Question: An Indian Bank after negotiation did not pay to Beneficiary considering the non payment of earlier part bill by Foreign Bank against same L/C and also for the reason that the beneficiary had no credit limit facility with the Nagotiating Bank.- Can Issuing Bank establish that documents were not negotiated as per Article 10b(ii)?
- After 17 months of 1st discrepancy Telex dated 23.11.98 is Issuing Bank authorised to say now that documetns were not negotiated?
- When L/C was subject to UCP 500 on which conditions law of land will apply and is that applicable in present case?
Answer: • According to UCP 500 Article 9 negotiation means "giving value". It has been clarified time and again by the ICC Banking Commission and there is also a position paper on the subject clarifying that giving of value need not be immediate.
If the Negotiating Bank is requested to give the value immediately then at that time it will do minus interest; otherwise it will pay the beneficiary full amount on due date.
The very fact that Indian Bank after negotiation did not pay to the beneficiary does not vitiated the negotiation process. In this connection I am faxing under separate cover a copy of the ICC Position Paper.
1. Based on the above, replies to queries are as under :
In the situation enumerated in your message the Issuing Bank can not establish that documents were not negotiated as per Article 10b(ii) once the Negotiating Bank certifies that they have negotiated.
2. In view of the reply to 1 above question 2 has no validity or relevance.
3. Once the L/C is subject to UCP 500 the law of land will apply only in cases which are not covered by UCP 500.
Question: Kindly clarify the following :
- L.C states under clause no. "39a: 10/10". What does it mean =!0%(+ or -) in both quantity and value or only in quantity?
- If the L/C is silent about the negotiating bank, can we treat it as free negotiation?
- Is it compulsory under a letter of credit to draw a bill of exchange. What would be the consequences if no bill of exchange is drawn (When no clause of B/E is there in the L/C)?
- L/C states that "all bank charges outside (parties country) are to the account of the beneficiary" dies it include the reimbursement charges of the opening bank. If nothing is mentioned about the reimbursement charges, can we treat that they are to the account of the opening bank?
- Opening Bank has raised a discrepancy that "Carrier’s name not indicated on Bill of Lading" – Clarify the meaning of Carrier in this case.
- If the opening bank does not come back to us or to the negotiating bank with any discrepancies with in one week from the date on which they receive the original documents, are they allowed to charge any discrepancy charges? If they have already charged, can we claim them from opening bank?
Answer: • Article 39a allows a tolerance of 10% more or less than the amount or the quantity or the unit price to which they refer. It will depend as to whether the words "about", "approximately", "circa" or similar expressions are used with the quantity, amount or the unit price and will apply to that. If they are used with both quantity and value only then it will apply to both.
• According to Article 10b(i) unless the credit stipulates that it is available only with the Issuing Bank, all credits must nominate the bank which is authorised to pay, to incur a deferred payment undertaking, to accepts drafts or to negotiate. If no bank is nominated and the credit is not available with the Issuing bank then it will be deemed to be freely negotiable credit. You are, therefore, right in presuming so.
• Drawing of a bill of exchange is not mandatory in respect of credits providing for sight and deferred payment. However, drafts will have to be drawn in respect of an acceptance credit where the banks have to accept drafts drawn by the beneficiary so also in respect of negotiation credit. If no bill of exchange is to be drawn then the payment will be forthcoming based on the presentation of the conforming documents.
• As per Article 19e the Reimbursing Bank charges are to be for the account of the Issuing Bank. If nothing is mentioned about the reimbursement charges then surely you can treat them to be for the account of the Issuing Bank.
• Article 23 dealing with the Marine/ Ocean bills of lading stipulates as one of the conditions for a bill of lading to be acceptable that it appears on its face to indicate the name of the carrier and have been signed or otherwise authenticated either by the carrier or a named agent or the master or a named agent. Carrier is the shipping company which undertakes to carry the goods to the named destination. Without indication of carriers’ name on the B/L, we would not know as to who has taken the responsibility for the carriage of goods.
• Discrepancy charges are payable only if discrepancies are found and so informed the Opening Bank is not allowed to levy such charges.
