What Happens When UCP 600 Articles 7(c) and 12 (b) are excluded?

QUESTION

Hi,

LC contains the following clause:

“ARTICLES 7(c) AND 12(b) OF UCP 600 REVISION 2007 ARE EXCLUDED IN THIS L/C.”

By simply excluding these articles without further elaboration, does it mean that the opposite is true? For instance, by excluding Article 7(c), does it mean that an issuing bank does not undertake to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank?

If that is not the intended consequence for excluding Article 7(c), then the issuing bank should clarify what it wants to achieve by doing so.

Can issuing banks be more responsible, please?

Regards,

Gabriel

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ANSWER

Dear Gabriel,

Sub-article 7(c) of UCP 600 states that an issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank.

Sub-article 12(b) states that by nominating a bank to accept a draft or incur a deferred payment undertaking, the issuing bank authorizes that nominated bank to prepay or purchase a draft it has accepted, or a deferred payment undertaking it has incurred.

Therefore, if an LC excludes sub-articles 7(c) and 12(b), it can be understood that the credit is intended to be available only with the issuing bank, and no nominated bank is expected to act under the LC.

If, however, the LC indicates that it is available with a nominated bank, yet excludes sub-articles 7(c) and 12(b), then the nominated bank will likely refuse to act on its nomination—i.e., it may decline to negotiate or honour the documents—unless the LC includes, for example, a reimbursement undertaking (in Field 78) that is acceptable to that nominated bank.

Best regards,

Mr. Old Man