Articles Q&A WHERE THE CONFIRMING BANK HONOUR A TIME DRAFT DRAWN ON ANOTHER NOMINATED BANK By Mr Old Man Posted on February 6, 2016 9 min read 4 0 2,905 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Hi Mr. Old Man, If a LC is issued available with a nominated bank by negotiation and draft drawn on issuing bank, can the nominated bank just negotiate (purchase) the complying documents without negotiating the draft so as to qualify for negotiation with recourse? I understand once the nominated negotiated the draft, then it is bound to negotiate without recourse. Correct if I am wrong . I came across a CDCS question quoted below: QUOTE: Which of the following is not an undertaking of the confirming bank for a credit available by: Sight payment – to pay at sight. Deferred payment – to incur a deferred payment undertaking. Negotiation – to negotiate with recourse time draft drawn by the beneficiary. Acceptance – to honour a time draft drawn on nominated bank if the nominated bank does not accept the time draft. The answer is C and I agreed with it. But option D puzzled me for 2 reasons (1) Draft is drawn on nominated bank, hence how can the confirming bank honor the time draft drawn on nominated bank? (I understand “honor the draft” in the content of LC available by acceptance to mean accepting the draft). I checked UCP600 article 8(a)(i)(d) which says upon receipt of complying presentation, confirming bank must HONOR if LC is available by acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity. Does the word “honor” used in UCP600 article 8(a)(i)(d) just simply means to PAY at sight/pay on maturity date, regardless of the drawee named on the draft? ————– ANSWER Hi, 1) Unless the nominated bank is the confirming bank, it is not bound to negotiate the documents and/or the drafts. So, it may agree with the beneficiary to negotiate the documents on a with recourse or without recourse basis. 2) Under a confirmed LC available by acceptance with a nominated bank other than the confirming bank, if the nominated bank refuses to honour ,it is advisable for the beneficiary to issue drafts drawn on the confirming bank. Upon receipt of the complying documents, the confirming bank must honour the drafts (i.e., accept and pay at maturity). Where the nominated bank which has accepted the drafts but fails to pay at maturity, in accordance with sub-article 8 (a)(i)(d), the confirming bank must also honour (i.e. pay). In this case, the term “honour” means to PAY at maturity. Kind regards, Mr. Old Man P/s: Last but not least, in 2007 when UCP 600 came into force I ever sent Kim Christensen (now Kim Sindberg) my remark on the term “honour”. I quote hereunder for your reference: Quote I have read your view on the definition of honor in UCP 600. I agree with you that the introduction of the term will change the language of UCP 600, that is to say, the UCP 600 is much easier to read and understand. However, I think that the definition of honor seems not to adequately reflect the practice and that it should include the action of sight payment under a negotiation credit. My reasons are as follows: (i) That the issuing bank or the confirming bank (up to the case) must pay at sight a complying presentation under a negotiation credit, which is not negotiated by the beneficiary’s bank or by the nominated bank is true and normal. The issuing bank’s or the confirming bank’s action of payment under the negotiation credit, in this case, is quite the same as that under the sight payment credit. Accordingly, it should be called honor. (ii) Honor in Article 2 UCP 600 seems inconsistent with honor in Article 7 and 8 UCP 600. Please refer to the followings which I quote from the said articles: (a) “… the issuing bank must honor if the credit is available by negotiation with a nominated bank and that nominated bank does not negotiate.” (b) “… the confirming bank must honor if the credit is available by negotiation with another nominated bank and that nominated bank does not negotiate.” (c) “An issuing bank is irrevocably bound to honor as of the time it issues the credit” (d) “A confirming bank is irrevocably bound to honor as of the time it adds its confirmation to the credit” My remarks: 1. (a) and (b) show that honor includes the action of sight payment under a negotiation credit. 2. (c) and (d) show that honor can be applied to any type of credit, irrespective of sight payment credit, acceptance credit, deferred payment credit or negotiation credit. Honor in Article 2 UCP 600 should have included the action of honor under a negotiation credit. The concept of honor in UCP 600 will be complete if the following or similar wording is added to its definition: “to pay at sight a complying presentation under the credit available by negotiation if such a presentation is not negotiated by the nominated bank”. — Unquote
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?