Payment Q&A NEGOTIATION WITH OR WITHOUT RECOURSE By Mr Old Man Posted on December 30, 2013 4 min read 9 1 9,253 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION In response to a query at http://letterofcreditforum.com/content/i-need-some-clarification-regards-lc, you wrote: “Different from LC available by payment, LC available by negotiation allows the beneficiary to receive the payment by negotiating the sight drafts and documents at a nominated negotiating bank which is normally located in his country. The negotiation may be effected on a with or without recourse basis”. I do not find in UCP 600 any article saying that the negotiating bank can have recourse to the beneficiary in the event the issuing bank fails to reimburse to the negotiating bank. What if the issuing bank refuses to reimburse based on the valid discrepancies which were not identified by the negotiating bank at the time of negotiation? —– ANSWER Hi, Thanks for quoting my answer. It was an old answer posted at www.letterofcreditforum.com more than six years ago. I would like to answer your question as follows: Regarding negotiation with recourse or without course, my said answer, if quoted in full, would be as follows: “Negotiation may be effected on a with or without recourse basis. However, under a confirmed LC, the confirming bank must negotiate the documents on without recourse basis”. By saying so, I mean that if the nominated negotiating bank is a confirming bank, in accordance with sub-article 8 (a)(ii) UCP 600, it must negotiate without recourse. That is to say, the confirming bank is exposed to risk of non-reimbursement from the issuing bank for whatever reasons. If the nominated bank is not a confirming bank, it may agree with the beneficiary to negotiate with or without recourse. If it agrees to negotiate with recourse, it is entitled to have recourse to the beneficiary if it is not reimbursed by the issuing bank for whatever reasons. If it agrees to negotiate without recourse, like the confirming bank, it will bear the risk of non-reimbursement from the issuing bank for whatever reasons including the reason that the presented documents contain valid discrepancies not identified by the negotiating bank at the time of negotiation. In practice, to avoid risk of non-reimbursement from the issuing bank, banks (except confirming banks) would agree to negotiate the documents on a with recourse basis. Regards, Mr. Old Man
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?