QUESTION: 01

1) In case of transferrable LC : What if the issuing bank , 1st beneficiary and second beneficiary
all 3 are in 3 different countries , how will the payment be processed ? As per the clause put by
issuing bank is credit available with any bank in 1st beneficiary country, what if second
beneficiary requests for credit availability with any bank in the their country… how are such
situations tackled ?

2) what to do in case if the second beneficiary is demanding for confirmation of LC from 1st
beneficiary as mandatory , how to solve the above to points.

Answer
1. A nominated transferring bank would only agree to transfer if the credit is available with that
nominated transferring bank. Presentation of documents by or on behalf of the second
beneficiary must be made to the transferring bank (sub-article 38.k). The bank presenting the
document on behalf of the second beneficiary only acts as a presenting bank.
The transferring may accept the transferred credit to be available with any bank in the second
beneficiary’s country. However, it can instruct the documents to be forwarded to their counter
and would undertake to pay/reimburse only after receipt of the proceeds from the issuing bank.
I’m afraid no bank in the second beneficiary’s country accept to negotiate the documents
unless such a negotiation is done on a with recourse basis.

2. The second beneficiary may insist on a confirmed credit. But the fact whether the credit is
confirmed or not depends on whether or not the issuing bank agrees to issue such an L/C and
whether or not the advising bank agrees to add confirmation.

However, if the original credit is confirmed then the transferred credit must include confirmation
(sub-article 38.g).
QUESTION 2

I’m trying to find a clause in UCP 600 or any related source showing that in transferable LC,
transferring bank only settle the payment claim to second beneficiary upon their receipt of
settlement from issuing bank.

Could you give me advice for this case.

Thanks a lot

TD

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ANSWER
Hi,

It is true that you cannot find any provision in UCP 600 stating that the transferring bank will
pay upon receipt of the proceeds from the issuing bank as it is a clause in the transferred credit.

Please note that unless the transferring bank is the confirming bank an authorization by the
issuing bank for the transferring bank to transfer the credit does not impose any obligation on the
transferring bank to honour or negotiate the complying documents presented by the beneficiary.
That is the reason why the transferring bank would undertake to pay upon receipt of the proceeds
from the issuing bank.

ICC has published some opinions on the obligations and liabilities of a transferring bank under a
transferred credit. Please find attached below ICC’s related analysis and conclusion in their
Opinion R482.

QUOTE

Analysis and conclusion

A) Atransferring bankwhen issuing its advice of transfer to the second beneficiary provides
either an unconfirmed or a confirmed credit. The type of advice is dependent on the instructions
in the original credit as to whether or not the credit was to be confirmed and whether the advising
and nominated transferring bank agreed to such a request. If the transferring bank has not added
its confirmation to the transferred credit, it has no obligation to effect payment. If it has
confirmed then it must honour the drawing of the first and second beneficiary, notwithstanding
the position of the issuing bank and its ability to provide reimbursement. In any case, the
documents belong to the second beneficiary until the presentation is honoured. If the transferring
bank has taken up documents, i.e. negotiated or forwarded them without the authorization of the
presenter, it would be liable for payment.

……

(C) If the transferring bank has made a promise to pay the beneficiary at maturity, it has
presumably added its confirmation to the credit. This is a documentary risk that any bank which
adds its confirmation takes. In the event of a dispute as to the acceptability of the documents
presented (under a transferred credit which is confirmed), it is to be resolved between the issuing
bank and the transferring bank, without the involvement of the first or second beneficiary.

(D) This type of clause will typically be seen on credits for which the transferring bank has not
added its confirmation. It is more a statement highlighting the position of the transferring bank as
a nominated bank in line with sub-Article 10(c) of UCP 500, rather than the bank’s position
under Article 48. Sub-Article 48(c) is there to demonstrate that whilst a bank may be nominated
to transfer, it is under no obligation to do so. However, if it does so, it is to the extent and manner
to which it is willing to act with due regard to the remaining sub-Articles of Article 48 and other
pertinent Articles of UCP 500.

Question : 03 A transferable L/C is issued by bank A in favor of Ben 1 and Ben 1 transfer this
LC to Ben 2 by MT720 through bank B (the bank is nominated as transfering bank in original
LC).

Ben 2 presents docs to bank B. – After checking docs, bank B determines that presentation does
not comply with the terms and conditions of LC and advises Ben 1. However, bank B also
notifies to Ben 1 that acc to UCP 600 they are not entitled to refuse payment under the credit,
even if the docs does not conform to the credit, only the issuing bank has that right.

So, the questions is Whether action of bank B is correct or not ??? Would you do the needful to
give me some advice as soon as possible?

Thank you so much

Best regards,

Answer

You may agree with me that unless the transferring bank is a confirming bank, the transferring
bank would normally incorporate the following reimbursement clause in the transferred LC:
“The transferring bank will pay to the second beneficiary only when funds are received from the
issuing bank”
It is understood from the above reimbursement clause that whether or not the documents
presented by the second beneficiary are complying, the transferring bank is not obligated to pay
unless it has received the funds from the issuing bank.

In view of the above reimbursement clause, I think it is not necessary for the transferring bank to
give a notice of refusal (of payment) to the second beneficiary when the documents presented to
its counter are discrepant. However, if the transferring bank receives the notice of refusal from
the issuing bank, I think it should notify the first beneficiary as well as the second beneficiary of
the same.
UCP 600 Article 38 (i) states that if the invoices presented by the first beneficiary create
discrepancies that did not exist in the presentation made by the second beneficiary and the first
beneficiary fails to correct them on first demand, the transferring bank has the right to present the
documents as received from the second beneficiary to the issuing bank, without further
responsibility to the first beneficiary.

The above provision does not clearly state whether the transferring bank is obligated to notify the
first beneficiary of the discrepancies in the documents presented by the second beneficiary.
However, at least the provision makes us think that the transferring bank should do so.