extension- an issuing bank can treat all credits that it issues, that are available with it (what some contributors seem to want to call a ‘straight credit’), as being potentially transferable without the specific authority of the applicant. The mandate the issuing bank has received from the applicant is to give an undertaking to the named beneficiary alone. Therefore, I would anticipate that if an issuing bank transferred such a credit without the specific agreement of the applicant it would -in law- be considered to be in breach of the applicant’s mandate.
1. I agree with points 1-5 above.
2. I agree that the words ‘the bank authorised to pay, incur a deferred payment undertaking, accept or negotiate etc’ do seem rather odd if they are intended to extend to an issuing bank. However, I do think there is a reasonable force in the proposition that an issuing bank is a bank ‘authorised to pay, incur a deferred payment undertaking [or] accept’.
3. If this proposition is wrong, I do not see how -by extension- an issuing bank can treat all credits that it issues, that are available with it (what some contributors seem to want to call a ‘straight credit’), as being potentially transferable without the specific authority of the applicant. The mandate the issuing bank has received from the applicant is to give an undertaking to the named beneficiary alone. Therefore, I would anticipate that if an issuing bank transferred such a credit without the specific agreement of the applicant it would -in law- be considered to be in breach of the applicant’s mandate.
Transferrable LC
DISAGREEMENT CAN BE PRODUCTIVE
Jeremy, thanks for agreeing with our interpretation of sub Article 48 (a), according to our impression (which may not be reliable), maybe for the first time? In fact, we do encourage you to disagree more in a friendly way as you are doing now so that we can explore the issues more thoroughly TOGETHER as a team; you play on one court and we on the other.
ISSUING BANK IS NOT NOMINATED BANK. WHY WE NEED SELF NOMINATION?
The concept of "an issuing bank is ALSO a nominated bank" appears to be illogical. Can a boss also be a subordinate, a father also be the son, or a principal also be an agent? If I wish to do something, and have full power to do it, why should I need to instruct myself to do it? This sounds quite odd and mechanical, isn't it?
ISSUING BANK MUST NOT TRANSFER WITHOUT AUTHORISATION
For the issue of "whether or not the issuing bank has the power to make the DC transferable without the approval of the applicant", there is no such express stipulation in the UCP. And there is no such need to put into the UCP for those things that one can infer by simple logic. Otherwise it will be as thick as a yellow pages!
To answer your question, let us first ask you a simple question and then tell you a story that we often tell in our workshops to illustrate the risk of doing things without authority.
What is the DC for? Of course it is to help the applicant to buy goods from a supplier that he trusts, with good customer services, and most importantly FOR SOME OTHER REASONS UNKNOWN TO THE ISSUING BANK, such as the supplier that he wants to keep dearly.
If the issuing bank tries to allow the DC to transfer to another supplier that the applicant does not intend, the issuing bank is stepping out of its comfort zone and exposed to risk.
We had one voyage charter party (including C/P B/L) dispute case whilst we were still operating as a consultant in Hong Kong helping our client, a public listed manufacturer of industrial and domestic paints. When we won the dispute, to our great surprise, our client asked us to surrender and share their damages 50/50 with the supplier.
We asked him why and he said: "T. O., resolving trade dispute is only winning the battle. We wish to win the war. To tell you the truth, there are only four suppliers in this world for this special kind of industrial hydrocarbon which we need dearly to make industrial paints. If we damage the relationship with this supplier today and next supplier tomorrow, we have to close our manufacturing operations because all four suppliers would not sell the hydrocarbon to us any more!"
So clients can be very smart and we have to be careful in handling them.
Again we are trying to share our experience here with other members to alert them this "doing things without authority" issue is not kidding, although the story told above is not 100% relevant. But it is sufficient to alert us to such risk. If any member has a better way to share experience here without being misinterpreted as advertising, please let us know how for a four course dinner. This is our last message for this "advertising" issue in order not to bore members to death with it.
WINNING THE BATTLE OR THE WAR?
Before we go, we would like to ask a question to the bankers. Do you want to win a battle (in the courtrooms) or to win a war (getting more customers instead of losing them by doing things without their approval)? The UCP cannot and should not give you the solution.
What about us? You bet!
We are from http://www.tolee.com
[edited 11/8/02 12:44:12 AM]
Jeremy, thanks for agreeing with our interpretation of sub Article 48 (a), according to our impression (which may not be reliable), maybe for the first time? In fact, we do encourage you to disagree more in a friendly way as you are doing now so that we can explore the issues more thoroughly TOGETHER as a team; you play on one court and we on the other.
ISSUING BANK IS NOT NOMINATED BANK. WHY WE NEED SELF NOMINATION?
The concept of "an issuing bank is ALSO a nominated bank" appears to be illogical. Can a boss also be a subordinate, a father also be the son, or a principal also be an agent? If I wish to do something, and have full power to do it, why should I need to instruct myself to do it? This sounds quite odd and mechanical, isn't it?
ISSUING BANK MUST NOT TRANSFER WITHOUT AUTHORISATION
For the issue of "whether or not the issuing bank has the power to make the DC transferable without the approval of the applicant", there is no such express stipulation in the UCP. And there is no such need to put into the UCP for those things that one can infer by simple logic. Otherwise it will be as thick as a yellow pages!
To answer your question, let us first ask you a simple question and then tell you a story that we often tell in our workshops to illustrate the risk of doing things without authority.
What is the DC for? Of course it is to help the applicant to buy goods from a supplier that he trusts, with good customer services, and most importantly FOR SOME OTHER REASONS UNKNOWN TO THE ISSUING BANK, such as the supplier that he wants to keep dearly.
If the issuing bank tries to allow the DC to transfer to another supplier that the applicant does not intend, the issuing bank is stepping out of its comfort zone and exposed to risk.
We had one voyage charter party (including C/P B/L) dispute case whilst we were still operating as a consultant in Hong Kong helping our client, a public listed manufacturer of industrial and domestic paints. When we won the dispute, to our great surprise, our client asked us to surrender and share their damages 50/50 with the supplier.
We asked him why and he said: "T. O., resolving trade dispute is only winning the battle. We wish to win the war. To tell you the truth, there are only four suppliers in this world for this special kind of industrial hydrocarbon which we need dearly to make industrial paints. If we damage the relationship with this supplier today and next supplier tomorrow, we have to close our manufacturing operations because all four suppliers would not sell the hydrocarbon to us any more!"
So clients can be very smart and we have to be careful in handling them.
Again we are trying to share our experience here with other members to alert them this "doing things without authority" issue is not kidding, although the story told above is not 100% relevant. But it is sufficient to alert us to such risk. If any member has a better way to share experience here without being misinterpreted as advertising, please let us know how for a four course dinner. This is our last message for this "advertising" issue in order not to bore members to death with it.
WINNING THE BATTLE OR THE WAR?
Before we go, we would like to ask a question to the bankers. Do you want to win a battle (in the courtrooms) or to win a war (getting more customers instead of losing them by doing things without their approval)? The UCP cannot and should not give you the solution.
What about us? You bet!
We are from http://www.tolee.com
[edited 11/8/02 12:44:12 AM]
Transferrable LC
T.O.
A. It has never been my intention to be other than friendly. Perhaps my approach seems somewhat formal/semantic (if not pedantic)/literal/legalistic and thus unfriendly? Apologies if this is so, but I feel this is the only assuredly effective approach that one can take to documentary matters.
B. I agree that sub-Article 10bi does not classify an issuing bank as a nominated bank. However, sub-Article 48a does not use the expression ‘nominated bank’, hence my views in 2 above.
C. I do not disagree with your statement that ‘If the issuing bank tries to allow the DC to transfer to another supplier that the applicant does not intend, the issuing bank is stepping out of its comfort zone and exposed to risk.’ Perhaps I have not expressed my point 3 clearly or I have not grasped the point your making?
Jeremy.
A. It has never been my intention to be other than friendly. Perhaps my approach seems somewhat formal/semantic (if not pedantic)/literal/legalistic and thus unfriendly? Apologies if this is so, but I feel this is the only assuredly effective approach that one can take to documentary matters.
B. I agree that sub-Article 10bi does not classify an issuing bank as a nominated bank. However, sub-Article 48a does not use the expression ‘nominated bank’, hence my views in 2 above.
C. I do not disagree with your statement that ‘If the issuing bank tries to allow the DC to transfer to another supplier that the applicant does not intend, the issuing bank is stepping out of its comfort zone and exposed to risk.’ Perhaps I have not expressed my point 3 clearly or I have not grasped the point your making?
Jeremy.
Transferrable LC
AN UNFORTUNATE MISUNDERSTANDING
Jeremy, what happens? In fact we are trying to congratulate you (such as "as a team TOGETHER...") on your friendly approach. Why you read our message in the opposite way? If that is the case, the one to apologise is us.
In our last message, we are in fact supporting your views in other approach by sharing a story of ours. From now on please change your spectacles (if you are wearing one).
It may be because our Canadian English is different from yours. After all it is not my mother tongue.
T. O.
[edited 11/8/02 12:18:49 AM]
Jeremy, what happens? In fact we are trying to congratulate you (such as "as a team TOGETHER...") on your friendly approach. Why you read our message in the opposite way? If that is the case, the one to apologise is us.
In our last message, we are in fact supporting your views in other approach by sharing a story of ours. From now on please change your spectacles (if you are wearing one).
It may be because our Canadian English is different from yours. After all it is not my mother tongue.
T. O.
[edited 11/8/02 12:18:49 AM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Transferrable LC
Although I agree with T.O. Lee's comment that it is illogical for an issuing bank to also be a nominated bank, perhaps Jeremy meant that it was acting in the same way as a nominated bank in receiving documents from the bene.
However, T.O. should make allowance for the fact that there is an exception to every rule. T.O. has shown father/son relationships, but a simple mathematical example of every set being a subset of itself shows us an exception to this. I say this only to ask that one keeps an open mind. Another example that comes to mind is where the same bank can act as nominated bank and reimbursing bank.
[edited 8/27/01 11:04:45 AM]
However, T.O. should make allowance for the fact that there is an exception to every rule. T.O. has shown father/son relationships, but a simple mathematical example of every set being a subset of itself shows us an exception to this. I say this only to ask that one keeps an open mind. Another example that comes to mind is where the same bank can act as nominated bank and reimbursing bank.
[edited 8/27/01 11:04:45 AM]
Transferrable LC
BANK ROLE AND BANK IDENTITY
To respond to my friend Laurence, I think that an issuing bank may play two different and maybe "conflicting" roles, also as an applicant in a so called "two party credit", but not also as an advising, nominated or reimbursing bank, which are terms intended to address a "different bank" that takes up a different bank role. Here the interpretation of "different bank" is not intended to take the same interpretation as in Article 2 of the UCP 500.
There is no issue of open or closed mind here, only agree or disagree, precise or imprecise descriptions.
To be precise, we can say that the issuing bank also plays the role of an advising bank, a nominated bank and/or a reimbursing bank. But we should not say the issuing bank IS the advising bank, the nominated bank or the reimbursing bank. The issuing bank's IDENTITY has not been changed, only its ROLES. That is the message we are trying hard to convey.
For example, when Sir Connery (Sean) plays King Arthur in one of his great movies, Camelot, his role has been changed on stage but not his identity. He is still a Scotish actor, not the King of England.
AVOID MECHANICAL INTERPRETATION TO AVOID CONFUSIONS
Take a common sense approach, if I represent Canada in any nomination in the ICC Commissions for example, I automatically represent also Ontario and Toronto. There is no need to see, regard or introduce myself as ALSO a representative of Richmond Hill, Toronto, Ontario. Such line of thoughts seems quite odd and mechanical to me.
ONE OFTEN BETRAYED BY HIS OWN WORDS
Of course, Laurence, although I disagree wtih you, I respect your different opinions and more importantly, your right to say it, as a seasoned banker. Please don't regard my disagreement as coming from a closed mind. By saying that you seem to have drifted towards the "I am right, you are wrong" mentality, at least this is an impression that you have on me. You need not apologise for that as I understand this is from your subconscious mind rather than from your purposeful intent. But your message has betrayed you this time whilst trying to pull me to your side.
However, I do appreciate your openness to use words directly from your heart. And so do I.
T. O.
[edited 11/8/02 12:14:08 AM]
To respond to my friend Laurence, I think that an issuing bank may play two different and maybe "conflicting" roles, also as an applicant in a so called "two party credit", but not also as an advising, nominated or reimbursing bank, which are terms intended to address a "different bank" that takes up a different bank role. Here the interpretation of "different bank" is not intended to take the same interpretation as in Article 2 of the UCP 500.
There is no issue of open or closed mind here, only agree or disagree, precise or imprecise descriptions.
To be precise, we can say that the issuing bank also plays the role of an advising bank, a nominated bank and/or a reimbursing bank. But we should not say the issuing bank IS the advising bank, the nominated bank or the reimbursing bank. The issuing bank's IDENTITY has not been changed, only its ROLES. That is the message we are trying hard to convey.
For example, when Sir Connery (Sean) plays King Arthur in one of his great movies, Camelot, his role has been changed on stage but not his identity. He is still a Scotish actor, not the King of England.
AVOID MECHANICAL INTERPRETATION TO AVOID CONFUSIONS
Take a common sense approach, if I represent Canada in any nomination in the ICC Commissions for example, I automatically represent also Ontario and Toronto. There is no need to see, regard or introduce myself as ALSO a representative of Richmond Hill, Toronto, Ontario. Such line of thoughts seems quite odd and mechanical to me.
ONE OFTEN BETRAYED BY HIS OWN WORDS
Of course, Laurence, although I disagree wtih you, I respect your different opinions and more importantly, your right to say it, as a seasoned banker. Please don't regard my disagreement as coming from a closed mind. By saying that you seem to have drifted towards the "I am right, you are wrong" mentality, at least this is an impression that you have on me. You need not apologise for that as I understand this is from your subconscious mind rather than from your purposeful intent. But your message has betrayed you this time whilst trying to pull me to your side.
However, I do appreciate your openness to use words directly from your heart. And so do I.
T. O.
[edited 11/8/02 12:14:08 AM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Transferrable LC
T.O.
I fear that we both may have fallen into the linguistic trap best described as "two countries separated by a common language".
It was so unusual to find a comment from you which I rightly or wrongly interpreted as closed, that I felt that I had to respond. My allusion is to your statement "ISSUING BANK IS NOT NOMINATED BANK". A simple example is one where an issuing bank sends the L/C directly to the bene without the involvement of any other bank and restricting negotiation to the issuing bank.. Here, the issuing not only ACTS as the nominated bank, it IS the only possible nominated bank. However, this is exceptional and usually the issuing bank and the nominated bank would be separate entities.
I would like to make a small correction to T.O. Lee's last comment. Although I have worked in the L/C depts. of major banks, my main experience has been with global importers and exporters, both as an employee and lately as an independent consultant. Thus I can easily "wear the hat" of bankers, applicants and beneficiaries. I find this very helpful in examining disputed issues with some degree of impartiality. Would you agree that this is not unlike the Oriental philosophy of avoiding categories of right or wrong, but instead focussing on the merits of each argument ?
I fear that we both may have fallen into the linguistic trap best described as "two countries separated by a common language".
It was so unusual to find a comment from you which I rightly or wrongly interpreted as closed, that I felt that I had to respond. My allusion is to your statement "ISSUING BANK IS NOT NOMINATED BANK". A simple example is one where an issuing bank sends the L/C directly to the bene without the involvement of any other bank and restricting negotiation to the issuing bank.. Here, the issuing not only ACTS as the nominated bank, it IS the only possible nominated bank. However, this is exceptional and usually the issuing bank and the nominated bank would be separate entities.
I would like to make a small correction to T.O. Lee's last comment. Although I have worked in the L/C depts. of major banks, my main experience has been with global importers and exporters, both as an employee and lately as an independent consultant. Thus I can easily "wear the hat" of bankers, applicants and beneficiaries. I find this very helpful in examining disputed issues with some degree of impartiality. Would you agree that this is not unlike the Oriental philosophy of avoiding categories of right or wrong, but instead focussing on the merits of each argument ?