I want to share an unhappy experience for a transaction under LC from my customer in Morocco. The LC was issued by a notorious French bank and advising through their HK office to us under confirm basis. We accepted to add confirmation on it. Now, it was the third and last shipment effected on 11 Arpil 2008. Unfortunately, we delay the shipment for 1 day. It caused a discrepancy of “late shipment”. This LC was “90 days after B/L date”. Definitely, maturity should be on 10 July 2008. We instructed our banker to chase the French bank HK office for payment many times. Their reply was “waiting for acceptance from LC applicant”.
On the other hand, we checked with shipping company and obtained evidence that LC issuing bank endorsed the B/L to LC applicant on 4 June 2008 and my customer collected the goods on the next few day. Until 24 July 2008, LC issuing bank sent a telex advice to my banker and confirmed to accept maturity as 25 July 2008. My question is what support LC issuing bank to delay payment for 14 days and cheated us that applicant had not accept the bill. We instructed our banker to send telex to them asking why the bill mature on 10 July 2008 but accepted on 24 July 2008 whereas applicant collected goods on June 2008. However, the French bank HK replied that “The issuing bank informed their acceptance on 24 July 2008 and matured on 25 July 2008. Therefore, there was no delay payment at all”. That’s terrible. They are trying their effort to hide the fact.
Who can make the justice?
I have faced same problem many many many times while exporting to countries like Bangladesh, Morocco and some other. I am from Bangladesh and running export business in China.
Being a Bangladesh citizen, I found that the customer-banker relationship very strong and friendly in these kinds of countries. The issuing bank do a favour to its customer regarding documents acceptence. The bank hand over the docs and let the importer release the goods thus he can sell and pay the bank in 1 or 2 week. Meanwhile the issuing bank shows that the customer didnt "accept" the document, so the bank can wait some days before it pays you and also the importer get some time to sell some of the goods and pay the bank thus he doesn't need to invest his money.
Regarding the clause " 90 days after sight", I also had this problem then my bank gave a solution, they suggest us to insist the customer to write '90 days from the B/L date". I found after that my payments came on time. I am not a banker, so I am just sharing my experience.
although I don't quite catch the meaning of the last paragraph. Maybe he can elaborate on this again.
Whether sent on approval basis or not, whether expired or not, the issuing bank has at least to protect you in the same way as if there had never been a credit and this was just a collection. And in this case it was a collection against acceptance and bank-avalization of a draft due 90 days after B/L-date and not 104 days thereafter.
After they have disposed of the docs and handed them out to the buyer, they are bound to fulfil the conditions of the presentation letter.
Therefore, they either had to make sure that payment will be effected to you on July 10, 2008 or - as this is not possible anymore - to compensate you for the loss in interest and extra-costs implied.
However, did they pay at least on 25.07.2008 and which amount is concerned?
In any way, their HK-office doesn't seem to have understood the situation correctly. Maybe an information is missing to them? Show them these postings again. I'm sure they will agree. The case is pretty obvious.
In case the loss is big enough, I would report this to the French H.O. of that bank and possibly also threaten to sue them if no positive reaction is achieved within a month or so!
-Each long journey starts with a small step-
I don't get the bank avalization here. was it added by the issuing bank and avalization of the draft done. If so, then as you say issuing bank is liable. But my understanding is that it was handled on a collection basis. i understand this word of your avalization as follows" since the draft is drawn on the bank, it should pay the presenter(bene) on time". but In a confirmed l/c, ws the draft drawn on issuing bank though?
Let My explain my last para , correct if wrong- If at all the issuing bank says that "applicant has not paid at maturity (i.e 10th july) and it is up to the applicant to pay it in a collection and discrepant docs, and i (the issuing bank)have no liabillity to pay", then is there way for suing the issuing bank?
I compared the situation under the mentioned credit with a collection against acceptance and bank avalization of the draft.
The reasoning for this is that the issuing bank is liable to either keep the documents at the disposal of the presenter or to fulfil the obligations as originally entered under the credit (art. 16 of UCP 600).
Now, I hope I got the message concerning the last paragraph:
By what feihung520 wrote, I didn't get any indication that the docs where presented under the URC522 but I understood that the docs were presented as a discrepant presentation under a credit submitted to the UCP600. Under this pre-requisite the bank is liable and (not only) could (but also should) be sued to remind them of the responsibilty they bear not only for their own reputation but also for the reputation of all banks dealing with credits.
If presented as a simple collection against acceptance with no avalization of drawee's bank you were right! I think that's one reason, why we get so many discrepant docs under credits!
-Each long journey starts with a small step-
Thank you for your kind attention and suggestion! I have instructed our bank to send telex to LC issuing bank reflecting their delay on payment and force them to give clear explanation. But I think it won't help so much. It's about one week a ago. We still have not received any response from them.
Take care everyone!
Dear Fei Hung
Respectfully, I would like to let you know my idea about your problem.
1-Latest Date Of Shipment:10/April/2008
2-The B/L issuing at 11/April/2008
3-Date of expiery L/C:10/July/2008
4-You sent to chase the French bank HK office for payment,But the told you waiting for acceptance from LC applicant
5-The B/L endorsed BY Issuing bank at 4/June/2008
6- The goods collected by your customer in June/2008
7- Issuing bank extend the expiery date of L/C of 10/July/2008 Up to 25/July/2008 but they didn't sent to you this swift for amend the date of expiery for l/c.
8-You sent to confirming bank and ask for which way is possible the issuing bank extend 14-15days expiery of L/C,BUT THEY DIDN'T answer you,and didn't any payment.
If your L/C is an IRREVOCABLE and Confirm,all of amends should be sent to you,also extention,cancellation and etc.
When you have a confirming L/C,the confirming bank,covered the issuing bank and when the issuing bank didn't payment to you,the confirming bank should be relese you the shipment amount.
If you didn't get the amendment for extention of expiery date of L/C of 10/July/2008 to 24/July/2008.This is out of low,Because your L/C is an Irrevocable. If the goods rech to moracco and reload to mainland,you can get the one confirmation of the shipping company,that's show the goods reach to mainland. Your confirming bank,should be pay to you,amount of the shipment document's.if your L/C is IRREVOCABLE and Confirm and at sight,and In Cluse49 name of your confirming bank's mentioned. If I had some misunderestanding please let me know. Thank you and regards Babak
Thanks for your reply. In fact we have not received further LC amendment on extention of expiry date. But even if it extended, they still need to follow the term "90 days after B/L date 11 April 2008" and effect payment at maturity 10 July 2008 because LC applicant had collected the goods with the endorsed B/L from bank.
We are now waiting for our banker to ask LC issuing bank for the explanation on this tremendous fault.
Dear fei hung,
I start assuming that the docs were sent on a approval basis to the issuing bank.(bocs otherwise if clean.. ,you should have your funds by now exactly at maturity since its a confirmed l/c)
The issuing bank should have released the docs to the applicant after his acceptance to pay at "90 days after b/l " according to the tenor, which the issuing bank has not done. assuming that was issuing bank's error in specifying the correct maturity date
Now, once it has accepted, you should have received message from the issuing bank that the docs have been accpeted by the applicant to mature on 25th july. If so received, you could have protested to the issuing bank to ask the applicant to pay on 10th july as this happens to be maturity date and also specify that the docs were delivered with the wrong tenor to the applicant OR if it was applican'ts intention as such to pay on 25 th july, to return the docs to your counters. Did any of these happen?. If so, then you can sue the issuing bank for delivering the docs to applicant and not returning the docs to your counters,.
But , in anyway, u canot sue issuing bankfor default on maturity date as the docs were discrepant and there is no protection under UCP. Also for delivery of docs on the wrong tenor, the issuing bank may still defend its state saying that it was late payment by the applicant who has defualted to pay at maturity. !
Hi I do not agree with you because although the docs were discrepant, if the issuing bank has endorsed bl and handed same to customer to clear goods, it means that the issuing bank has received a waiver from the applicant and therefore has agreed to accept the documents. Consequently the issuing bank is irrevocably bound to effect payment on the maturity date i.e 90 days after bl date which cannot be 25 july 08 unless the issuing bank does not know how to calculate. And even if applicant has failed to pay on the maturity date, it is the undertaking of the issuing bank to honour as of the time it Issues the credit whether the applicant pays or not which is not the problem of beneficiary or negotiating bank.
I think the issuing bank should be sued for this malpractice.