URC 522 ARTICLE 21 : CHARGES AND EXPENSES
Clause (a): “If the collection instruction specifies that collection charges and/or expenses are to be for account of the drawee and the drawee refuses to pay them, the presenting bank may deliver the document(s) against payment or acceptance or on other terms and conditions as the case may be, without collecting charges and/or expenses, unless sub-Article 21(b) applies. Whenever collection charges and/or expenses are so waived they will be for the account of the party from whom the collection was received and may be deducted from the proceeds.”
Explanation: This clause provides that if a collection instruction mandates that the drawee (the party expected to pay) is responsible for charges and expenses, and the drawee refuses to pay, the presenting bank (the bank handling the documents) may still deliver the documents against payment, acceptance, or under other terms, without collecting these charges from the drawee. However, the charges or expenses waived will then be charged to the party from whom the collection instruction was received, and these may be deducted from the collection proceeds.
Example: Suppose a seller in India sends a bill of exchange to a buyer in Germany through an Indian bank, with instructions that the German buyer is responsible for any collection charges. If the German buyer refuses to pay these charges but agrees to pay the bill, the German bank (presenting bank) may still deliver the documents to the buyer. The Indian bank would then be responsible for the charges, and it could deduct these from the funds received from the buyer’s payment.
Clause (b): “Where the collection instruction expressly states that charges and/or expenses may not be waived and the drawee refuses to pay such charges and/or expenses, the presenting bank will not deliver documents and will not be responsible for any consequences arising out of any delay in the delivery of the document(s). When payment of collection charges and/or expenses has been refused the presenting bank must inform by telecommunication or, if that is not possible, by other expeditious means without delay the bank from which the collection instruction was received.”
Explanation: This clause emphasizes that if the collection instructions clearly state that the charges cannot be waived and the drawee refuses to pay these charges, the presenting bank must not release the documents. The bank is also not liable for any delays caused by this refusal. Moreover, the presenting bank must immediately notify the bank that sent the collection instruction (remitting bank) using the quickest possible means of communication.
Example: Continuing with the previous scenario, if the Indian seller had explicitly instructed that the collection charges must not be waived, and the German buyer refused to pay these charges, the German bank would hold onto the documents and immediately inform the Indian bank. The German bank is not responsible for any delays in delivering the documents, even if this delay causes issues with the buyer or seller.
Clause (c): “In all cases where in the express terms of a collection instruction or under these Rules, disbursements and/or expenses and/or collection charges are to be borne by the principal, the collecting bank(s) shall be entitled to recover promptly outlays in respect of disbursements, expenses and charges from the bank from which the collection instruction was received, and the remitting bank shall be entitled to recover promptly from the principal any amount so paid out by it, together with its own disbursements, expenses and charges, regardless of the fate of the collection.”
Explanation: This clause provides that if collection instructions or the URC 522 rules state that the principal (the party initiating the collection) is responsible for charges, the collecting bank can promptly recover these costs from the bank that sent the collection instruction. The remitting bank, in turn, can promptly recover these costs from the principal, irrespective of whether the collection was successful or not.
Example: If the Indian seller’s collection instruction specifies that they are responsible for all charges, and the German bank incurs expenses in the collection process, the German bank can demand reimbursement from the Indian bank. The Indian bank, in turn, can demand these costs from the seller, whether or not the buyer in Germany ultimately pays the bill.
Clause (d): “Banks reserve the right to demand payment of charges and/or expenses in advance from the party from whom the collection instruction was received, to cover costs in attempting to carry out any instructions, and pending receipt of such payment also reserve the right not to carry out such instructions.”
Explanation: This clause allows banks to demand advance payment of charges and expenses from the party issuing the collection instruction (typically the principal). If the advance payment is not made, the bank reserves the right to refuse to execute the collection instructions.
Example: If the Indian seller sends a collection instruction to their bank but the bank anticipates that the collection might involve significant expenses, the bank can ask the seller to pay these charges in advance. If the seller does not pay, the bank has the right to refuse to process the collection.