Who Should Bear the Handling Fees in the International Trade Settlement?
About the author, Avon Y.F. Zhao
When sending money internationally, many people overlook the question of who pays the bank charges: the sender or the recipient? After the money has been credited to the recipient's account, he or she may find that the amount is tens or even hundreds of dollars less because the sender's bank, the intermediary bank (if any) and the recipient's bank all charge transaction fees.
Bank charges may seem inconspicuous, but they can become the source of many disputes when companies work together for years and transactions accumulate. There are also many such cases in Chinese legal practice.
Take, for example, a foreign-related civil case that we represent. A foreign company has been providing services to a Chinese company for many years. During the period of cooperation, the foreign clients issued weekly invoices to the Chinese company after the completion of the services, ranging from a few thousand euros to tens of thousands of euros. However, the Chinese company never paid on time, not only failing to send money in accordance with the invoice amount, but also failing to bear the handling fee when sending money. Over the years, the Chinese company has accumulated large debts to our foreign client. After we represented the foreign company to file a civil case against the Chinese company, we proved that the plaintiff had not received the full money sent by the Chinese defendant, but the Chinese defendant argued that the money had been sent according to the invoice. The two sides argued endlessly, and the court identified the issue of which party should bear the bank charges for cross-border transfers as one of the focal points of the case.
Generally speaking, there are three models of who pays the bank charges.
1.OUR. In this model, the payer bears all the handling charges that may be incurred, including those of the paying bank, the intermediary bank and the receiving bank. In other words, when transferring the funds, the payer should explicitly instruct the paying bank to charge a separate handling fee and to retain the additional handling fee.
2.Beneficiary (“BEN”). In this model, the payee bears all fees that may be incurred. The fees charged by the paying bank, the intermediary bank and the receiving bank are deducted directly from the amount received. Obviously, this model is the most disadvantageous for the beneficiary, and the Greek client in the above case suffered high losses as a result.
3.Shared(“SHA”). In this model, the payer bears the commission incurred when sending the money and the receiver bears the commission incurred by the intermediary bank and the receiver's bank.
In the absence of a specific agreement between the contractual parties, the third model of shared responsibility for the commission is the most widely used, as it more reasonably determines the rights and obligations of the parties, is in line with the principle of fairness in civil activity and reflects the quest for efficiency in commercial activity.
In the international trade of goods or services, in order to avoid disputes arising from or relating to who bears the handling charges and to ensure that the amount received corresponds to the bill, we have the following recommendations.
1.Clearly agree in the cooperation agreement on who will bear the bank charges. To avoid ambiguity, the issue of who bears the fees of the paying bank, intermediary bank, receiving bank, etc. should be agreed as specifically as possible.
2.Each time a remittance is received from the other party, feedback should be given on the actual funds received, and if it is less than the amount billed, the difference should be requested to be added or added to the subsequent bills. Otherwise, if the court finds that a stable trading practice has been formed, it will be difficult to claim further losses in respect of handling fees.
3.If this is not clearly agreed in the agreement and a dispute has arisen between the parties and no supplementary agreement can be reached, according to Article 510 of the Chinese Civil Code, it can be determined in accordance with the relevant provisions of the contract or the transaction practice.
With reference to previous cases, such as (2009) Zhe Hang Shang Wai Chu Zi No. 236, a Jordanian company had disputes with a Chinese foreign trade garment company over the international sales contract. During the trial, the Jordanian company submitted the bank receipts of the advance payment of USD 7,000 and the second payment of USD 62,927. While the Chinese company also submitted the receipts of the advance payment of USD 6,942 and the second payment of USD 62,887, objected to the amounts paid by the Jordanian company. With regard to this difference in amount, the court considered that it was an issue of foreign exchange settlement fees in the context of international trade. The court ultimately found that the wire transfer fees incurred in Jordan should be borne by the Jordanian company, and the settlement fees incurred in China should be borne by the Chinese company.
Through this case, we can get an indication of the attitude of the Chinese courts towards such disputes, i.e. the Chinese courts have generally held that, in relation to handling fees in international trade settlements, it is customary for both parties to the contract to be responsible for the handling fees incurred in their respective territories, unless specifically agreed otherwise.
There is an old Chinese saying that an ant may well destroy a whole dam. A small hidden problem in a transaction can lead to endless disputes later. Feel free to ask us about international trade, cross-border investment and other legal issues.