FEATURE - The Institute of International Banking Law & Practice

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FEATURE then a bank cannot exert negotiating bank status if it has not truly negotiated. Another panelist maintained that the presenting bank need not tell the issuing bank what it has done. The presenting bank should just state on the cover letter that it is presenting documents for honor. If the presenting bank needs to get more detailed later, it can inform the issuing bank of its status at that time. How many bankers charge a “negotiation” fee as opposed to an “examination” fee One delegate responded that their bank charges a document handling fee. One panelist cautioned that if a bank charges a fee by percentage of the draw, it might appear to the beneficiary that the bank is taking responsibility for checking the documents and any mistakes the bank may make. The bank would not be taking any credit risk, but it would be taking documentary risk. Another panelist added the bank would have a risk anyway whether it charges a flat fee or a percentage because the bank may have lost recourse rights. Do bankers ever say they are the paying bank based on what the draft indicates Based on one response, it doesn’t matter what the draft says, but it is also in conjunction with which bank the credit is available. If the drafts are drawn on the bank in question, then the credit should be available by “[I]f a bank charges a fee by percentage of the draw, it might appear to the beneficiary that the bank is taking responsibility for checking the documents and any mistakes it may make.” payment. If the drafts are drawn on another, then the credit should be available by negotiation. One panelist has observed an increase in the number of requests to add arbitration language in standby LCs. Over one-third of the audience agreed they have seen a rise as well. While there are different arbitration rules available, one expert familiar with arbitration strongly discouraged this option which is quite expensive. In addition, historically it has not proven useful for letter of credit disputes and offers no advantages over a judicial approach. For customers who insist on arbitration clauses inserted in LCs, several panelists thought banks would be wise to offer some resistance. For example, applicants might believe that arbitration is cheaper and faster, but it is not. An applicant pursuing an injunction will have to go to court even if the letter of credit contains arbitration language. Above all, customers who are not intimately familiar with arbitration rules risk unintended consequences. In summary of the Hot Topic panel discussions, BYRNE suggested that bankers should have a plan in place to deal with applicants alleging fraud. Banks should resist arbitration clauses and attempt to convince parties not to use them. For negotiation, banks should have very clear ideas what they are doing with regard to forms, recourse, fees, and claims from the issuing bank. ICC Opinions Revisited (in Light of UCP 600) The query relating to ICC Opinion TA629 involved a credit calling for a full set of marine bills of lading. Field 44E (Port of loading/airport of departure) showed “Umea, Sweden.” Field 44F (Port of Discharge/airport of destination) showed “Port Jebel Ali, Dubai by vessel.” Under Field 47 (Additional Conditions) was stated “Multimodal transport document is acceptable”. Documents were presented. 18 Documentary Credit World May 2008
FEATURE The bill of lading showed the following information: Place of receipt: Umea, Sweden Ocean vessel: “vessel xx” Port of Loading: Hamburg Port of Discharge: Port Jebel Ali, Dubai by vessel The bill of lading stated that the goods were received for shipment and did not show any on board notation. The issuing bank’s advice of refusal stated: “B/L doesn’t show port of loading as required under L/C field 44E.” The presenting bank argued that because the credit allowed for presentation of a multimodal transport document, the bill of lading should be examined in accordance with UCP600 Article 19 (Transport Document Covering at Least Two Different Modes of Transport). The presenting bank also stated that the letter of credit wording was ambiguous because it allowed for a document covering at least two different modes of transport and required transportation between two (sea) ports. The issuing bank disagreed. In its analysis, the ICC agreed that the wording was ambiguous and further stated that this was a common way of structuring credits. The ICC pointed out that the issuing bank bears the risk of such ambiguity. The conclusion stated that the multimodal transport document complied as it showed transport between Umea and Jebel Ali. Panelist moderator MAULELLA stated that, based on this opinion, the advising bank should go back to the issuing bank to clarify requirements if such requirements are not clear. Other panelists added that the problem stems from the fact that issuers do not think about what they are going to receive. Due to volumes, many bank do not take the time to mitigate this type of risk. James WILLS (SWIFT) stated that the banking industry had been asking for these SWIFT Field changes for years but now that they are available, use of them has been “under-whelming”. Banks need to know how to use them and change their forms accordingly. ICC Opinion TA632rev relates to the situation of a 100% transfer with no substitution. In addition to modifications that may be made per UCP600 Article 38(g), can a transferring bank also modify Article 38(k) to allow presentation directly to the issuing bank instead of to the transferring bank If so, how should the transferring bank handle this and how does the issuing bank know this modification has been made The Opinion’s conclusion stated that a transferring bank can so modify sub-Article 38(k) and should inform the issuing bank who would otherwise have no way of knowing of the modification or even that a transfer has been effected. If the transferring bank does this without informing the issuing bank, one delegate mentioned that the transferring bank would be setting up the second beneficiary for a discrepancy because the issuing bank doesn’t know this has occurred. How does one reconcile this provision with UCP600 Article 6(a) where the beneficiary can go directly to the issuing bank Some delegates believe there seems to be a conflict between UCP600 Articles 38(k) and 6(a), while others see no conflict. In the situation of this particular query when there is a 100% transfer with no substitution, the Opinion allows banks to modify UCP600 Articles 38(k). At least one panelist views this as a perfect example of UCP 600 Article 38(k) not being enforceable in some situations and finds it shocking that the ICC would allow this sub-article to be unilaterally modified. If a transferring bank becomes insolvent or goes out of business, then the issuing bank should not be May 2008 Documentary Credit World 19
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