Article 11: Disclaimer for Acts of an Instructed Party
a. “Banks utilising the services of another bank or other banks for the purpose of giving effect to the instructions of the principal, do so for the account and at the risk of such principal.”
Explanation: This clause emphasizes that when a bank uses another bank’s services to execute instructions from its client (the principal), the primary responsibility and risk associated with these instructions remain with the client. The bank that initiates the use of another bank’s services is merely facilitating the process, and it is the client who bears any financial or operational risk involved.
Example: Imagine a company (the principal) instructs its bank (Bank A) to transfer funds to an overseas supplier through a correspondent bank (Bank B). According to this clause, if there are any issues or losses arising from the transaction while Bank B is handling it, the company (the principal) is responsible for these issues, not Bank A. Bank A is acting on behalf of the company but does not assume liability for the actions of Bank B.
b. “Banks assume no liability or responsibility should the instructions they transmit not be carried out, even if they have themselves taken the initiative in the choice of such other bank(s).”
Explanation: This clause makes it clear that banks are not liable for failures in executing instructions if they have chosen another bank to carry out the instructions. Even if the initiating bank (Bank A) was involved in selecting the other bank (Bank B) for the transaction, it does not assume responsibility if the other bank fails to execute the instructions properly.
Example: Consider a scenario where Bank A chooses Bank B to process a letter of credit for a transaction. If Bank B fails to fulfill the terms of the letter of credit and there are losses or complications, Bank A is not held responsible for Bank B’s failure. The liability lies with the party (the principal) who instructed the bank.
c. “A party instructing another party to perform services shall be bound by and liable to indemnify the instructed party against all obligations and responsibilities imposed by foreign laws and usages.”
Explanation: This clause highlights that if one party instructs another party to perform certain services, the instructing party is responsible for any obligations or legal responsibilities that arise under foreign laws or customs related to the service. The instructing party must also indemnify (compensate) the instructed party for any such obligations or responsibilities.
Example: Suppose a company (the instructing party) asks a bank (the instructed party) to facilitate an international transaction. If foreign laws or regulations impose certain duties or liabilities on the bank due to this transaction, the company must cover these responsibilities. For instance, if the transaction involves compliance with foreign anti-money laundering regulations and the bank faces fines or penalties due to the company’s failure to comply, the company must compensate the bank for these costs.