Silent Confirmation; Does UCP Cover This Issue

[jmitra]

dear all,

i need your opinion on this issue; silent confirmation. lets define silent confirmation first. it means an undertaking independent of the LC, communicated by the nominated bank without authorization from the issuing bank. correct?

now lets see UCP article 12b

a. Unless a nominated bank is the confirming bank, an authorization to honor or negotiate does not impose any obligation on that nominated bank to honor or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary.

whats your opinion?

regards

mitra

[shahriar]

good question dear mitra. interesting indeed. well, i think you are quite right. one can say that silent confirmation is in the UCP. the problem is that there is no definition of silent confirmation in UCP. in fact there is hardly any working definition. but the way it works can be perfectly described by "expressly agreed to by that nominated bank". to me if the intention of the drafting committee was not cover so called silent confirmation in UCP, there was no reason to include these word since the nominated bank could have done the same. however commentary on UCP describe the issue as

Nominating a bank to honor or negotiate does not obligate that bank to receive or examine documents or to honor or negotiate unless the nominated bank is the confirming bank of the documentary credit, or when the nominated bank expressly communicates its agreement to honor or negotiate to the beneficiary, i.e., by indicating that it is willing to act under its nomination.

when a nominated bank confirms that it will act on its nomination, this is some sort of confirmation.

however i have also learned about other reason for including this line in UCP 600; trade practice in different countries where the exporter wants assurance from the nominated bank and thus make choice of their bank

regd

shahriar

[nesarul]

Dear,
I think the following reference will appease the issue.
Fung King-tak on the legality of silent confirmation
Documentary Credits Insight.Volume 7 No 1. Winter 2001
regards
nesar

[shahriar]

dear nesar,

i had a quick look at the article. i seems that the article is simply saying that silent confirmation is not covered by UCP. right? well, thats the typical ICC explanation. but im interested to know whats the extend of the expression

or when the nominated bank expressly communicates its agreement to honor or negotiate to the beneficiary, i.e., by indicating that it is willing to act under its nomination.

to me a confirmation means that the nominated bank will act on its nomination.

regd

shahriar

[ofei]

To my personal viewpoint, silent confirmation is not protected by UCP.The confirming bank by doing so may face the risks that it cannot claim reimbursement from the issuing bank or reimbursing bank. So the confirming bank will take it into careful consideration whether it can accpet silent confirmation without prior authorization from the issuing bank.

[jmitra]

well, i will take the liberty to put a opinion on my own post

first of all, UCP 600 article 7

a. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honor if the credit is available by:

further

c. An issuing bank undertakes to reimburse a nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the issuing bank.

what im trying to say is that under UCP, there is no exclusive protection for the confirming bank. a confirming bank is protected only when acting on its nomination.

by the way, what does it mean by saying that nominated bank is protected under UCP600? i believe that it means of the nominated bank acts on its nomination, it is entitled to claim reimbursement. however a confirming bank will take the risk of non payment and for this it charges certain fees and may also retain margin from the issuing bank depending on the deal with the issuing bank. when a nominated bank acts on its nomination, there is virtually no difference with a confirming bank as long as reimbursement claim is concern. so if the nominated bank wants to take the risk, it is still protected under UCP 600.

regd

mitra

[iLC]

interesting discussion. lets discuss it under two options

swift field 49 -

1. may add
2. without

will the two option has different opinion?

iLC

[nesarul]

Dear,
I think as long as the financial bank who is also a nominated bank under a particular letter of credit transaction provides silent confirmation to the beneficiary is protected under sub article 7(c) of UCP 600.
.
Dear ILC,
Without:
When a nominated bank extend its silent confirmation, this nominated bank is protected by sub article 7(c) of UCP 600.
May add:
.
some of the issuing banks like to open the credit under this form with a logic to provide an open option for subsequent confirmation after issuance of credit. But....
to me its an ambigious term, should ask for clarification from the issuing bank and if possible seek amendment.
Regards
nesar