UNDER RESERVE Vs ON APPROVAL BASIS

8 Comments

1. 

   anonymous

   November 29, 2010 at 6:11 pm

   zost writes:L/C is issued as available at sight payment, available at one nominated bank. Documents are sent by the nominated bank to L/C issuing bank "on approval basis" neither stating that documents are discrepant nor stating discrepancies nor stating that refusal notice has been sent to the presenters. Just a statement: "We sent documents drawn under your doc. credit. Docs. are sent on approval basis."What is your opinion – whether the nominated bank acted on its nomination?(It is important, as the beneficiary refused to pay charges of the nominated bank – that is more than USD 6.000,00 for docs. examination and other charges – without any notice that payment of the charges are claimend and refused by the beneficiary. That would make discrepancy and non-complying presentation.)Please have in mind art. 12.a. of UCP600 and the fact that nominated bank never gave any information does it accept or not the nomination.Please have in mind also art. 16.c. of UCP600 implying that a nominated bank must to decide wheter it honour or it refuses to honour and gives a notice about that.Many thanks in advance.

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2. 

   mroldmanvcb

   November 29, 2010 at 10:11 pm

   As said in my original post the phrase “on approval basis” is normally used in the case where the documents presented by the beneficiary are found to contain discrepancies and the beneficiary’s bank forwards the discrepant documents to the issuing bank for approval and payment.Practice has shown that not all nominated banks that forward discrepant documents to the issuing bank on approval basis always state discrepancies in their covering schedule. Please note that even when the documents presented are complying, the nominated bank (unless it is a confirming bank) may still refuse to honour. The fact that the nominated bank refuses to honour or does not honour the documents but forward them to the issuing bank on approval basis is understood that the nominated bank refuses to act or does not act on its nomination.

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3. 

   abrar2

   December 1, 2010 at 10:12 pm

   Regarding listing of discrepancies on the covering schedule, I suspect that the beneficiary may have a view on this. For example, where the forwarding of documents on approval (at beneficiary's request) follows the seeking of waiver, the issuing bank would already be aware of the discrepancies. However, where the benefciary and remitting bank are aware of the discrepancies and a joint decision is made to forward the documents on approval (without previously having sought waiver)the beneficiary may wish for the issuing bank to do its own job as under Article 7 of UCP600, without being alerted to any discrepancies that might be present, and which might otherwise slip under the radar, to the beneficiary's benefit.

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4. 

   anonymous

   December 2, 2010 at 5:12 pm

   Anonymous writes:Thank you Mr Old Man. I ask for your opinoin on another issue in the case as I descibed earlier in this thead.As I said, L/C stipulates that charges of the nominated bak are payble by the beneficiary. Despite that, the beneficiary presented documents requesting payment and refused to pay those charges or at least simply didnot pay charges.Would such a case makes a discrepancy and non-comlying presentation?I have in mind definition of the complying presentation from article 2 of UCP600 saing "Complying presentation means the presentation that is in accordance with the terms and conditions of the credit…". Further, L/C issuing bank is obliged to pay charges of the nominated bank, but it has the right to refuse payment of L/C documents and to act in accordance with article 12 of UCP600, stating discrepancy "Beneficiary refused or not paid charges of ABCDEFGH bank." That makes good "negotiating position" for the issing bank. The issuing bank is than in a position a) to act as requested by the beneficiary, or b) to deduct charges from proceeds (article 37 of UCP600), or c) to refuse payment and finish by returning documents to the presenters.

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5. 

   mroldmanvcb

   December 3, 2010 at 12:12 pm

   Hi,According to sub-article 37 (c), a bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses (“charges”) incurred by that bank in connection with its instructions. If LC states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges. For example, if LC states that all charges (including advising charges) outside the issuing bank’s country are for the beneficiary and the beneficiary refuses to pay such charges, the issuing bank remains liable for payment of charges.Back to your particular case, it is true that in accordance with sub-article 12 (a) the nominated bank is not obliged to act on its nomination. Therefore, if the beneficiary refuses to pay the nominated bank for charges as instructed by the LC, the nominated bank would rather refuse to act on its nomination, i.e., refuse to honor the documents, than agree to honour and then claim charges from the issuing bank. I do not think the beneficiary’s refusal to pay charges constitutes a discrepancy.Best regards,Mr. Old Man

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6. 

   abrar2

   December 4, 2010 at 1:12 am

   A stipulation on the LC by the issuing bank to the effect that "charges of the nominated bank are payable by the beneficiary" without any further qualifying conditions to provide for the the situation where payment is refused, is in my view, not an express modification to sub-art. 37c, and therefore, the issuing bank would remain ulitimately liable to the nominated bank for its settlement.However, as to whether a nominated bank should act on its nomination, depends on whether such nominated bank is also a confirming bank. In this case, it has an obligation to honour, and it is only on presentation of documents, that the nominated bank's (with the exception of the confirmation fee)charges are incurred. Whilst the confirming bank may be in a position to ensure that its confirmation fees are paid in advance of its adding confirmation, it would not be in a position to deduct "negotiation fee" and the like, until documents are presented. Although unlikely, an outright refusal by the beneficiary to allow a deduction of such fees from the proceeds, would automatically provide for the nominated bank to recover these charges from the issuing bank under provisions of sub-art.37 c.The position of a non-confirming nominated bank is different. It can choose to act, or not act on its nomination. In this case, in consideration of acting on its nomination, it may wish to impose its own conditions for so acting (sub-art 12a),such as an explicit agreement that the beneficiary agrees to deduction of the nominated bank's charges.As to whether a refusal to pay nominated bank's charges would constitute a discrepancy, Article 2 refers to a "presentation" which is defined as the act of delivering documents, or the documents themselves, so delivered. The determination as to a "complying presentation" is restricted to an examination of the documents only, against the LC terms and UCP. Any other conditions in the LC not directly related to the document examination process (conducted in accordance with Article 14) is superfluous, and should not compromise the beneficiary's right to receive payment.

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7. 

   mroldmanvcb

   December 4, 2010 at 6:12 am

   Very very excellent!!!Appreciated, Abrar.

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8. WHERE THE DOCUMENTS ARE PRESENTED UNDER THE EXPIRED LC - Mr. Old Man

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