WHAT IS THE IMPACT OF EXCLUSION OF UCP 600 SUB-ARTICLE 12b?

QUESTION

Dear Mr. Old Man,

I hope my email finds you doing well

I would ask you if the issuing bank wish to exclude article 12 b by credit what is the impact and scenario in this case.

Thanks for your reply in advance

Regards

Firas

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ANSWER

Hi,

UCP 600 Sub-article 12(b) states that when an issuing bank nominates a bank to accept a draft or incur a deferred payment undertaking, it thereby authorizes the nominated bank to prepay or purchase the accepted draft or deferred payment undertaking.

If Sub-article 12(b) is excluded, the nominated bank is prevented from prepaying a draft it has accepted or a deferred payment undertaking it has incurred. Consequently, the beneficiary would not be able to receive early payment by discounting an accepted draft or a deferred payment undertaking from the nominated bank.

It is possible that the issuing bank excludes Sub-article 12(b) at the applicant’s request to protect the applicant in case of a dispute with the beneficiary. For example, in cases involving fraud, a court order could instruct the issuing bank to withhold payment.

If Sub-article 12(b) is not excluded, the nominated bank may have already prepaid the draft or the deferred payment undertaking at the beneficiary’s request. In such a scenario, the court order would no longer be enforceable, as the payment has already been made.

I believe that excluding Sub-article 12(b) has a greater impact on the beneficiary than on the nominated bank, as it directly affects the beneficiary’s ability to secure early payment. The nominated bank, on the other hand, may not be significantly affected, since it is not obligated to prepay a time draft or a deferred payment undertaking unless it has added its confirmation to the LC.

Best regards,

Mr. Old Man