ICC Digital Library Forum

We submitted a set of document on behalf of the transferee to the transferring bank (a major US Bank) for payment as instructed under the advice of transfer. Few days later, we were advised by the transfering bank via MT799 stating "Relative documents have been forwarded to the issuing bank for payment without examination of the documents."

Note: Transferring bank has not added its confirmation and the following clause (as usual) was included in the advice of transfer: "Without engageemnt on our part, all documents presented under this transfer will be forwarded to the issuing bank for payment after substitution of documents by the first beneficiary, payment under this advice of transfer to be made only upon our receipt of good funds from the issuing bank ...."

Does transferring bank have duty to check documents presented by the transferee?

Appreciated your comments.

Albert
[edited 3/18/2005 5:50:40 PM]

Albert,

Reciprocity is something to which I attach a great deal of importance (as well as common courtesy, such as saying ‘please’ and ‘thank you’, something which often sadly seems lacking on this forum). As you have kindly responded to at least one posting of mine I shall give you my personal views, for what they are worth, without any liability or responsibility.

To me, a bank should not -as a general rule- transfer an unconfirmed credit unless, in principle, it is prepared to carry out its nominated bank role at the time of transfer. That is to examine, and if complying, take up documents. (If, at the time of documents presentation, it is not prepared to carry out its nominated bank role it should then advise the second beneficiary and seek its further instructions.) This is because to allow the first beneficiary to substitute invoices etc without examining the documents could mean that a complying presentation by the second beneficiary is turned into a non-complying presentation. Therefore is not a practice I would indulge in without the second beneficiary’s express agreement, particularly as it might leave me open to a claim from this party.

In the case of the ‘clause’ you quote it is silent regarding whether or not the transferring (and thus, nominated) bank will examine the documents for compliance and thus the position is unclear. Given the -I consider- absurdity of allowing substitution without examination I believe it is implied that examination for compliance by the transferring bank will take place and that therefore if they do not send a refusal notice or a notice that they are not prepared to examine the documents etc that they consider them complying. However, I would regard the legal position as being by no means certain and could well see my argument being defeated in a court of law (the applicable law being, in my opinion, an important factor).

Hope this is of use.

Jeremy

[edited 3/21/2005 4:04:58 PM]

I agree with Jeremy's analysis of this.
Furthermore, I would also opine that the transferring bank flies in the face of Art. 14 d ii and Art. 14 e. Thus, even if docs would normally be regarded as discrepant, the bank's failure to comply with UCP article 14 would mean that the beneficiary could justifiably make a claim for payment against the transferring bank. If this was contested, I would suggest that the transferring bank should have to pay, but not necessarily the issuing bank. However, local law may be a determining factor in this.

Laurence

I'm not quite sure if I agree with the last statement. Although Article 14 applies to the Issuing Bank, the Confirming Bank (if any) and the nominated bank, only the Issuing Bank and Confirming Bank (if any) are precluded (see 14(e)). Although the Nominated Bank SHOULD follow Article 14, there is no similar preclusion in the UCP. I do agree, however, that local law does govern this, and just as a matter as information, in the United States, UCC Article 5 concurs with 14(e) in that there is no penalty for the Nominated Bank if it fails to comply with Article 14.

Lisa

Lisa,

I agree that the sub-Article 14e ‘preclusion rule’ is not stated to apply to a non-confirming nominated bank. However, I do not believe that this means such a bank -or the issuing bank, whose agent is the non-confirming nominated bank- is AUTOMATICALLY not liable if it fails to acting in accordance with articles 13 & 14. It is just that the UCP is silent on the consequences. Therefore, the applicable law will determine the consequences, if any, for non-adherence by a non-confirming nominated bank to Articles 13 & 14. Sorry if this what you are saying.

Incidentally, I cannot see that UCC Article 5 (5-107 & 5-108 presumably) “concurs … that there is no penalty for the Nominated Bank if it fails to comply with Article 14”. My impression is that the UCC is simply silent on the question, like the UCP. Therefore, it would seem possible that a non-confirming nominated bank could be liable under the applicable US state law if it fails to act in accordance with Articles 13 & 14.

Jeremy

[edited 3/23/2005 11:21:07 AM]

Jeremy,

Perhaps I should have said "no stated penalty" for both UCP and UCC, but you do understand the point I was trying to make. I do not know of any litigated case in the United States where the beneficiary has attempted and succeeded in a such a claim. My personal feeling is that absolutely the Nominated Bank should comply with the requirements of both Articles 13 and 14, primarily because it is morally and customer service-wise the "right" thing to do. However, I do think there is a reason is that both UCP and UCC are silent on the penalty. The Issuing Bank and Confirming Bank each have an undertaking, therefore their risk in non-performance is much higher. The Nominated Bank as merely the agent does not, and I doubt I can be convinced that the penalty should be the same for non-performance.

It is the policy of this institution that we will only transfer a credit which we are prepared/authorized to determine compliance with the terms and conditions of the letter of credit/transfer. As was stated in a previous message, a bank has to be able to review documents to conduct the substituion. Without such review, the substituted documents may very well comply with the credit while the second beneficiary's did not. This is not a matter of rule, this is a matter of common sense.