Confirming Bank Is Not A Nominated Bank & Article 7(C)

[nesarul]

Dear all,
An analysis for sharing:

According to sub article 8(a)(b) to (e):
A credit can be available with another nominated bank other than confirming bank.

In response to above, according to article (2) definition of nominated bank:

“Means the bank with which credit is available..........” [For presentation of document by the beneficiary] [Emphasis added]

From above analysis we can infer that confirming bank may not be a nominated bank in always the case.

Now let us delve the following situation:

Issuing Bank = Bank X
Confirming Bank = Bank Y
Nominated Bank = Bank Z
Credit available by Deferred Payment.

Beneficiary presented the document to the Confirming bank i.e. Bank Y bypassing Bank Z and request to advance fund.
After examine the document, confirming bank i.e. Bank Y decided that document constitute complying presentation and agreed to prepay the beneficiary by incurring its own DPU and forward the document to the issuing bank i.e. Bank X

After advancing to the beneficiary and before maturity, there is an establishment of fraud. and issuing bank refused to pay at maturity

Confirming bank i.e. Bank Y alleged that according to sub article 7 (c) of UCP 600:
“An issuing bank undertakes to reimburse a NOMINATED BANK [EMPHASIS ADDED] that has honoured or negotiation a complying presentation and forward the document to the issuing bank...............................”

In reply issuing bank alleged that since the credit is not available with the confirimng bank i.e. Bank Y, it [confirming bank) is no longer a nominated bank according to definition of nominated bank. Consequently Confirming bank i.e. Bank Y is not protected under sub article 7(c) of UCP 600.

How reconcile it.
regards
nesar

[shahriar]

dear nesar,

very interesting question. a hard nut to crack after a long day of fasting.

you are very correct to say that a confirming bank may not be a nominated bank. in the case given, the confirming bank has made a series of mistakes in my eyes -

1. the bank should have ask to change the place of availability if they wanted to honor the presentation.

2. since they are not the nominated bank, they are not liable or even entitled to examine the original document for compliance as a process of honoring.

3. the bank is not authorized to honor any presentation since the credit is not available with them. they will only make payment if the issuing bank fails for pay.

therefore the confirming bank is not protected by the UCP600.


there are some interesting question now -

1. if the issuing bank make a wrongful dishonor, will the confirming bank pay? to me, no. cause the confirming bank is not in a state to determine the complance and therefore the issuing bank's verdict will be final!!

regd

shahriar

[iLC]

have shahriar forgot article 14 a and b of UCP 600 which says

a. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

b. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.


iLC

[Md.zakir Hossen]

I want to analyze this topic from different angle:
01.Say beneficiary submits the documents to the Nominated Bank and nominated Bank sends the docs to the confirming Bank and confirming bank did not raise the discrepancy and made advance.Did the Issuing Bank honor?Of course No.

So it will not the headache of the Issuing Bank whether the docs submits to the nominated Bank or to the Issuing Bank.More concern for the Issuing Bank is that whether the docs are complying.

[nesarul]

Dear All,
I revive the topic. pls provide further thought on this issue.
regards
nesar

[cristiand969]

My views are the following:
-The confirming bank has acted correctly in the situation no.1 i.e presentation of documents- Art.8a Provided the stipulated docs are presented to CONFIRMING BANK or to any other nominated bank ...and they constitute complying presentation the confirming bank must a) honour if the credit is available by .. deffered payment.... - (not to mention that confirmation has been added based on authorization or request of issuing bank art 8d) .
- The confirming bank has acted incorrectly in respect to discounting proceeds as they were not authorized to do so by virtue of art.7c. as by this article the issuing bank clearly authorizes only a nominated bank. The undertaking of confirming bank is to honour at maturity only
- The fraud is an issue that is out of the scope of UCP 600 and can be dealt in courts. The issuing bank will stop payment only when they have obtained an injuction court. Otherwise they are obliged to reimburse the confirming bank at maturity as the presentation can be made by or on behalf of beneficiary and the issuing bank has not provided advice of refusal in the timeframe specified under art 16.
best regards
Cristian D

[Md.zakir Hossen]

THE RECONCILIATION I THINK:
IF DOCS ARE IN COMPLIANCE ON PRESENTATION AT THE CONFIRMING BANK,BUT NOT IN COMPLIANCE ON PRESENTATION AT THE ISSUING BANK:

THE ISSUING BANK WILL NOT PAY THE CONFIRMING BANK
AND THE CONFIRMING BANK CANNOT RECOVER FROM THE BENEFICIARY BECAUSE CONFIRMING BANK'S PAYMENT WAS WITHOUT RECOURSE.

[nesarul]

Dear Zakir Bhai,
Remember!!!!!!!!!! Banco Santandar Vs Banco paribas case, if similar situation happened,
does the confirimng bank protected by subarticle 7(c) since ciedt is not available with it(confirimng bank] if yes why?
if no" why?
.
you know the incorpoartion of sub article 7(c) 8(c) and 12(b) in UCP 600 is a result of the above case.
regards
nesar

[isifan]

mr nesarul
pls any conclusion?

[khaledosama]

dear all ,

as confirming bank is not a nominated bank , it only cover the risk of issuing bank failure to pay
not entitled to examine , or to prepay .

confirming bank in the subject case are not protected by ucp600 and will face the consequences of not understanding
his role in the credit

best regards

[Albert]

I think the action taken by the confirming bank is correct As the confirming bank undertaking to Beneficiary is independent of the confirming bank Undertaking to the nominated bank , so the confirming bank can discount or purchase different payment undertaking even when letter of credit is not available with it .

[shafi865]

Dear Nesar,
Though this discussion was initiated by you approximately nine years ago, I, being a new member of this group, want to share my learning in this regard.

At first I wan to quote some para from "Guide To Documentary Credits" (Fifth Edition) by Gary Collyer-

''It should be noted here that while a confirming bank need not be a nominated bank, it is advisable that it is. If a bank is authorised or requested to add its confirmation to a documentary credit that is not available with it, it should fully understand the scope of the confirmation that is being authorised or requested. If a confirming bank is not a nominated bank, it is likely that it is being asked to undertake to pay in the event of non-payment of a complying presentation by the issuing bank, and not to undertake to honour or negotiate against the presentation of complying documents to it. The wording of the confirmation advice must clearly reflect the form of undertaking that the bank is giving."

In view of the above, the confirming bank has done the mistake.

Regards,
Shafique