Who Is Responsible For Bank Charges When LC Is Inoperative

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Navi
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Who Is Responsible For Bank Charges When LC Is Inoperative

Post by Navi » Wed Jun 25, 2008 12:49 pm

Hi Friends,

I need yr help for the folowing issue:

We received an L/C with terms relating to chargs:

1) All charges even in case of unutilization are for the account of beneficiary

2) Article 37 c and d of UCP 600 not applicable

3) Recover our charges prior to advising of L/C

4) This L/C will be operative only after receipt of our charges.......

We advised L/C beneficiary without receiving chrages because beneficiary told that they will request amendments from applicant and A/M terms will be amended. However, no amendments received and beneficiary not shipped the goods. Now issuing bank requests all their charges including issuing and cancellation charges.

Can we avoid those charges? Since beneficiary not paid for issuing charges, L/C remained unoperative as per L/C terms. At least for that reason, Can't we refuse cancellation charges because the L/C never became operative?

I really need yr urgent help, thnks
Last edited by Navi on Thu Jun 26, 2008 1:11 pm, edited 1 time in total.

hassan
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Re: issuing bnk charges? Pls help

Post by hassan » Wed Jun 25, 2008 7:27 pm

cnosidering the l/c terms ,It seems your bank should not have advised such l/c before receiving issuing bank and your own bank,s charges.

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shahriar
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Re: issuing bnk charges? Pls help

Post by shahriar » Wed Jun 25, 2008 8:45 pm

:D

dear navi,

cool case!! oooo, the issuing bank has a good sense of humor!!

the first thing is that UCP should not have allow any exclusion. your case is a perfect example of what could have happen due to such exclusion.

now, the fact is, the advising bank is not bound by the terms and conditions of the credit. so there is no question of giving money to issuing bank.

your logic is perfect on cancellation charges.

if the issuing bank still insists on the charges, if i were you, i would do this

"dear issuing bank,

as per instruction we have recovered your $100 charges from the beneficiary. however collecting your charges and remitting them is outside the scope of UCP and LC. right now we are merely your collecting agent. so we charge extra for this. $200. we therefore request you to urgently remit the fund to our account. "

;)

regds

shahriar

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nesarul
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Re: issuing bnk charges? Pls help

Post by nesarul » Wed Jun 25, 2008 9:56 pm

Dear friends,
Just after implementation of of UCP-600,tendency to exclusion of UCP articles or sub articles have become a fashionable matter for the issuing bank all over the world. ICC banking commission members vividly discussed this matter not only in the meeting room [held on october 2007) but also at tea break as well. In that meeting ICC has also issued an opinion e.g. TA638(rev) regarding exclusion of UCP articles and its effect. later of this opinion ICC incorporated a GENERAL COMMENT for all who dealing with credit transaction:
" it should be noted that banks that if they are considering the exclusion of a rule,it is often not as simple as merely making a statement in the credit that article X or sub-article Y is deleted or is not to apply. Very often there is a need for a new condition to be inserted into the credit to cover the void that the exclusion leaves......".

here i end my posting with an african probarb:
"If you Take from a man his tribal customs, you had better have something of value to replace them"
regards
nesar

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shahriar
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Re: issuing bnk charges? Pls help

Post by shahriar » Wed Jun 25, 2008 10:00 pm

well said!!

Md.zakir Hossen
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Re: issuing bnk charges? Pls help

Post by Md.zakir Hossen » Thu Jun 26, 2008 10:11 pm

Dear every body
Very interesting.Creative letter of Credit.If I am in the place of Advising Bank I would Back the credit to the Issuing Bank straigtly and would asked the Issuing Bank to send my courier charges.

Another Think, I think the exclusion provision in the UCP is very relevent and such provision provides the Bank to use the credit in more flexible way.

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shahriar
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Re: issuing bnk charges? Pls help

Post by shahriar » Fri Jun 27, 2008 6:23 pm

dear navi,

here is the ICC opinion on your case

ICC Opinion R549
To achieve their aims, these banks impose various conditions in their credits. Members of the ICC national committee in our country have seen many credits which include instructions to advising banks to collect their charges and commissions from the beneficiary before advising the credits, others issued in non-operative form pending the payment of commissions and charges by the beneficiary and further credits which expressly preclude UCP 500 sub-Article 18(c). There are also those issuing banks which, as well as precluding sub-Article 18(c), exclude also sub-Articles 18(d) and 19(d) and (e)….

…..

The practice outlined under Query above is one that the ICC Banking Commission neither supports nor would wish to see continue. This burden of collection of fees often results in additional administration, delays in providing advice of the credit and the associated risks with such delay and, as a result, incurs additional fees to the beneficiary that should not have arisen, these fees being totally attributed to the actions or requests of the issuing bank that fall outside the scope of normal letter of credit handling. An advising bank has the option to decline or refuse to handle transactions that incorporate such conditions.

However, the ICC has no authority to stop banks from incorporating a clause covering the collection of fees prior to the formal advising of the credit by virtue of Article 1 of UCP that states that the UCP Articles shall apply unless otherwise stipulated in the credit.

As stated under Analysis above, this issue generally surfaces where the credit is available with any bank. If the applicant requests such an issuance, the issuing bank should point out to it the potential for charges to be claimed back in the event the advising bank is not used as a negotiating, paying or accepting bank.

Sub-Article 18(d) has wider implications than just the question of collection of fees and extends to the whole handling of the credit by the respective advising, confirming and/or nominated banks. The exclusion of this clause should not form part of any credit.

Where an issuing bank excludes sub-Article 19(d), this is more of a bank-to-bank issue than a UCP one. This sub-Article establishes the basis as to who is responsible in the event of delay in reimbursement. Deletion of the Article has an impact on the ability of the confirming bank (to consider confirmation) or nominated bank (to act), and it is for that bank to seek comfort from the issuing bank before proceeding.

If an issuing bank excludes sub-Article 19(e) without replacement, the effect is the same as if the clause remained, i.e., the reimbursing bank's fees will be for account of the issuing bank.

Obviously, sub-Articles 19(d) and (e) only apply where the reimbursement is not subject to URR 525.
:cry:

regd

shahriar

Md.zakir Hossen
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Re: issuing bnk charges? Pls help

Post by Md.zakir Hossen » Fri Jun 27, 2008 10:04 pm

Thanks Shariar,
For a nice informative posting.

Navi
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Re: issuing bnk charges? Pls help

Post by Navi » Sat Jun 28, 2008 2:17 am

Thanks Shariar and other friends,
.
I have been thinking for a week to find a door but I couldn't. I am really angry. Their aim seem not to issue an L/C but to rob us. I wish you examined the L/C, half of it consists of terms and conditions how to get their charges :x

If I refuse charges on the grounds that L/C never accepted by the beneficiary, not became operative and request charges for our service... Will it be useful or cause only to increase issuing bank charges?

Thanks anyway...

iLC
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Re: issuing bnk charges? Pls help

Post by iLC » Sat Jun 28, 2008 10:19 am

dear navi,

advising accepting an lc are two different issues. the beneficiry must see the lc terms before accepting or rejecting it and the advising bank is to transmit the terms of lc to the beneficiary. so i think this idea wont work. right now there are only three ways to me -

1. just ignore the messages. but you should consider the degree of business relation with that bank. however a LC charge is a very small issues and will hardly have any impact for a long time.

2. get the original lc back from the beneficiary and then inform the issuing bank that you are unable to find the beneficiary. im asking this cause it is still possible for the beneficiary to go to some other nominated bank, pay the issuing bank charges and use the LC.

3. make the amendment happen. after all you acted in good faith. contact your client and ask him for the money or amendment.

regd

iLC

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