Documents Lost In Transit In UCP600

[jim]

Hi!

UCP600 says

Article 35

Disclaimer on Transmission and Translation

A bank assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters or documents when such messages, letter or documents are transmitted or sent according to the requirements stated in the credit, or when the bank may have taken the initiative in the choice of the delivery place in the absence of such instruction in the credit.

If nominated bank determines that a presentation in complying and forward the documents to the issuing bank or confirming bank, whether or not the nominated bank has honored or negotiated, an issuing bank or confirming bank must honor or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank.

A bank assumes no liability or responsibility for error in translation or interpretation of technical terms and may transmit credit terms without translating them.


now lets say that the documents were destroyed for any reason when it was in the possession of the nominated bank but was already determined as a complying presentation, can the nominated bank claim under that letter of credit?

jim

[shahriar]

dear jim,

the simple answer is 'no'. the issuing bank is not oblige to pay under the credit. to understand why, you need to understand the underlying motive of UCP 600 Article 35.

under the common law jurisdiction, the post office is considered to be the agent of the receiver. so once you handed over the documents to the post office, it means that it is handed over to the agent of the issuing bank and therefore the issuing bank is liable to for any mistakes i.e loss in transit.

but in your question, the document was yet to me posted. therefore the issuing bank is not liable to pay in case of any loss.

regd

shahriar

[iLC]

dear shahriar,

it is also said that nominated bank is the agent of the issuing bank. therefore if the document is missed while its in the possession of the nominated bank, the beneficiary should be able to claim under the LC.

just for argument

iLC

[nesarul]

Dear ILC,

Just for argument

Interesting part.

This type of some issues really touch me a lot. I gave some thought on it few days ago and i found the following reason [pls share with me your views if i go wrong way].

My thought:

UCP is nothing but incorporation of good customs and practices all over the world. From its name i.e. UCPDC we can say that this rule is a process of continuous development.

There are some things in the present UCP which is come from other law/rule/practice etc. which:
1.Now being practiced in a bit deviated form from its originality:

Such as: Negotiation- the practice has been inherited in UCP from negotiable instrument law, where a negotiable instrument is mandatory to negotiate. Now in our present negotiation type credit, requirement of draft is not an obligation.

2.Inherited from other law and keep intake but practice should be changed:

Such as: ISBP Paragraph: 43 (a)
“a. If a draft is drawn at a tenor other than sight, or other than a certain period after sight, IT MUST BE POSSIBLE TO ESTABLISH THE MATURITY DATE FROM THE DATA IN THE DRAFT ITSELF. [EMPHASIS ADDED] i.e. If a credit called for a draft 90 days from B/L date, the maturity date must be able to calculate from the draft itself only. Otherwise it will treat as a discrepant.
The basic history of above paragraph is that when trade among the parties was happened through B/E [clean credit], in order to establish legal right on B/E, there is no option but to present a B/E which is complete.

But in our present documentary credit transaction, we can easily calculated the maturity date in combined of B/L and B/E [except acceptance credit]. Now keeping stringent on above paragraph may not reflect the current practice.

3.Regarding your point: The relationship between Issuing bank and nominated bank is so called agent - principal relationship.

I have not seen in UCP or ISBP or any official opinion mentioned that the above relationship is agent - principal relationship. But I do agree some of the scholar in this field termed as above.

If I agree with above for the sake of argument that the relationship between IB & NB is agent - principal relationship, according to sub article 14 (b) of UCP 600:

“A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank SHALL EACH HAVE A MAXIMUM OF FIVE BANKING DAYS FOLLOWING THE DAY OF PRESENTATION [EMPHASIS ADDED] to determine if a presentation is complying”.

this so called relation has now been used in a bit deviated form. That means although the relationship between IB & NB is agent-principal, they are not binding all the parties thereto [except sub article 18(b) of UCP 600].

Sorry for long posting and create irksome.

Regards
Nesar

[nhduc]

Dear Jim,

Under UCP 600 Article 35, the nominated bank is entitled to the issuing bank’s reimbursement even when the documents have been lost in transit between the nominated bank and the issuing bank.

Yet, I think the nominated bank, if required, must provide the issuing bank with proofs evidencing that the documents lost in transit are complying and that the nominated bank has forwarded the complying documents to the issuing bank. In this case, the issuing bank may require the nominated bank to provide it with a set of photocopied documents lost in transit and its courier receipt.

In my opinion if the documents, whether complying, were destroyed due to the nominated bank’s negligent fault and/or not forwarded to the issuing bank, the nominated bank is not entitled to any reimbursement from the issuing bank.

The phrase "destroyed in transit" is not covered in UCP 600 Article 35. Yet, I think, similar to the case where the documents have been lost in transit, the issuing bank must honour or reimburse the nominated bank even when the documents have been destroyed in transit. Of course, the issuing bank has the right to request the nominated bank to give proofs to evidence that the original documents destroyed in transit are complying by asking for a set of photocopied documents (and its courier receipt if necessary).

Best regards,
Nguyen Huu Duc

[shahriar]

dear iLC,

i dont think that nominated bank is the agent of the issuing bank. i agree with nesarul that there are some references which call nominated bank an agent of the issuing bank but the not equivalent to law, not even a rule. so i will be tagged with what is actually written in UCP 600. there is a difference between nominee and agent. nominee is a "suggested" person for a job while agent is a person who act for or manage other's business. therefore its not mandatory to employ a nominee. perhaps for that reason UCP 600 grants permission for a direct presentation to the issuing bank passing the nominated bank. so if the documents are lost by the nominated bank, there will be no claim under the credit. however the beneficiary may have right to claim to the nominated bank under the local law.

regd

shahriar

[iLC]

dear Nguyen,

good to see you after so many days. very good comprehensive answer at this point.

dear nesarul and shahriar,

good answer. nesarul, some of the issues you pointed out are debateable.

iLC

[nesarul]

Dear ILC,
Pls raise the point so that we can learn.
regards
nesar

[lemonselo]

Dear All,
first of all, sorry for reactivation an old post, I have a question as about documents lost in transit as an importer.

LC without confirmation
İssuing Bank:xx
Receiver Bank:yy
41A:yy by negotiation

now our banks states that nominated bank(yy) has right to ask reimbursement with copy documents if documents are lost in transit.

but as muc as i know, please correct me if i am wrong, under Lc without confirmation, issuing bank has authorization to examine documents for discrepancy and if Issuing bank sees that documents are not original as requested on LC then they send refusal swift to nominated bank and wait for applicant (our) acceptance so this means that asking reimbursement by nominated bank is not valid till applicant gives confirmation.

this issue is important because we are an importer company doing business with sea shipment. This means that in order to get own goods/delivery order from shipping agency ı have to present original bill of lading/transport document to them . this is the procedure of sea shipment.

now as per our banks statement, applicant bank has to reimburse beneficiary bank which means they somehow are going to debit my account. I will pay for copy documents which is not useful for owning goods . isnt there any regulation to protect applicant under current situation? appreciate your opinions

[picant]

Hi Pal,

to avoid these problems, it is necessary to ask for two sendings of documents with 2/3 Bill of lading
in the first one and 1/3 in the second mail, considering that liability depends on where the l/c is
available. I think that only documents as bill of lading are difficult to reproduce and only after a
court's order that may last more than one year.
So if the l/c is available in the exporting Country you may ask for separate sendings.
Other comments appreciated
Ciao

[cristiand969]

I suggest you to approach a local lawyer for this matter.