Is there any obligation on the part of the advising or nominated bank to issue a letter of assignment at the request of the beneficiary of the Documentary Credit?

I shall appreciate your comments on this?

Best regards

S.Murtuza

So - this is up to what the law says in the jurisdiction - probably the jurisdiction where the beneficiary and the nominated bank are located.

A bank that is only advising the credit - an not nominated - would likely have a problem with 'control' if they executed an assignment of proceeds - since they are not the nominated bank they really do not have much, if any, ability to control the credit or the beneficiary.

Regards

Don

Best Regards

Glenn Ransier

From my experience in handling L/C disputes, I do not suggest an "outsider" bank to do the assignment, even if it is allowed in local law because:

1 As already pointed out by Don, the amendments that come after the assignment may not be known to the assigning bank if it is not also the nominated bank or advising bank. If the credit amount is greatly reduced, then problems may arise.

2 If the credit is later transferred, it cannot be wholly or even partly, depending on how large the amount is being assigned.

3 The amount due to the second beneficiary should not be affected by the assignment. Only the part due to the first beneficiary is affected by the assignment. What if the assigned amount is so big that it has to cover part of the transferred value? Then how this dispute is going to be resolved?

Some may think that this is not possible, but from my experience, to err is human and anything is possible under the sun.

4 UCP is silent on the situation whether the assigning bank has to obtain the authority from the issuing bank. From risk management point of view this should be necessary.

5 UCP is silent on the situation whether the assigning bank need to notify the other banks, such as the nominated bank, the issuing bank and the confirming bank, if any. Lack of communication may bring big problems, as all of you can imagine.

I would like to hear from those bankers who do assignment regularly, such as those from Bahrain and USA, for example, Abdulkader and Don, to share with us their experience in this regards, particularly on point 3 to 5 above.

Best regards,

T. O.

With regards to points 4 and 5 no notification is needed as this is generally between the nominated paying bank and the beneficiary. In general it is a legal issue as mentioned. However, usually the beneficiary has the right to "assign proceeds" as it is generally their legal right to do so. A nominated bank could acknowledge it or not based upon their laws and individual policies and cautions should be addressed on the bank wording used. Internal policies should cover the first few issues you've raised. I would also note that second beneficiaries usually have the right to assign proceeds also.

Best Regards

Thank you for your prompt input from a legal perspective.

I do understand that it is "human right" for a person to dispose of his/her assets at free will. The trouble is that if assignment is not well managed, it would cause a lot of problems, including those I have mentioned in my previous email.

As inspired by your comments, the second beneficiary should have the right to ask another bank to do the assignment, because the assignment is not necessarily only excluded to the transferring bank. Then the same problems as I have mentioned would arise.

From risk management point of view, I would suggest the bankers to make some rules with their clients to avoid such dilemma.

Best regards,

T. O