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dear friends,

i would like to have your opinion on the following issue

"is a second beneficiary third party under a transferable letter of credit transaction?"

In my opinion, a third party to an LC does not have any rights or obligations under the credit. A second beneficiary does have certain right under the LC. For example, they have the right to present documents up to the transferred amount. If the first beneficiary does not substitute documents or does not correct substituted documents, the transferring bank may forward the second beneficiary’s documents to the issuing bank. In this case, the issuing bank cannot refuse the documents on the grounds that the second beneficiary is not a party to the credit.

Hi,

ISBP 681 have a reference to "third party documens" . Please refer to article 21.


21.Expressions such as "shipping documents", "stale documents acceptable", "third party documents acceptable" and "exporting country" should not be used as they are not defined in UCP 600. If used in a credit, their meaning should be made apparent. If not, they have the following meaning under international standard banking practice:
.....
c. "third party documents acceptable" - all documents, excluding drafts but including invoices, may be issued by a party other than the beneficiary. If it is the intention of the issuing bank that the transport or other documents may show a shipper other than the beneficiary, the clause is not necessary because it is already permitted by sub-article 14(k).





regards,
Ozoda

Judith wrote:In my opinion, a third party to an LC does not have any rights or obligations under the credit. A second beneficiary does have certain right under the LC. For example, they have the right to present documents up to the transferred amount. If the first beneficiary does not substitute documents or does not correct substituted documents, the transferring bank may forward the second beneficiary’s documents to the issuing bank. In this case, the issuing bank cannot refuse the documents on the grounds that the second beneficiary is not a party to the credit.

.
Although what you have said is perfectly correct the UCP comes to clarify that "an invoice must appear to be issued by beneficiary (EXCEPT AS PROVIDED IN ART 38 - which seems to be interpreted as a third party). Although a second beneficiary is entitled to receive proceeds against a presentation under a transferred credit, the obligation of an issuing bank is toward first beneficiary and exceptionally as you pointed out, toward second one when 1st one refuse or have no interest in document substitution.
However, I believe this topic is time consuming (lucky for me to have a little to spare today:) ) because it would be a stupidity to include such condition under a transferable credit as a general term.
It may be very likely that the EACH and EVERY document required to call for a specific issuer of a document (s) and therefore in this situation third party documents not acceptable to have some sort of meaning. It may be assumed as well that the issuing bank may have modified art. 16 a.i. and may not want to accept second beneficiary invoice (i.e. a substitution must take place). Although very unlikely, there could be surprises.... Each part involved in such LC must have the confort with the LC terms and conditions.

cristiand969 wrote:Although what you have said is perfectly correct the UCP comes to clarify that "an invoice must appear to be issued by beneficiary (EXCEPT AS PROVIDED IN ART 38 - which seems to be interpreted as a third party).

Good point dear crisitian on that occasion. the confusion arised while i was having a look at latest volume of FAQ where a answer to the question relating to the prohibition of third party document in a transferable letter of credit was -

such a clause may make the transfer unworkable...unless all the documents are substituted by the first beneficiary

things are clear now. thanks!!

i cannot agree that a second beneficiary is a third party. by calling so we are significantly undermining the rights of the second beneficiary. while UCP clearly indicates that transferred credit must clearly include the confirmation detail (if any), i cannot imagine that a confirmation is extended to a third party.

No. second bene is not the third party

though shahriar states " things are clear now."
para 21 as refrred by ozoda
third party documents acceptable" - all documents, excluding drafts but including invoices, may be issued by a party other than the beneficiary. If it is the intention of the issuing bank that the transport or other documents may show a shipper other than the beneficiary, the clause is not necessary because it is already permitted by sub-article 14(k). may not be applicable. A bank can't quote this as discrepancy for commercial invoice drawn by second bene (art 18).
regards
n k k

they are technically named as transferee, I guess other than this (transferee ) , any party may called third party in transferable L/C .

jmitra wrote:i cannot agree that a second beneficiary is a third party. by calling so we are significantly undermining the rights of the second beneficiary. while UCP clearly indicates that transferred credit must clearly include the confirmation detail (if any), i cannot imagine that a confirmation is extended to a third party.

Dear jmitra,
we have to split out your position (though appreciated) because one one hand we are talking about the definitions and status of second beneficiary under L/C docs verification and on the other hand you are making reference to the right of the same to perform under the credit. Also confirmation stands for responsability of the transferring bank and its position towards beneficiary (ies) and by quoting this I slighly feel we are running out of topic.