lcviews CoronAdvice #5: Problems in sending documents under LCs and collections
The fifth blogpost in the segment “lcviews CoronAdvice” takes outset in the fact that one of the consequences of the coronavirus is that the sending of documents to and from countries in lockdown has been disrupted; hence there has been significant delays. For the purpose of LCs such delays may simply mean that payment is late – however it may also – in the worst case – mean that payment is not made at all. For collections, the scenarios are not that many – but still the consequences may be critical.
As has been noted, although a country (India as an example) has declared lockdown, the banks may be exempted from the lockdown as they are considered critical services. However, (again using Indian as an example) large parts of the transport services are suspended. This has meant that the courier services have made a temporary stop in delivering documents. The below address some of the relevant scenarios focusing on the issues in delivering the documents to – and from – the banks in the effected country.
In the below, “Bank ISS” is the issuing bank, “Bank NOM” is the nominated bank (that has not confirmed the LC and “Bank CON” is the confirming bank that is also a nominated bank. Bank ADV is the advising bank that is not nominated to honour or negotiate.
For the LC scenarios, the principles of documents lost in transit are based upon the second paragraph of UCP 600 article 35 which reads:
“If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honoured or negotiated, an issuing bank or confirming bank must honour 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.”
It is not uncommon that the LC includes a clause that modifies or excludes this provision. In such case it will be the provision in the LC that apply; hence the result may be different.
Likewise, the first paragraph of the article is also relevant. It reads:
“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 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 service in the absence of such instructions in the credit.”
This means that another element that is important is whether or not the documents are sent according to the requirements in the LC.
For collections, the relevant provision is in URC 522 article 14(c) which reads:
“Banks assume no liability or responsibility for the consequences arising out of delay and/or loss in transit of any message(s), letter(s) or document(s), or for delay, mutilation or other error(s) arising in transmission of any telecommunication or for error(s) in translation and/or interpretation of technical terms.”
Basically, this means that none of the involved banks are responsible if the documents are lost in transit, e.g. between the remitting bank and the collecting bank.
Here are the scenarios:
Scenario 1: A complying presentation is made to Bank CON
Bank CON is obligated to honour or negotiate. At the outset, a complying presentation to Bank CON will also obligate Bank ISS.
If the courier company refuses to accept the documents, Bank CON should reach out to Bank ISS in order to obtain new instructions on how to forward the documents.
There may be some alternative measures to consider. However, in considering those bear in mind that in order to ensure that Bank ISS is obligated, and have the risk of documents lost in transit, the instructions in the LC (or new instructions received from Bank ISS) regarding forwarding of documents must be followed.
The alternative measures include:
* If the instruction is to forward the documents via courier – check if it is possible to find a courier service that do deliver to the country / place in question.
* If there are no instructions in the LC (and no courier service providers can deliver) it may be considered to forward via registered airmail. In such case ensure to keep a copy of mail receipt – as well as copies of the documents (in order to be able to prove that it was a complying presentation).
*If it is not possible to forward the documents to Bank ISS – and no response is received from Bank ISS, seek new instructions from the head office of Bank ISS.
If all of above is unsuccessful, keep the documents, and ensure to document what has been done in trying to deliver the documents.
Scenario 2: A presentation that do not comply is made to Bank CON
Bank CON is not obligated to honour or negotiate, and the risk of documents lost or delayed in transit is on the beneficiary.
In such case, it is important that the beneficiary understands the situation.
Based on an agreement with the beneficiary, Bank CON may assist in forwarding the documents to Bank ISS.
Scenario 3: A complying presentation is made to Bank NOM
Bank NOM is not obligated to honour or negotiate (unless it has expressly agreed to do so), but the risk of documents lost or delayed in transit is on Bank ISS
In such case, it is important that the beneficiary understands the situation.
Based on an agreement with the beneficiary, Bank NOM may assist in forwarding the documents to Bank IS e.g. based on the measures indicated in scenario 1 above.
Scenario 4: A presentation that do not comply is made to Bank NOM
Bank NOM is not obligated to honour or negotiate, and the risk of documents lost or delayed in transit is on the beneficiary.
In such case, it is important that the beneficiary understands the situation.
Based on an agreement with the beneficiary, Bank NOM may assist in forwarding the documents to Bank ISS.
Scenario 5: A presentation is made to Bank ADV
Bank ADV is not obligated to honour or negotiate, and the risk of documents lost or delayed in transit (from Bank ADV) is on the beneficiary. This regardless if a complying presentation has been made to Bank ADV.
In such case, it is important that the beneficiary understands the situation.
Based on an agreement with the beneficiary, Bank ADV may assist in forwarding the documents to Bank ISS (or Bank NOM or Bank CON where relevant).
The above are some of the basic scenarios that should cover the main part of the transactions. In reality, what it comes down to are the following:
1: How / where is the LC available?
2: Has a complying presentation been made?
3: What are the forwarding instructions in the LC?
As mentioned, for documentary collections there are fewer alternatives. What should be taken into account are the following:
1: If the remitting bank is unable to forward the collection instruction and documents to a collecting bank, that bank should contact the the principal seeking new instructions. Those may include:
* Return the documents to the principal
* Hold the documents until it is possible to forward
* Other instructions
2: The collecting bank can only act from the time when they receive the collection instruction from the remitting bank.
3: None of the involved banks are responsible if the documents are lost in transit, e.g. between the remitting bank and the collecting bank
Takeaways:
* For LCs the postal risk and what actions could should be done in forwarding the documents to the issuing bank will depend on:
1: How / where is the LC available?
2: Has a complying presentation been made?
3: What are the forwarding instructions in the LC?
* For collections, if the remitting bank is unable to forward the documents to the collecting bank, that bank should contact the principal seeking new instructions
Look out; more “lcviews CoronAdvice” to come.
Meanwhile – as always, take care of the LC – but take special care of each other during these difficult times.
Kind regards
Kim