Clause a:
Clause: A bank utilizing the services of another bank for the purpose of giving effect to the instructions of the applicant does so for the account and at the risk of the applicant.
Explanation: When an issuing bank uses another bank’s services to fulfill the applicant’s instructions, it does so on behalf of and at the risk of the applicant. This means any issues arising from the other bank’s actions are the applicant’s responsibility.
Example: A company in India (the applicant) applies for a letter of credit with an Indian issuing bank to pay a supplier in Germany. The Indian bank uses a German bank to advise the credit to the supplier. If the German bank fails to deliver the documents on time, causing a delay, the risk and consequences of this failure fall on the Indian company, not the Indian issuing bank.
Clause b:
Clause: An issuing bank or advising bank assumes no liability or responsibility should the instructions it transmits to another bank not be carried out, even if it has taken the initiative in the choice of that other bank.
Explanation: Neither the issuing bank nor the advising bank is liable if the instructions they send to another bank are not executed, even if they chose that bank themselves.
Example: The Indian issuing bank selects a German advising bank to notify the supplier in Germany. If the German bank fails to notify the supplier, the Indian bank is not responsible for this failure, even though it chose the German bank.
Clause c:
Clause: A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses (“charges”) incurred by that bank in connection with its instructions. If a credit states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges. A credit or amendment should not stipulate that the advising to a beneficiary is conditional upon the receipt by the advising bank or second advising bank of its charges.
Explanation: The bank that instructs another bank to perform services must pay any charges incurred by that bank. If the credit specifies that charges are the beneficiary’s responsibility but cannot be collected, the issuing bank must pay. Credits should not make the beneficiary’s receipt of advice conditional on the advising bank receiving its charges.
Example: An Indian issuing bank instructs a German advising bank to notify the supplier and charges the supplier for the advising fees. If the supplier refuses to pay, the Indian bank must cover the advising fees. Additionally, the letter of credit should not state that the supplier will only be advised upon payment of the advising bank’s charges.
Clause d:
Clause: The applicant shall be bound by and liable to indemnify a bank against all obligations and responsibilities imposed by foreign laws and usages.
Explanation: The applicant must cover any obligations and responsibilities the bank faces due to foreign laws and customs.
Example: An Indian company applies for a letter of credit with an Indian bank to pay a supplier in Germany. If German laws impose additional requirements or responsibilities on the advising bank, the Indian company must indemnify the Indian bank for any resulting costs or obligations.