Clearing Grey Areas in Hong Kong's Banking Practice ICC Documentary Credits Insight Magazine Vol. 1 No. 3 Summer 1995 Issue (Updated in June 1998)

Effective as from April 1, 1995, the Hong Kong Association of Banks (the Association) have made appropriate amendments to their General Rules to clarify some grey areas and doubts not yet covered by the UCP 500 articles.

Section II, Rule 3.2.2 (g) of the General Rules now reads:

"When C.L.E. (commission in lieu of exchange) is deducted from payments made to the beneficiary under a local documentary credit issued in foreign currency and the bill thereunder is retired to the applicant's foreign currency account, C.L.E. should not be charged on the latter transaction over the foreign currency account."

Under the old Rules, in certain circumstances commission in lieu could be charged both to the applicant and to the beneficiary for the same transaction. This amendment is intended to prevent double-charging.

Care must be taken for the Association to use the word "should" (rather than "must") in applying the above Rule, which allows for more flexibility.

Section III, Rule 5.5 now reads:

"When documents are presented for approval and payment, they shall be accompanied by the presenting Member's instructions that the documents are to be sent to the opening bank for approval and payment."

The term "collection" would be inappropriate here, since it would imply that the presentation is subject to the ICC Uniform Rules for Collections [then being ICC Publication No. 322 (URC 322), now being Publication No. 522 (URC 522)] and this is not the case.

The recommended wording for the instruction is "payment to be effected to us upon receipt of the bill proceeds from the D/C issuing bank", to indicate clearly the manner in which this process should proceed, and also to indicate that the receiving Member is not required to check the documents.

I understand, however, that in certain countries, the words "for payment" (rather than "for approval and payment") are used. One reason for this may be that certain bankers are worried about the implications of the word "approval", which could possibly be interpreted to mean that discrepant documents are being presented which could be used as a defence by the other party in the event of litigation.

A "Member" in the above context means a bank which is a member of the Hong Kong Association of Banks.

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