Negotiation Under Reserve / With Recourse

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ANGE
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Negotiation Under Reserve / With Recourse

Post by ANGE » Mon Sep 23, 2013 5:10 am

I would like to have your advices about negotiation Under reserves and negotiation with recourses.

The general meaning of negotiation with recourses is that the negotiationg bank pay the beneficiary on presentation of the conform documents and in case the issuing bank doesn't reimburse the negotiating bank for whatever reason (discrepancies or Financial failure of the issuing bank), then the negotiating bank has a recourse against beneficiary to get back its money.

The general meaning of negotiation Under reserves is that in case of minor discrepancies in the documents presented by the beneficiary, then the negotiating bank can nevertheless pay the beneficiary but with the condition that in case the issuing bank refuses the documents, then the negotiating bank can get back its money.

It means that in case of negotiation Under reserves, the negotiating bank takes the risk of a Financial failure of the issuing bank (which is not the case with the payment with recourse)

Now let's consider the case of a negotiating bank which has confirmed the credit. If on presentation of the documents, there is no discrepancies and documents comply with credit terms, then usually the bank can negotiate the documents with recourses (in order not to take the risk of a Financial failure of the issuing bank, which is quite normal as the bank has not given its confirmation).
Now if the documents presented are discrepant (with minor problems), the the bank can negotiate Under reserves and take the risk of a Financial failure of the issuing bank.

I would like to have your advices about the following :

Why a negotiating bank which would be ready to negotiate with recourse when conform documents are presented could be ready to negotiate Under reserves when the documents show some minor discrepancies (and in fact take more risk than in a negotiating with recourses)????. What I don't understand is why the negotiating bank doesn't protect itself in the same way in the 2 procedure?

In my opinion, if the negotiating bank is ready to pay with recourse when complying documents are presented, it will not be ready to negotiate Under reserves when the same documents are presented with minor problems. According to me, the bank could negotiate Under reserves for the goods clients, but the reserves are that payment is final on the condition that the issuing bank gives a waiver of the discrepancies and on top of that the negotiating bank get the payment of the issuing bank.

Please let me have your valuable advices

Ashish Sethiya
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Negotiation under Reserves/with recourses

Post by Ashish Sethiya » Wed Sep 25, 2013 1:11 pm

In general terms: L/c was confirmed by negotiating bank. Confirming bank confirm documents are comply. In this event beneficiary will be paid on without recourse basis as per article 8(a) ii. In any event, issuing bank will fail to pay. Confirming bank shall exercise with issuing bank not with beneficiary.
Fiction scenario 1: If documents are discrepant, in this case, confirming bank may negotiate on with recourse basis. In any event issuing bank fail to pay. Confirming bank shall recover money from beneficiary.

Negotiation under Reserves
The bank which is making a negotiation under reserve is entitled for repayment if the issuing bank refuses to pay i) showing the same discrepancy or ii) showing different discrepancy
Fiction scenario 2: However, taking precedence from the rule in the case between Banque de l’Indochine et de Suez SA v J H Rayner (Mincing Lane) Ltd [1983], in the event of payment having been made under "reserve", and absent any specific agreement between the beneficiary and nominated bank, the courts would likely rule that rejection of the documents by the issuing for any reason, whether the discrepancies are justified or not, would enable the bank to recover the funds from the beneficiary. This is as opposed to the situation where the issuing bank was to reject the presentation due to at least one discrepancy as observed by the nominated bank.

So, following the legal precedent (and absent specific conditions under which the reserve may be exercised),
Other comments are appreciated
Brgds

ANGE
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PAYMENT "UNDER RESERVES"/"WITH RECOURSES"

Post by ANGE » Sun Sep 29, 2013 2:43 pm

Dear Ashish

Thank you for your comments. Now tell me if you agree with the following:

1) In general terms, When there are no discrepancies :
- the negotiating bank (which has not confirmed) will usually negotiate "with recourse"
- if the negotiating bank is also confirming bank, it will negotiate "without recourse"

2) In general terms, when there are discrepancies (minor reserves) in the documents :
- the negotiating bank (which has not confirmed) will usually negotiate "with recourse" and exceptionally "Under reserves"
- the negotiating bank which is also confirming bank will usually negotiate "Under reserves" but it can also negotiate "with recourses" (in my opinion logically, the confirming bank should negotiate "Under reserves" as by its confirmation, it was ready to take the risk of failure of payment of the issuing bank)

Awaiting your comments
Regards
Ange

Ashish Sethiya
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Negotiation under Reserves/with recourses

Post by Ashish Sethiya » Tue Oct 01, 2013 10:43 am

1) In general terms, when there are no discrepancies:
- The negotiating bank (which has not confirmed) will usually negotiate "with recourse" –
Answer: Yes as per article 7(c) and article 12 (Whatever this is choice of negotiating bank),
- if the negotiating bank is also confirming bank, it will negotiate "without recourse"-
Yes if documents are clean, confirming bank will negotiate without recourse basis as per article 8 a (ii)

2) In general terms, when there are discrepancies (minor reserves) in the documents:
- the negotiating bank (which has not confirmed) will usually negotiate "with recourse" and exceptionally "Under reserves"-
Answer : This is choice and depend upon your relation with bank, whether negotiating bank , wish to purchase or negotiate with recourse or not. Please refer article 7 © and article 12.

- The negotiating bank which is also confirming bank will usually negotiate "Under reserves" but it can also negotiate "with recourses" (in my opinion logically, the confirming bank should negotiate "Under reserves" as by its confirmation, it was ready to take the risk of failure of payment of the issuing bank) –
-NO if documents are discrepant, confirming has given notice to beneficiary; bank will not take risk, until unless issuing bank is not giving acceptance or maturity date. Confirming bank may negotiate on with recourse basis. Any failure or non-payment by issuing bank as per article 16 will not bound to confirming bank to pay.

Other comments are appreciated.
Brgds

IJTUDU
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Under Reserve

Post by IJTUDU » Tue Oct 01, 2013 8:00 pm

Issuing bank or confirming bank undertaking under UCP will be applicable only in case of complying presentation. There is no word mentioned as “under reserve” in UCP, therefore, it would be out of purview of UCP. Any call of negotiating / purchasing / discounting the discrepant documents “under reserve” would be a “Credit Call taken on the beneficiary” by the negotiating bank / confirming bank purely based on its relationship with the beneficiary (like sanctioned limit, past conduct of the beneficiary, value of relationship etc) as protection under UCP is available only for complying presentation. Regards

Anurag
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NEGOTIATION UNDER RESERVES

Post by Anurag » Sat Oct 12, 2013 11:22 am

Please let me allow to comment:
This query is related to Negotiation under reserves and negotiation with recourse and not asking for UCP 600, However commentary on ucp 600 article 14(f) says relating to negotiation under reserve or indemnity has not been incorporated into ucp 600. The Drafting group felt that this sub article dealt with situation subject to an agreement between a nominated bank and the beneficiary and was not as essential part of the UCP.

Brgds
Ashish Sethiya

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