ICC Rules Study_ International Chamber of Commerce Opinion
This is a dispute caused by the issuing bank’s error in making a direct payment to the beneficiary:
R796
The nominated bank makes a prepayment under its deferred payment undertaking; at maturity, no reimbursement is received; the issuing bank subsequently advises that it has effected settlement to the beneficiary directly by SWIFT MT103 message; does the issuing bank remain liable to the nominated bank to provide reimbursement?
The nominated bank makes a prepayment to the beneficiary under a deferred payment letter of credit and waits for the issuing bank to reimburse it on the due date, but does not receive reimbursement from the issuing bank. Upon inquiry, it is learned that the issuing bank has made a direct payment to the beneficiary via MT103, and the beneficiary has withdrawn the funds. How should the nominated bank protect its rights under the UCP rules? What responsibilities does the issuing bank bear for erroneously making a direct payment to the beneficiary instead of to the nominated bank?
83
Opinion R796(TA825rev)
Direct Payment to Beneficiary by Issuing Bank After Document Presentation
R796(TA825rev)2012~16
Issue Review
QUERY
QUOTE
We have made a prepayment under a deferred payment documentary credit in accordance with UCP 600 sub-article 12 (b) and informed the issuing bank accordingly.
As, on the due date (31 October 2014), we had not yet received the payment, we sent a reminder to the issuing bank. They responded that it had already made payment with value 31.10.2014 via an MT103 to the beneficiary’s account held with our bank.
Since the payment had been credited directly to the account of the beneficiary and the proceeds had been withdrawn by the beneficiary, we were not able to get the payment of the documentary credit.
We informed the issuing bank about the situation and claimed the payment from them.
According to UCP 600 sub-article 12 (b), we made a prepayment under the deferred payment documentary credit and informed the issuing bank accordingly.
As of the due date (31 October 2014), we had not received the payment, so we sent a reminder to the issuing bank. They replied that they had made payment on 31 October 2014 via MT103 directly to the beneficiary’s account held with our bank.
Since the funds had been credited directly to the beneficiary’s account and the funds had been withdrawn by the beneficiary, we were unable to recover the payment under the documentary credit.
We informed the issuing bank of this situation and requested them to fulfill their payment obligation.
We believe that by making the payment via MT103, directly to the beneficiary’s account even held with us, the issuing bank is not relieved of any of its obligations under the documentary credit in accordance with UCP 600 sub-article 7 (c) and they had failed to comply with their payment obligation under the credit.
Even if not relevant, we emphasize that there is no reference to the documentary credit in the MT103 message.
It is not possible, and a duty of us, to trace and determine whether the type of message (MT103) was meant actually for the payment under the documentary credit since a MT103 is a specific message format used mainly for customer transfers and should not be used in documentary credit transactions.
Despite our several messages to, and phone calls with, the issuing bank, they have not paid the amount to us yet.
We believe that according to UCP 600 sub-article 7 (c), the issuing bank’s direct payment to the beneficiary’s account held with us via MT103 does not relieve it of any obligations under the documentary credit, and they have failed to comply with their payment obligations under the credit.
Even if this point is irrelevant, we must emphasize that there is no mention of the documentary credit in the MT103 message.
Given that MT103 is a specific message format primarily used for customer transfers, it should not be used in documentary credit transactions, and we are not obligated to trace and confirm whether such messages (MT103) were actually intended for payment under the documentary credit.
Despite sending several messages and making phone calls to the issuing bank, they have not made payment to us.
The inquirer asks ICC:
In this context, we request you to provide us with your opinion in relation to whether the issuing bank was relieved from its payment obligation under the documentary credit by making the payment via MT103.
We respectfully request ICC to provide an opinion: in this case, can the issuing bank be relieved of its payment obligation under the documentary credit by making payment via MT103?
ICC Analysis
ANALYSIS
Since the query is silent about the acknowledgement, the deferred payment undertaking to pay on maturity from the issuing bank, or about any notification of discrepancy by it, this suggests that the issuing bank found the presentation as credit complying and hence establishes its commitment to effect payment on the maturity date.
In reply to the reminder sent by the nominated bank, due to non-payment on the maturity date, the issuing bank claimed to have made the payment with value 31 October 2014 via an MT103 to the beneficiary’s account held with the nominated bank, without any advice or notification or reasons for their action in remitting a direct payment to the beneficiary. The nominated bank is not liable or responsible to follow up, relate, apply or lay claim on any direct credits into a client’s account.
Since the query does not mention the issuing bank’s confirmation of the compliance of the documents, the due date of the deferred payment obligation, or any notification of discrepancies, this indicates that the issuing bank considered the presentation to be compliant with the credit and thus confirms its commitment to make payment on the due date.
Due to non-payment on the due date, the nominated bank sent a reminder, and the issuing bank replied that it had made payment on 31 October 2014 via MT103 to the beneficiary’s account held with the nominated bank, without any notification or advice, nor any explanation for their direct payment to the beneficiary. The nominated bank has no obligation to follow up, relate, apply, or claim any direct credits into a client’s account.
While the nominated bank had prepaid the proceeds of the presentation to the beneficiary, based on the deferred payment undertaking incurred by it, and was still awaiting payment from the issuing bank with an overdue liability, the incorrect direct payment effected by the issuing bank to the beneficiary had been withdrawn from the account by the beneficiary. The nominated bank advised the entire situation to the issuing bank and claimed an immediate payment.
The issuing bank did not respond nor has paid the amount, despite several messages and telephonic reminders from the nominated bank.
By not effecting payment to the nominated bank, on the maturity date, as per their received instructions, the issuing bank has failed in its responsibility as per UCP 600 sub-article 7(c).
Any payment effected by the issuing bank directly to the beneficiary, even with reference to the credit, is outside the credit.
Based on its deferred payment undertaking, the nominated bank has prepaid the proceeds of the presentation to the beneficiary and is awaiting payment from the issuing bank on the due date, but the issuing bank incorrectly made a direct payment to the beneficiary, which has been withdrawn by the beneficiary. The nominated bank informed the issuing bank of the entire situation and requested immediate payment.
Despite the nominated bank sending several messages and making phone calls, the issuing bank has neither responded nor made payment.
By failing to make payment to the nominated bank on the due date as per the received instructions, the issuing bank has not fulfilled its responsibility under UCP 600 sub-article 7(c).
Any payment made by the issuing bank directly to the beneficiary, even if referencing the credit, is outside the scope of the credit.
ICC Conclusion
CONCLUSION
In terms of the provisions under UCP 600 sub-article 7 (c), the issuing bank has failed in its responsibility to reimburse the nominated bank. Therefore, the issuing bank’s obligations under the credit continue and it is liable to reimburse the nominated bank, along with interest for the delayed period, if any.
Any payment effected by the issuing bank directly to the beneficiary is outside the credit.
According to UCP 600 sub-article 7 (c), the issuing bank has failed to fulfill its responsibility to reimburse the nominated bank. Therefore, the issuing bank’s obligations under the credit will continue to be valid, and it is obligated to reimburse the nominated bank, along with any overdue interest (if applicable).
Any payment made directly by the issuing bank to the beneficiary is not within the scope of the credit.
Confusion
In general, both the issuing bank and the nominated bank have a dedicated reference number for each transaction, which facilitates tracking the progress of each transaction. I do not understand how the issuing bank could make such a mistake?
Moreover, when the nominated bank makes a prepayment to the beneficiary, it will also sign a transfer agreement, requiring the beneficiary to transfer the payment under the documentary credit to itself. In our country, foreign currency payments received from abroad must also be declared before use. The beneficiary’s account is still held at the nominated bank; did the nominated bank not notice this? I find this kind of mistake incomprehensible; perhaps it is due to a lack of experience.
Mingyue | Original
# Music Time
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Fragmented Thoughts
Reference Book
Every day on my way home, I pass by a small team collecting waste materials. Sometimes, if there are old books on their tricycle, I will take a look, just in case I can find something valuable. Last week, I saw a pile of books on the tricycle, and I approached to take a look. There were two copies of the “Oxford Advanced Learner’s English-Chinese Dictionary,” published by the Commercial Press in 2005.
I remember that when I was in college, not everyone would buy such dictionaries; on one hand, they were expensive, and on the other hand, they took up space and were inconvenient to carry. I only bought such a dictionary after starting work. This type of reference book is one that, although used infrequently, is essential to have. Later, online searches became more convenient, and this paper dictionary has been gathering dust on the shelf, but I can’t bear to sell it.Now I prefer to look up English words online; I have downloaded a dictionary app on my phone, but it has too many ads and is almost unusable.
My favorite way to read now is a combination of paper books and e-books. I borrow paper books from the library and then look for corresponding e-books online. Last year, I discovered a free e-book download website called “Hui Shu Wang,” but unfortunately, before I could download a few books, I found out that the website was down. I asked on Zhihu and learned that the site had been shut down; what a pity!
Many people fantasize about decorating a room with a wall of bookshelves after achieving financial freedom, but I have long changed my mind. I try not to buy books and minimize attachments, so that in the future, my own books won’t end up on a tricycle as waste.
Spring
SPRING
2025.3.26 Wednesday
Life is not all about flowers and brocade; all happiness comes from a heart of contentment and a simplified attitude. In this world, everything is regrettable, yet everything is beautiful.
WeChat ID: CDCS-2018
1. CDCS Exam Experience
2. Documentary Credit Practice/English
3. International Trade/Settlement Knowledge
4. Interpretation of ICC Rules
5. Mingyue’s Thoughts
