What about the 5 banking day rule and can the nominated bank negotiate after the issuing bank accepts the documents for payment?

QUESTION

Dear Mr. Old Man,

I have a question related to Art 14b (UCP600) as below:

In case Bank A is a nominated bank in LC issued by Bank B; (LC available to bank A by negotiation). Bank A receives LC documents presented by beneficiary bank/beneficiary.

Is Bank A compulsory to follow Art 14b as to have a maximum of 5 banking days to decide a complying presentation? Is it acceptable that Bank A waits for Bank B to accept the documents to make decision of negotiating to presenter?

Hope my question is clear. Much appreciation for your useful information! Thank you!

Best regards

Ly Ta

—–

ANSWER

Hi,

The five banking days period is the period within which the nominated bank, the issuing bank and the confirming bank (if any) shall examine the documents to determine if they comply. If the bank finds that the documents do not comply and decides to refuse to honour or negotiate, it must give the presenter a single notice by  telecommunication or by other expeditious means no later than the close of the fifth banking day following the day of presentation. If it fails to give the notice of refusal within five banking day period, it shall be precluded from claiming that the documents do not constitute a complying presentation.

It is understood from article 14 (b) UCP 600 that the five-banking day rule is applicable to the nominated bank that ACTS ON ITS NOMINATION, i.e., negotiates or agrees to negotiate the documents and that it is not applicable to the nominated bank that does not act on its nomination. However, it is seen from practice that LC available by negotiation with the nominated bank often expires in the nominated bank’s country. Therefore, as long as the complying documents are presented to the issuing bank within the stipulated period for presentation and within the validity period of the LC, the issuing bank must pay; it cannot refuse on the grounds that the nominated bank has held the documents for more than 5 banking days.

Negotiation is defined as the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary ON or BEFORE the banking day on which reimbursement us due to the nominated bank. So, in my opinion, the nominated bank can decide to negotiate the documents at any time before the issuing bank makes payment/reimbursement as per the nominated bank’s instructions.

Best regards,

Mr. Old Man