Liability of Issuing Bank and Transferring Bank in a Transferable LC

[ramis]

Dear LC Gurus

I need your kind advice on below matter:

1. We are the 2nd beneficiary in LC and the actual suppliers/shippers of the cargo.
2. Our bank is based in Malaysia.
3. Transferable LC was opened from a Chinese Bank by Applicant based in China
4. First beneficiary’s address in LC is of Hongkong as 1st beneficiary is based in Hongkong.
5. Applicant bank is in China (Wuhan Branch)
6. 1st beneficiary bank is also in China (Qingdao Branch – same bank as of applicant but different branches in different cities)
7. Clause 40B of LC says: “IRREVOCABLE (WITHOUT OUR CONFIRMATION)”
8. Clause 49 of LC says: “Confirmation Instructions: Without”
9. LC says all docs to be forwarded to 1st Beneficiary’s bank branch in Qingdao.
10. We sent the documents to our bank in Malaysia and they sent all the documents to 1st beneficiary bank in China (Qingdao branch). So far 8 banking days passed and we have not news from 1st beneficiary’s bank. There is no rejection or any refusal. So since 5 banking days passed so we assume it was a complying presentation otherwise they would have raised a discrepancy?

The Problem: global prices of the cargo has dropped and have an impression from first beneficiary that they have made an alliance with the applicant not to honor this shipment and somehow escape or reject or refuse the documents and that is why so far the 1st beneficiary or his bank has not yet sent the substituted documents to applicant’s bank.

Now being shippers of the cargo, we have following concerns/questions:

1. What is the liability of the 1st beneficiary bank? Since our presentation was complying and they did not raise any objection and if on the pressure or mal-intention of the 1st beneficiary they do not present the substituted documents to applicant bank or 1st beneficiary intentionally makes discrepant substituted documents so that applicant bank refuse it so what should be our position in this situation? What is legal liability of the 1st beneficiary’s bank under UCP 600 and International Chamber of Commerce rules? Can we force 1st beneficiary bank or Applicant bank to pay us?
2. What if 1st beneficiary’s doesn’t present docs to his bank (transferring bank) at all or if presents then presents discrepant docs? What should be role of the transferring bank? Can we challenge transferring bank failure to act as per UCP article 38(i)?
3. Incase 1st beneficiary doesn’t present docs at all or transferring bank forwards our docs to applicant bank as they last choice? Would they be deemed acceptable and complying since there would be unit price and amount difference and our invoice is issued in the name of 1st beneficiary? What is the legal liability in this case for applicant’s bank?
4. To cut the long story short, now at this stage, can our payment or documents be rejected as per UCP or any other reason?
5. Can we go to court and sue both banks if our payment is not realized?

Thanks a zillion for your kind help and advice.

Regards
Asim

[picant]

Hi Pal,

place of presentation was the transferring bank-counters, I presume.
8 banking days have been counted considering Chinese Calendar, havent they?
If the second beneficiary presentation is ok, the documents presented by first beneficiary , if
not correct, they dont affect the true presentation.
It is very important the wording of the MT720 and the content of the advice.
Good luck
Ciao

[ramis]

Dear Ciao

thanks for your reply.

the issuing bank has refused to honor due to below reasons in swift:

can issuing bank and transferring bank can be sued for this?

Also my questions in view of above are:

Question 1:
In a transferable LC, clause 46A asks for Invoice and Beneficiary Certificate to mention contract number.
Now as understood, there are two contracts signed between the three involving parties i.e,

1. Contract between applicant and 1st benef.
2. Contract between 1st benef. and 2nd benef.

(Note: LC doesn’t specify exact contract number/ reference but just mentions that beneficiary certificate to mention contract number)

2nd beneficiary makes a complying presentation to transferring bank mentioning the contract number they have with 1st beneficiary on invoice and beneficiary Certificate.
2nd beneficiary then substitutes Invoice and Draft only and puts on the Contract number on the substituted Invoice they have with the applicant and transferring bank sends along with other documents to issuing bank.
Can the issuing bank refuse to honor the documents giving below reason:
“Contract no. on benef. Certificate differ from contract no. on invoice”
Please guide? What should be course of action for 2nd beneficiary if issuing bank dishonors presentation due to this reason? (Note: Transferring bank is not the confirming bank in the LC)
Should issuing bank consider ICC Opinion R.489 which states:

"When an issuing bank agrees to issue a transferable credit it must appreciate that some of the information appearing on certain documents may not agree with that shown on the invoices, due to the substitution of the second beneficiary's invoices. For instance, the invoice number of the first beneficiary may be different from an invoice number (that of the second beneficiary) which may appear on say, a certificate of origin. If amounts are shown on documents other than the invoice (and draft(s) if any) and these differ from that on the substituted invoice, the issuing bank will still be bound to effect settlement if the documents are otherwise in conformity with the credit terms and conditions. The issue of amounts being shown on documents other than the invoice, is more for the first beneficiary who may not wish the original purchase price to be made known to the applicant. There would be no discrepancy for the reasons outlined above. The negotiating bank would not be required to produce any proof of values that may have appeared in the second beneficiary(ies) invoice(s)."

Question 2:
In a transferable LC, 2nd beneficiary mentions unit price on every document and makes a complying presentation to transferring bank then would the documents will become discrepant at issuing bank if transferring bank substitutes invoice and draft of 1st benef. with different unit price as per original LC of Applicant opened to first beneficiary?
In above situation, can issuing bank declare documents are discrepant due to different unit price on substituted invoice of 1st beneficiary and unit price mentioned by 2nd beneficiary on all other docs? Should IB again consider ICC Opinion R.489 in this case? And what if they do not and reject the documents?

In above situation, if documents would become discrepant due to different unit price by substituting invoice of 1st beneficiary what transferring bank should do? In such a case, is transferring bank bound to act in accordance to article 38i of UCP and must forward 2nd benf. docs to issuing bank as it is? What if transferring bank doesn’t act in accordance to 38i of UCP despite knowing the consequences? (Note: Transferring bank is not the confirming bank in the LC)

I would really appreciate your kind advise on above.

kind regards
Asim