NEGOTIATING THE DOCUMENTS PRESENTED UNDER SIGHT PAYMENT LC

QUERY

Dear Sir,

I'd like to ask you some common problems about DC transactions. I am working in VCB. My customer has presented a LC that available with SCBLVNVX by payment and asked me to negotiate this LC with recourse basis. Can I accept this and forward to the issuing bank as general rule. In this case, do I have to send docs to the SCB for presentation again?

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MR. OLD MAN’S COMMENT

Hi,

Thanks for sending your question to me (Mr. Old Man).

As you may know, there are 4 types of L/C:

# L/C available (normally with any bank) by negotiation of sight draft (Negotiation L/C);
# L/C available (normally with issuing bank) by sight payment (Sight Payment L/C);
# L/C available (normally with the issuing bank) by acceptance (Acceptance L/C); and
# L/C available (normally with the issuing bank) by deferred payment (Deferred Payment L/C).

Under Negotiation L/C or Acceptance L/C the documents required for negotiation/acceptance include drafts whereas under Sight Payment L/C or Deferred Payment L/C the documents to be presented for payment do not include drafts.

Under Sight Payment L/C, the issuing bank does not authorise any bank to negotiate the documents but only undertakes to honour (pay at sight) when the complying documents are presented to its counter and/or to the nominated bank and that nominated bank does not pay and/or undertakes to reimburse the nominated bank (if any) in the event that nominated bank has honoured the documents.

The situation raised shows that the L/C is available with a nominated bank, i.e., SCBLVNVX by payment. I wonder why the beneficiary wants to present the documents to your bank for negotiation but not to SCB for sight payment.

The issuing bank under the L/C in question does not authorise any bank (including your bank) to negotiate the documents nor nominates your bank to honour the documents. Therefore, if your bank negotiates the documents, legally the risk your bank may take is that it can not take legal action on its behalf against the issuing bank in the event for some reason the issuing bank fails to honour the documents.

My reasoning is based on UCP. However, in practice many banks (though not nominated to pay nor authorised to negotiate) are willing to negotiate the documents presented under sight payment L/Cs, especially when the negotiation is on a with recourse basis.

Back to your case, my advise is “No” as your bank is not authorised to negotiate the documents. Yet, if your bank insists on the negotiation, it should do on a with recourse basis. Also please take the beneficiary’s financial standing into consideration to ensure that he can reimburse your bank in the event the issuing bank fails to pay.

An L/C available with a nominated bank is also available with the issuing bank (UCP 600 Art. 6 a), that is to say, you may forward the documents directly to the issuing bank for payment. But you had better present them to the nominated bank, i.e., SCB as instructed.

Best regards,
Mr. Old Man …