At least three ways to pay

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At least three ways to pay

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Open account or monthly/quarterly payment. Seller/exporter takes commercial risk by extending credit, so... Saffron v Soci t Mini re Cafrika ... – PowerPoint PPT presentation

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Title: At least three ways to pay


1
(At least) three ways to pay
  • Cash with order/cash in advance
  • Buyer/importer takes commercial risk
  • Open account or monthly/quarterly payment
  • Seller/exporter takes commercial risk by
    extending credit, so...
  • usually requires collateral security
  • Cash against documents

2
Bill of lading one way, money the other
Carrier
Shipper/ Exporter
Indorsee/importer
Bank in exporters country
Issuing bank
3
Documentary collection
  • Exporter requires bank in its country to send
    documents to importers bank
  • Importers bank holds documents until
  • money received from importer(or undertaking to
    pay made)
  • Importers bank releases documents to importer,
    forwards money to exporters bank

4
Documentary collection (contd)
  • Banks are merely collection instruments
  • Importers bank collects documents
  • Exporters bank collects money
  • Depends on integrity of the banks (especially
    importers bank)
  • Bank-to-bank practice codified by ICC in URC 522

5
Letters of credit
  • Major drawback of documentary collection is that
    there is no guarantee of payment once goods
    shipped to foreign destination
  • Exporter wants guarantee of payment once goods
    put on ship
  • That is what letters of credit provide

6
Letters of credit (contd)
  • Importer asks its bank to issue a credit in
    favour of exporter
  • Importers bank is known as issuing bank
  • Issuing bank sends letter of credit to exporter
    (and/or its bank) stating what documents must be
    presented for payment

7
Letters of credit (contd)
  • Issuing bank pays on presentation of documents,
    whether or not it has been put in funds by
    importer
  • Holds bill of lading as security
  • Documents usually presented via bank in
    exporters country
  • Often exporters own bank, but can be one
    selected by issuing bank
  • Known as corresponding bank or advising bank

8
Letters of credit (contd)
  • Bank in exporters country may also guarantee
    payment
  • Then it is known as confirming bank - confirms
    the credit
  • It too holds bill of lading as security
  • Again, whole mechanism depends on banks trusting
    one another
  • Bank-to-bank practice codified by ICC in UCP 500

9
A cute animation
  • http//www.westpac.com.au/business/intl/letterofc_
    import_demo.html

10
Strict compliance required
  • Art 13(a) UCP 500 international standard banking
    practice
  • Glencore International AG v Bank of China
  • Art 20(b) what constitutes an original
  • Robalen Inc v Generale de Banque SA
  • Art 23(a)(ii) on board stamp and date
  • On board notation without date no good

11
Payment mechanism vs payment
  • Banks refusal to pay under LC does not excuse
    buyer from its obligation to pay for the goods
  • Saffron v Société Minière Cafrika
  • (Unless sale contract makes it clear that
    provision of an LC is sufficient to discharge
    buyers obligation.)
  • LC is payment mechanism agreed between buyer and
    seller

12
The autonomy principle
  • Art 4 UCP500
  • In credit operations all parties concerned deal
    with documents and not with goods, services
    and/or other performances to which the documents
    may relate.
  • Art 3(a) UCP500
  • Credits, by their nature, are separate
    transactions from the sales or other contract(s)
    on which they may be based and banks are in no
    way concerned with or bound by such
    contracts(s)
  • Pure unthinking machinery (supposedly)

13
The fraud exception
  • Inflatable Toy Co Pty Ltd v Bank of New South
    Wales (1994) 34 NSWLR 243
  • Issuing bank may refuse to pay (or be enjoined
    from paying) if there is compelling evidence of
    fraud on the documents

14
Further erosion of the autonomy principle
  • Trade Practices Act 1974 (Cth), s 51AA
  • prohibition against acting unconscionably
  • Olex Focas Pty Ltd v Skodaexport Co Ltd 1998 3
    VR 380 at 404, per Young J
  • The effect of the statute, applying as it does
    to international trade and commerce, is to work a
    substantial inroad into the well-established
    common law autonomy of letters of credit and
    performance bonds and other bank guarantees.

15
Deferred payment
  • Bills of exchange (usually with collections)
  • Independent promise to pay holder on maturity
    (30, 60 or 90 days hence)
  • Deferred payment letter of credit
  • Promise by (issuing) bank to pay on maturity (30,
    60 or 90 days hence)
  • Either promise can be sold to a forfaiter
    immediately at a discount

16
The fraud exception and deferred payment
  • Banco Santander SA v Bayfern Ltd (2000) UK CA
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