Does a Nominated Bank Act on Its Nomination When It Merely Examines and Forwards Documents?

UCP 600 sub-article 12(c) makes it clear that the receipt, examination and forwarding of documents by a nominated bank do not constitute honour or negotiation. However, this raises an interesting question: if a nominated bank merely examines and forwards documents to the issuing bank without honouring or negotiating, is it still acting on its nomination? Pieter Muus raised this issue in response to a previous Q&A.

Question

Dear Mr. Old Man,

Can I ask you a related question?

In my experience, under an LC available by negotiation with a nominated bank (our bank, to be precise), our bank usually does not negotiate but merely checks the documents and forwards them to the issuing bank.

Would you consider that to be “acting on its nomination” as defined in UCP 600?

What happens if the documents are lost in transit? Would the issuing bank still be obliged to honour?

Pieter Muus

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Answer

Dear Pieter,

Thank you for your question.

1. Is a nominated bank that does not negotiate but only examines and forwards documents to the issuing bank or confirming bank considered to be acting on its nomination?

Before answering this question, it should be noted that UCP 600 does not define the expression “acting on its nomination”. As a result, there may be differing views on what activities constitute acting on a nomination.

Some practitioners may take the view that a nominated bank acts on its nomination only when it honours or negotiates a presentation. Under this view, a bank that merely examines and forwards documents would not be considered to have acted on its nomination.

My opinion is different.

Article 2 defines a nominated bank as the bank with which the credit is available, or any bank in the case of a credit available with any bank. Accordingly, a bank remains the nominated bank regardless of whether it honours, negotiates, merely examines and forwards documents, or declines to act.

Where documents are presented to the nominated bank and it examines and forwards them to the issuing bank or confirming bank, it is still acting in its capacity as the nominated bank. However, pursuant to sub-article 12(c), such actions do not constitute honour or negotiation and do not make the nominated bank liable to honour or negotiate.

In other words, the bank remains the nominated bank and performs certain functions as a nominated bank, but it has not honoured or negotiated the presentation.

2. Must the issuing bank honour if the documents are lost in transit between the nominated bank and the issuing bank?

Yes, provided the nominated bank has determined that the presentation is complying.

According to UCP 600 article 35, if a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, whether or not the nominated bank has honoured or negotiated, even if the documents are lost in transit between:

• the nominated bank and the issuing bank or confirming bank; or
• the confirming bank and the issuing bank.

Therefore, the loss of documents in transit does not relieve the issuing bank of its obligation to honour a complying presentation.

The wording of article 35 is also consistent with the view expressed above. The article expressly refers to a nominated bank that determines a presentation to be complying and forwards the documents, “whether or not the nominated bank has honoured or negotiated”. This recognizes that a nominated bank may perform certain functions in relation to a presentation without honouring or negotiating it.

Best regards,

Mr. Old Man