ANOTHER QUERY IN CONNECTION WITH NEGOTIATION UNDER SIGHT PAYMENT L/C

QUERY

Thank you so much.and the ben want to present docs to my branch for the reason that they are our client and if they present docs to the scb they have to forward docs to Hanoi city and correct them for compliance. It is not convenient.

By the way, can you tell me more about the case of presenting docs with LC terms: available with issuing bank by payment. Does it mean that the issuing bank do not authorise any bank to negotiate this lc, It will be only paid by them-issuing bank?

But they can not control this transaction. i mean that if I negotiate compliant docs and forward docs to the issuing bank, they must honor and pay after checking the compliance with terms and conditions in LC.so, why do they apply this to their lc.

In addition, as quoted in UCP, the word: purchase mean that to negotiate docs both with and without recourse. so, why do not many banks discount withour recourse? they all require an annex to customer, such as: will reimburse the principal after 60days from the inception date…In my opinion, they can not stand the risk of default(nonpayment} from the issuing bank: not listing all discrepancies, not following the bank procedure…pls explain to me this,thank you so much, best regards.

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MR. OLD MAN’S COMMENT

Hi,

You’re correct. When issuing an L/C available with the issuing bank by payment, the issuing bank does not authorise any bank to negotiate the documents. The issuing bank will honour (pay at sight) if the documents presented at their counter are complying.

The reasons why some banks prefer to issue such a type of L/C may be as follows:
+ It depends on the region’s common practice, e.g., banks in Middle East would rather issue Payment L/Cs than Negotiation L/Cs;
+ Compared with Negotiation L/Cs, L/Cs available with the issuing bank by payment would, to some extent, help the issuing bank avoid risk in case the documents presented are found fraudulent. Under Payment L/C, if the documents presented to the issuing bank are found to be fraudulent or forged, the issuing bank may refuse to honour. However, under Negotiation L/Cs, the issuing bank is obligated to reimburse the bank having negotiated the documents which are later found by the issuing bank to be fraudulent (forged). Please refer to UCP 600 Art. 34 which reads a bank assumes no liability or responsibility for the falsification of any document. Please also find and read some of my related articles on this matter, which were posted in my blog not long ago.

Negotiation with or without recourse depends on the agreement between the nominated negotiating bank and the beneficiary. However, the confirming bank must negotiate without recourse if the L/C is available with the confirming bank (Article 8.ii).

Some banks only accept to negotiate the documents with recourse because:
+ Their bank policy does not allow them to negotiate/discount the document without recourse;
+ They are not ready to take risk in connection with without recourse negotiation;
+ Their staff or those who are in charge are not confidence in their document examination skill;
+ And so on…

Under L/C transactions, the condition in order for the documents to be honoured is that the documents presented are complying with the L/C terms. Under Negotiation L/Cs, the negotiating bank can on its behalf take legal action against the issuing bank in case the issuing bank fails to honour a complying presentation. However, under Payment L/Cs, the bank which has negotiated the documents is unable to take legal in its name against the issuing bank in the event the issuing bank fails to effect the payment as the issuing bank does not authorise any bank to negotiate. In this case only the beneficiary is eligible to bring law suit against the issuing bank.

As said, in practice many banks are willing to negotiate the documents presented under Payment L/Cs, especially when the negotiation is made on with recourse basis. Your bank can negotiate the documents presented under Payment L/Cs if the following criteria are satisfied:

+ The documents presented are complying.
+ The issuing bank is a reputable bank
+ The beneficiary has a good financial credit standing.
+…….

It is advisable to negotiate on a with recourse basis.

Hoping my answer is helpful.

Best regards,
Mr. Old Man …