DISCOUNTING A DPU INCURRED BY ISUING BANK

 QUESTION

Dear Mr. Old Man,

I have a question regarding the situation where a non-nominated bank wants to prepay a DPU incurred by issuing bank as follows:

Bank C is the confirming bank of the LC issued by Bank I (Issuing Bank).

The LC is available with Bank C by Deferred Payment.

Bank C added its confirmation and sent MT710 to Bank A (2nd Advising Bank).

Beneficiary B effected shipment and presented the documents directly to Bank C with the instruction that proceeds will be remitted to Beneficiary B account with Bank A.

Due to a minor discrepancy, Bank C refused the documents and then forwarded the documents to Bank I at the request of Beneficiary B.

Bank I informed Bank C that it accepted the documents and will pay at maturity and Bank C informed Beneficiary of the same.

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Now Bank C received the swift from Bank A saying that at the request of Beneficiary it agrees to discount the DPU and that it wants Bank C to send acceptance swift in order for them to proceeds with discount.

QUESTIONS:

1/ Is Bank A protected by UCP if it prepays the DPU?

2/ Should Bank C seek amendment from Bank I to add the following clause: “Although LC is confirmed by Bank C, Bank A may discount upon receipt of the acceptance from Bank C…”

3/ Should Bank C contact Beneficiary B to change the payment instruction (as at first, Beneficiary wants proceeds to be remitted to their account directly)?

Looking forward to hearing your opinion.

Thank you.

Thuy

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ANSWER

Hi,

It is understood from your description that Bank C (Confirming Bank) refused the documents due to a minor discrepancy and forwarded the documents to Bank I (Issuing Bank) and that Bank I incurred its deferred payment undertaking and advised Bank C of the same and that Bank A (Beneficiary’s Bank) wants to discount the DPU.

I would like to answer your questions as follows:

1/ No, Bank A is not protected by sub-article 12 (b) UCP 600 if it discounts the DPU as it was not a nominated bank and did not incur the DPU. If Bank A wants to discount the DPU incurred by Bank I, it should ask for Bank I’s authorization.

2/ No, such an amendment is not needed as it was Bank I, and not Bank C, that incurred its deferred payment undertaking. Bank C is responsible to inform Beneficiary B, and not Bank A, of the DPU incurred by Bank I.

3/ In LC transactions, payment would be made by MT202 to the presenting bank’s account as instructed, and not directly to the beneficiary’s account. Upon receipt of the proceeds from Bank I, Bank C can credit the proceeds to Beneficiary B’s account with Bank A in accordance with Beneficiary B’s instruction.

Best regards,

Mr. Old Man