Case Study on Export

Case Study on Export

 

Case –1.

A regular Garments supplier presented seven set of documents for total amount of US$3,00,000/- to the Bank for negotiation against a letter of credit issued by a bank of Singapore. As per terms of the credit B/L was drawn to the order of negotiating bank and endorsed to the order of a bank of Germany. B/L was also marked “Notify a party of Germany”. On scrutiny of the documents, the negotiating bank found several discrepancies, some of which were not removable. Despite discrepancies bank negotiated documents against indemnity and sent the same to the opening bank for payment. Opening bank for obvious reason, on receipt of documents conveyed their objection to the negotiating bank stating discrepancies. But opening bank had no scope to convey the discrepancies to the applicant as their business was suspended at that moment by the court of that country. The ultimate buyer of the subject consignment was a client of German bank to which favour B/L was endorsed by the negotiating bank.

Discussions:

Please discuss possible ways of settlement of the transaction.

What are the formalities to be done by the negotiating bank to maintain regularity.

Case – 2.

Bank negotiated a set of shipping documents for US$50,000/- against a letter of credit which was issued by a Bank of United Kingdom. On receipt of shipping documents opening bank raised objection to the negotiating bank that documents were not acceptable due to some discrepancies contained therein. Meantime buyer informed the beneficiary/Exporter that they would not release the consignment as the ultimate buyer expressed inability to accept the goods due to sudden fall in price. However beneficiary contacted a buyer of Germany who was ready to accept/buy the goods with 10% discount on existing invoice value. Goods were held under custody of shipping company at the port of Buyer’s country. Discuss settlement of transaction on the following points.

Discussions:

·         How goods could be sent to Germany.

·         What courses of action Bank should take in respect of –

o    recovery of proceeds of the goods from first Drawee Bank.

o    preparation of shipping documents for German buyer.

o    approval of discount from relevant authority.

Case – 3.

Bank negotiated a shipping documents for US$100,000/- against a letter of credit which was issued by a Bank of Hong Kong. As per terms of the credit B/L was endorsed to the order of/another Bank of New York. On receipt of shipping documents, opening Bank of Hong Kong raised objection to the negotiating Bank with some discrepancies contained in the documents. In the meantime seller/Beneficiary came to know, that goods were released by the ultimate buyer at New York against a shipping indemnity. On receipt of that information negotiating Bank advised the opening  Bank to effect payment as the goods were already released by the buyer. Opening Bank refused to comply the instruction of negotiating bank showing the reason that Bank deals documents not with goods as per Article No. 5 of UCPDC.

Discussions:

·         How third bank issued indemnity without recovery of invoice value.

Case – 4.

Bank negotiated a set of shipping documents for US$500,000/- against a letter of credit which was issued by a Bank at Buyer’s country. On receipt of shipping documents, opening Bank raised objection to the negotiating Bank due to discrepancies contained therein. Beneficiary of the credit came to know that goods under the subject credit had been released by the buyer against a shipping indemnity issued by the buyer’s banker. Beneficiary also came to know that while issuing shipping guarantee opening recovered only US$50,000/- instead of US$5,00,000/- as relevant invoice was submitted for US$50,000/-. On receipt of claim of negotiating Bank, opening bank refused to effect payment as the matter referred to legal department for their decision negotiating bank then lodged a compliant with Central Bank of the opening Bank. Central Bank expressed inability to extend their assistance for settlement of the transaction as the case was under legal decision.

Discussions:

·         Discuss the position of negotiating bank.

Case – 5.

An influential client of the bank presented shipping documents for US$6,00,000/- after the day of expiry of the credit. Credit terms allowed T.T. reimbursement on third bank. Bank at the earnest request of the client with a view to safeguard their interest prepared shipping documents for opening bank/Drawee bank showing the same duly negotiated as per credit terms and claimed reimbursement thereagainst. On the other hand in the books of A/C of the Bank it was shown that documents duly purchased but voucher was not passed. It was a verbal understanding and consent of the client that upon realization of the proceeds they would take payment. The client also assured the bank that they would take payment at O.D. sight rate. After 20 days from the date of negotiation payment was realized by the  bank and payment to the client was made as per verbal agreement. After 2(two) years the client lodged a complaint that they had been paid a less amount of Tk.2,00,000/- due to application of O.D. sight rate instead of T.T. Documentary rate against the above bill and claimed payment for the balance amount with upto-date interest.

Please discuss.

Case – 6.

Bank negotiated a set of shipping documents for US$60,000/- against a letter of credit. On receipt of shipping documents, opening Bank raised objection to the negotiating Bank mentioning the discrepancy that credit expired.  In the relevant letter of credit expiry date was mentioned at the counter of opening Bank. Although before expiry documents were negotiated but documents reached at the counter of opening Bank after expiry of the credit. Despite heart felt endeavour Beneficiary failed to dispose the goods to other buyer and consequently customs authority, port authority and shipping company to realize their charges and dues sold the goods through an auction.

Discussions:

·         Discuss the position of negotiating bank and Beneficiary.

Case – 7.

Bank negotiated documents for US$80,000/- drawn at 90 days sight under letter of credit. On receipt of shipping documents, opening Bank conveyed their acceptance to the documents to negotiating Bank. Before maturity date of payment buyer arranged to impose injunction on the subject payment through court under act of conservatory arrest. Negotiating Bank insisted opening Bank to effect payment referring Article No.16 of UCP. But opening Bank expressed their inability to effect payment in violation of Court order.

Please discuss.

Case – 8.

A set of shipping documents with forwarder’s cargo receipt were negotiated against a letter of credit. Opening Bank refused to effect payment due to discrepancies contained in the documents. Beneficiary came to know that buyer released the goods in connivance with Freight Forwarder at destination and shipping documents were held with opening Bank unpaid. Negotiating Bank insisted opening bank to effect payment as goods were already taken by the buyer. Opening bank refused to effect payment as the goods were not released by their order.

Discussions:

·         Who are the parties responsible for such occurrence.

·         What steps negotiating bank should take to recover the proceeds of the bill.

·         What are the possible precautionary steps should be taken by the Negotiating bank to safeguard their interest.

Case – 9.

Bank negotiated shipping documents for US$2,00,000/- against a letter of credit covering shipment of shrimp. On receipt of shipping documents opening bank raised objection stating that gross weight in B/L differs with invoice. Negotiating Bank instantly accorded their clarifications. Thereafter opening bank sought immediate disposal instruction from negotiating bank, as goods were perishable in nature. In reply negotiating Bank sought mode of disposal of shipping documents from opening Bank. Opening bank informed the negotiating bank that the buyer desired 40% discount on invoice value. Meantime negotiating bank received an evidence of previous dispute between buyer and seller for which buyer with a revengeful attitude created the aforesaid situation. Negotiating bank referred the matter to the Central Bank for necessary decision. Central Bank accorded disposal instruction at 40% discount. However negotiating bank conveyed their disposal instruction at 10% discount, which opening bank accepted. Negotiating bank recovered required fund from proceeds of Next export bills of the Exporter for adjustment of balance liability under subject Foreign bill purchased A/C. Exporter with annoyance served Legal notice to the negotiating bank for refunding the amount recovered from Export bills, without their authority.  

Discussions:

·         Role of negotiating bank was correct or not.

·         What are the alternatives for settlement of the transaction?

Case – 10.

Shipping documents were sent to the opening bank on collection basis due to discrepancies. Buyer did not accept the document, and for obvious reason opening bank had to return the documents to the negotiating/remitting bank. Seller arranged a new buyer at the country of destination who agreed to buy the goods at 40% discount, as huge amount of demurrage incurred against the same. Bank to save the goods from auction agreed to allow discount with the consent of proper authority.  Accordingly seller obtained a fresh L/C from the new buyer, but seller could not arrange documents as per terms of the new credit, and in consequence Bank again had to send documents on collection basis. Now buyer proposed to accept documents to the opening bank at 30 days sight basis. Negotiating/Remitting Bank accepted the proposal on condition that documents could only be delivered to the buyer against sending of an authenticated message to the effect the payment would made by the collecting bank accordingly. But at maturity the collecting/opening bank informed about a self explanatory message of the buyer, which indicated that seller had allowed further 10% discount. But seller denied the text of that message.

Please discuss.

Case – 11.

A client/Exporter of Readymade Garments having high political influence opened six back to back letters of credit for total amount of US$3,00,000/- covering import of Fabrics against an Export letter of credit. On receipt of shipping documents the same were released to the client against acceptance. But the client did not export any goods as per purchase order/LC of foreign buyer. After expiry of export LC while bank insisted the client for adjustment of liabilities incurred against import bills under subject back to back LCs, client arranged an authenticated message from the foreign bank absolving opening bank from their payment liability against said import bills. In the similar manner client had imported Fabrics several times through their bank and absolved them from claims of foreign Banks. In some cases Bank had also create Demand Loan to settle foreign bank claims.

Discussions:

·         Responsibility and liability of Bank officials.

·         What necessary steps should be taken to safeguard banks interest as well as country’s interest.

Case – 12.

Bank purchased a set of shipping documents for US$75,000/- against a contract comprising payment terms 90 days D.A. Drawee bank duly conveyed the maturity date to the remitting bank against the subject export bill. On maturity date Drawee Bank could not effect payment, as the buyer did not place required fund in their A/C with them. Seller contacted the buyer directly, while the latter assured payment after one month of maturity date. In the meantime Buyer became mentally disorder and psychiatric patient. But irony of fate that after few days of that occurrence Importer’s Bank had to stop its operation globally for obvious reasons.

Discussions:

·         Responsibility and liability of Drawee Bank.

·         Reporting of EXP Form to Bangladesh Bank.

·         What necessary steps should be taken for realization of export proceeds?