Shipping Guarantee:

[Md.zakir Hossen]

Regularly, we issue shipping guarantee to the importer against Non-Negotiable docs Where the Applicant make a declaration that They Accept all the discrepancy(ies) if any in the original docs. and release the goods.

Suppose, the Applicant released the goods against shipping guarantee and when the original docs reach, Issuing Bank found that the docs is discrepant.

What will be the role of Issuing Bank?

[Shabnam]

Since issuing bankhas already transferred its right/title to applicant by endorsement, issuing bank will make payment to beneficiary as per payment terms. Issuing bank will inform applicant about discrepancy. But applicant will not have any option to accept or reject it.

[nesarul]

Dear Sir,
Its always provide me immense pleasure to see your posting on this site. here i furnish below my thought :
.
first of all i think we all admit that releasing goods through shipping guarantee and examination of document under credit are two different issue.
.
if you contemplete in sub article 16 (a):
When a nominated bank acting on its nomination, a confirming bank if any and the issuing bank determines that a presentation is not complying, it MAY(EMPHASIS ADDED] refuse to honour or negotiate.
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here the word "MAY" is indicative. that means bank(IB,NB, CB) may provide a discrepent notice or not although documents constitute discrepent.
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in your case, since the applicant has already been received the goods through shipping guarantee, i think issuing bank SHOULD NOT PROVIDE DISCREPANT NOTICE TO THE PRESENTER.[ALTHOUGH IT CAN DO SO] AND HONOUR ACCORDINGLY. its all about to some extent enhanced the confidence of the country and uplift the reputation of a particular bank.
thanks
nesar.

[Md.zakir Hossen]

For Shabnam
I appreciate your opinion:
Let's look at an example:
Company A had a credit line of USD100,000 for the issuance of letter of credit with Bank I against 100% cash deposit.
Company A wished to import "one lot of electronic devices" for an amount of USD250,000 but it was not able to place an additional amount of USD150,000 with the bank.
Bank I, without any knowledge of the of the same between Company A and Company X, issued a letter of credit for USD100,000 covering shipment of "one lot of electronic devices" in favour of Company X.
When the shipment arrived, Company A applied for a shipping guarantee in favour of the shipping company. Bank I approved the shipping guarantee as the value was declared as USD100,000 only.
But when documents were presented, Bank I was shocked to see that the amount claimed under its credit was USD250,000.
What did Bank I do?
Firstly, Bank I checked the documents. The documents did not comply so it issued a notice of refusal to the beneficiary citing the discrepancies.
When the beneficiary received the notice of refusal it asked for the documents to be returned. On receiving the documents, it then instructed the shipping company to return all cargo or pay for the cargo.
As the goods had already been released, the shipping company claimed under the shipping guarantee on Bank I.
Applicant already used the goods.

Now what will the Issuing Bank do?


For nesarul: I reproduce some Part of ICC Banking Commission Collected Opinions 1995-2001 (98 Article no-14,R-413)
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The issuance of a guarantee to the shipping company is outside the scope of UCP and the credit. In circumstances where the goods have been released against a bank guarantee, at the request of the beneficiary, the issuing Bank is still obliged to check the documents against the terms and conditions of the to ascertain compliance. Where a bank guarantee is required and the beneficiary consents instigates the issuance, the agreement between the parties should reflect the stance to be taken by the issuing bank upon receipt of the documents.

...........What happens if we have a discrepancy when we present documents? The issuing Bank is obliged to check the docs in accordance with UCP...and provide a a rejection notice in the event of discrepancies being observed.
Question such as “Is it possible for an opening Bank to refuse payment because of a discrepancy when the B/L has been endorsed to the buyer and if so, can the goods be returned?” are outside the scope of the Letter of Credit.

[shahriar]

hi all,

i agree with nesar. SG and LC are two separate issues. the issuing bank can refuse and return the documents to the presenter if there is discrepancies. we are talking about non nego copies here which is not a document of title. therefore it bears no significant value but may only help in issuance process of SG. besides i believe that the non nego copies of the docs are sent to the applicant and not to the issuing bank. its not even necessary that the SG will be issued by the lc issuing bank. the guarantee that banks take from the applicant is for its own credit quality, not for the beneficiary.

but apart for all the argument, the one thing remain unchanged "bankers are honest"

[nesarul]

DEAR ZAKIR VAI,
IS THERE ANYTHING CONTRADICT WITH THE ICC OFFICIAL OPINION AND MY POSTING, IF YES PLS MENTION.....
THNAKS
NESAR

[Md.zakir Hossen]

Dear nesarul
First of all Please no more vai. I am not Munna vai.say zakir.
Dear, This Posting is to remove my confusion.What issuing Bank should do.If issuing Bank do not notice discrepancy.Then if the importer brings a court order regarding stop payment in case when the goods is inferior quality.Side by side the shipping company liabilities!
zakir

[ajoy]

Was wondering what happened in this case? Also trying to understand the risk and liability incurred by Issuing bank and shipping company in this case:

Since this is an old discussion I have given the quote below for reference and my comments are in brackets in bold italics:


[quote][/quote]

Let's look at an example:
Company A had a credit line of USD100,000 for the issuance of letter of credit with Bank I against 100% cash deposit.
Company A wished to import "one lot of electronic devices" for an amount of USD250,000 but it was not able to place an additional amount of USD150,000 with the bank.
Bank I, without any knowledge of the of the same between Company A and Company X, issued a letter of credit for USD100,000 covering shipment of "one lot of electronic devices" in favour of Company X.
When the shipment arrived, Company A applied for a shipping guarantee in favour of the shipping company. Bank I approved the shipping guarantee as the value was declared as USD100,000 only.
But when documents were presented, Bank I was shocked to see that the amount claimed under its credit was USD250,000.
What did Bank I do?

( In my opinion , Bank I would have checked with applicant before refusing docs. If no fraud was intended applicant (company A) would have accepted docs for 250,0000 USD and paid the bank)

Firstly, Bank I checked the documents. The documents did not comply so it issued a notice of refusal to the beneficiary citing the discrepancies.
When the beneficiary received the notice of refusal it asked for the documents to be returned. On receiving the documents, it then instructed the shipping company to return all cargo or pay for the cargo.
As the goods had already been released, the shipping company claimed under the shipping guarantee on Bank I.

( Shipping comapny would have to pay USD 250,000 to bene. It has a claim of 100,000 against Bank I and has legal recourse to the applicant for misrepresnting facts/fraud. A question here - should not the shipping comapny verify goods value before releasing goods against a shipping guarantee. Had it done so it would not be in this position now)

Applicant already used the goods.

( Applicant is still liable for fraud if it refuses to pay or is unable to pay the balane 150,000 USD. Bank I should already have the USD 100,000 cash margin which it can use here. I think in this case if the applicant is abscounding the shipping company would not be able to recover the loss of 150,000 USD from Bank I which had no knowledge or no way of knowing about the fraud. It would be hard to prove that the bene was participating in the fraud either.)

I am interested in what actually happened in this case? or was this a hypothetical case....