with recourse and without recourse

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with recourse and without recourse

Postby hassan - on Sat May 24, 2008 2:57 pm

Dear L/C experts,
it is mentioned in some papers and books that "negotiation" is with recourse but "payment" is without recourse. could you please show an article in UCP 600 about this case?

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Re: with recourse and without recoursa

Postby Md.zakir Hossen - on Sat May 24, 2008 8:38 pm

Sorry, I am not an L/C expert.
Who is an L/C expert? if somebody wants to know I will mail him a writings of T.O.Lee.
However, Ucp -600 has no specific article on with or without recourse.
You can see the article no.8 (e) (ii)Confirming bank undertaking.
Here I am expressing my view which you may not want:


“recourse” – meaning that the beneficiary can not consider the payment as final – until accepted by the issuing bank.
"Bill purchasing" most possibly on a without recourse basis.
"Bill discounting" is on a with recourse basis. Money is given in advance with the right to redebit should the bill not be paid in due course.
The negotiating bank has the right of recourse to the beneficiary of the documentary credit if cover is not received from the issuing bank, unless the negotiating bank has agreed to negotiate without recourse to the beneficiary, or has confirmed the credit.
However, in some Asian countries like mine, negotiation is normally effected on a with recourse basis.
If the seller presents the documents to his bank, which is not the issuing bank and also not the confirming bank, then that bank negotiates the documents with recourse to him. This is because the seller's bank does not hold an undertaking to pay even though it is authorized to negotiate the documents.

The seller's bank on the other hand, may refuse to negotiate or give value of the documents to the seller. The principle of negotiation with recourse arises in a situation when:
• the negotiating bank is not able to obtain reimbursement from the issuing bank or from the applicant, that is the buyer because they have become insolvent
• Rejection of documents as a result of discrepancies in documents for which the negotiating bank is either holding an indemnity or has negotiated under reserve.

zakir

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payment vs negotiation

Postby shahriar - Bangladesh on Sat May 24, 2008 10:57 pm

dear hassan,

could u please refer us to the article where u read this. anyway i can only think of one thing now.
what is payment: to me it means giving the value of a complying presentation. what im trying to say that payment is similar to honor and which is always without recourse.

while negotiation is something different. it is not payment or giving value of the presentation. its a purchase of document by the nominated bank. to me its some sorts of credit arrangement between nominated bank and beneficiary.

as far as confirming bank is concern, negotiation and honor means the same thing to me. personally i believe that confirming bank should honor like issuing bank.

shahriar

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Re: with recourse and without recoursa

Postby nesarul - Bangladesh on Sun May 25, 2008 1:38 am

dear Zakir Vai,
i agreed with you, except the following;
"Bill purchasing" most possibly on a without recourse basis.
"Bill discounting" is on a with recourse basis.
here my thought is that:[assumption: nominated bank which is not confirming bank]
bill purchasing = related to sight bill,[with or with recourse is solely depends upon the agreement between the nominated bank and the beneficiary]
bill discounting = related to usance bill[with or with recourse is solely depends upon the agreement between the nominated bank and the beneficiary].
awaiting for your reply.
THANKS
NESAR

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Re: with recourse and without recoursa

Postby hassan - on Sun May 25, 2008 3:01 pm

Dear shahriar,
I have studied it in somewhere that I can not jus remember but i think one of them was " Alasdair Watson , Finance of International Trade (5th edition) , page 149 "
meanwhile in case of your last sentence, considering the definitions in Art. 2 ("confirmation" and "credit" ) - 7(a) , 8(a)(ii)UCP 600 it seems there is a difference between the practice of issuing bank and confirming bank i/e confiming bank must pay docs value to benef.without recource deducting interest for the periud between payment date and the date issing bank to advice its acceptance of docs or expiring the 5 banking days mentioned in 14(b) .
finally i belive subject of "negotiation" is an ambiguity case so the icc should have not to apProve it in UCP 600 AND MAY CAUSE THE MOST DISPUTES IN THE CARREER OF THIS RULES.

Shahriar,s last sentences:
as far as confirming bank is concern, negotiation and honor means the same thing to me. personally i believe that confirming bank should honor like issuing bank.

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FAQ UNDER UCP600

Postby ldt5205 - on Tue Jul 28, 2009 8:32 am

FAQ UNDER UCP600 BY GARY COLLYER
2.24 Honour or negotiation - is this with or without recourse, or does it depend on which party (issuing bank, confirming bank or nominated bank) honours or negotiates?
Suggested Answer:
Honour under a credit is deemed to be without recourse whether it is made by an issuing bank, confirming bank or nominated bank. It is often the case that for a credit available with a nominated bank by payment the nominated bank may enter into a form of „with recourse‟ agreement with the beneficiary as they have given no undertaking in respect of the payment that they are being asked to make. Negotiation effected by a confirming bank is without recourse to the beneficiary (see UCP 600 sub-article 8 (a) (ii)). Negotiation effected by a nominated bank is generally with recourse to the beneficiary, although the nominated bank may enter into a form of agreement with the beneficiary to do so on a without recourse basis.
12.6 Does a nominated bank have the right of recourse from the beneficiary under a sight payment/deferred payment/acceptance credit?
Suggested answer:
When a nominated bank has paid, accepted a draft or incurred a deferred payment undertaking it is without recourse to the beneficiary. Exceptions may be where the bank and beneficiary have entered into specific agreements regarding financing under certain transactions and elements of recourse are available to the bank.

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recourse or without recourse

Postby ajoy - on Tue Jul 28, 2009 9:40 am

Dear All ,

I understand the issue in general as :

Recourse is ultimately a matter between the bene and the nominated bank and the advise /offer letter of the Bank which reflects their agreement sort of overrules whatever may be implied by the ICC definations.

More specifically , Hasan asked

Dear L/C experts,
it is mentioned in some papers and books that "negotiation" is with recourse but "payment" is without recourse. could you please show an article in UCP 600 about this case?


My two bits for whatever it is worth:

Under sight payment the nominated bank is under instructions to pay the bene by debit to the IB or after reciveing claim from the RB. It is acting as an agent following instructions:

Thus , bene submits credit compliant docs to Nominated Bank . Nominated bank debits IB's a/c with it ( or claims and recieves reimbursement from RB) . Nominated bank pays bene and dispatches docs to IB.
Thus , the nominated bank is never out of pocket. It never pays from its own funds. Therefore logically it cannot/neednot have any recourse to bene.

This is the resaon why in some countries banks refuse to act as nominated banks under payment LCs unless they are confirming that particular LCs.

Under negotiation, Nominated bank has authority to exchange drafts and/ or documents for money:

Thus, bene submits credit compliant docs to nominated bank. Nominated bank pays bene and dispatches docs to IB. IB recieves docs and authorizes Negotiating bank to debit IB a/c with it or claim remibursement from a RB.

Here , Negotiating bank is paying out of pocket.. and IB in turn owes money to negotiating bank only after it has recieved the docs from them.
(BTW This is the reason why Negotiating bank must wait for IB to recieve docs under a negotiation LC before it can claim /recieve funds)

Since Negotiating bank has exchanged docs for money it has a right to recourse to the bene if it cannot then get paid by the IB.
.................

Other related issues:

- Confirming bank does not have recourse to bene once it has paid against credit compliant docs..irrespective of whether LC is on payment, negotiation on sight, nego on term, acceptance or under deferred payment basis.

- Discounting/purchase etc can be with or without recourse depneeding on the arrangement between bene and nominated bank.

- Lastly, if there is a fraud by bene bank will always have legal recourse to bene in all cases.

PS: Idt ..

I did get a chance to discuss this issue with Gary Collyer one to one some years back and the FAQs you have posted are pretty much the same views with UCP 600 terminology...

Cheers

Ajoy

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Idt on 12.6.. Just a thought...

Postby ajoy - on Tue Jul 28, 2009 12:49 pm

12.6 Does a nominated bank have the right of recourse from the beneficiary under a sight payment/deferred payment/acceptance credit?
Suggested answer:
When a nominated bank has paid, accepted a draft or incurred a deferred payment undertaking it is without recourse to the beneficiary. Exceptions may be where the bank and beneficiary have entered into specific agreements regarding financing under certain transactions and elements of recourse are available to the bank.


If this is true what is the difference between the liability of a confirming bank vs a nominated bank which has not confirmed the LC.

It follows therefore that we should not agree to be nominated bank for an LC available by deferred payment or by draft drawn on us under acceptance unless we are also confirming the LC.

For all these cases we could still have an agreement with bene to have recourse to them except where the draft is drawn on us.... or else refuse to be nominated bank....

For sight LCs it should be Ok provided nominated bank has access to IB's a/c and an authority to debit them and pay.

comments welcome.
Cheers

Ajoy

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Great comment,ajoy!

Postby ldt5205 - on Tue Jul 28, 2009 3:17 pm

"Recourse is ultimately a matter between the bene and the nominated bank and the advise /offer letter of the Bank which reflects their agreement sort of overrules whatever may be implied by the ICC definations."
I agree with this comment about recourse.

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