does confirming bank need to check documents?

[vivian]

Hi, everyone

Anybody konw that confirming bank need to check documents? or Nominated / Nego bank can present the complying docs to issuing bank directly if the confirming bank is not nominated/nego bank?

Regards
Vivian

[wongvv]

Hi !

According to UCP600 Art 8, it states " ....documents are presented to the confirming bank or any other nominated bank.......". Therefore, as you say, if the L/C' s terms do not require documents present to confirming bank, it is not need to present to them. However, in this case the confirming bank could not determine whether the document is complying or not. For this reason, some confirming bank may add a condition, that the documents must be presented to issuing bank through them in order to obtain their undertaking, in the confirmation.

V.V.

[shahriar]

a similar question was asked to mr. collyer in FAQ. the answer was that if the confirming bank is not a nominated bank, the confirming bank will be in a standby position. that is the honor will be against a advice from the issuing bank stating the document is compliant and the issuing bank unable to honor the presentations for reason other than court order.

from this it can be said that the confirming bank need not to check the document if its not a nominated bank.

however the position of article 14 a appears bit different which says

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.

i think we need to address the question "what is the status of confirming bank in UCP600"

[cristiand969]

Therefore, as you say, if the L/C' s terms do not require documents present to confirming bank, it is not need to present to them

.
You may want to note that art. 8 has not ended to the first paragraph and the point no.c says: A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded documents to the confirming bank , not to the issuing bank.
Once the negotiating bank has not forwarded documents to the confirming bank the undertaking of the confirming bank would end up.

regards
C

[wongvv]

Hi !

Last year, I asked an ICC expert, Mr. King Tak Fung , the same question about Art 8's conflict. On one hand, sub-art 8a states "....presented to confirming bank or to any other nominated bank". On the other hand, sub-art 8c states "forwarded the documents to the confirming bank". He answered privately that it is a conflict in the article, and he thought the confirming bank should add a condition of presenting documents in the confirmation for protecting itself.

V.V.

[cristiand969]

Dear wongvv,
It seems to me there is no conflict in the article 8.
While the first paragraph

presented to confirming bank or to any other nominated bank"

speaks primarly for beneficiary (where to present documents) , the second stance

forwarded the documents to the confirming bank

is referring to the obligation of the nominated bank in order for it to obtain reimbursement. Otherwise, for confirming bank is the same situation when either benef or nominated bank presents documents directly to issuing bank, i.e. no undertaking.
One more thing, i do not endorse opinion of your expert as drafting commission for UCP 600 was formed of the most well known experts.

[Armagedo]

I would rather agree with cristiand969
No conflict.
8c makes limitation to what is stated in 8a in order irrevocable undertaking of the confirming bank to take place.
It's analogue of additional conditions in L/C.

But as per my vision here is hidden trap for inattentive beneficiary.

Article 6 of UCP600.
From it it's quite clear that docs to be presented either to nominated or issuing bank.
No other choices.
If confirming bank is not nominated then presentation of the docs to confirming bank directly play a bad game with beneficiary.
Example:
Issuing bank: Bank I
Nominated bank: Bank N
Confirming bank: Bank C
Availability: with Bank C
Presentation period expired (for instance): June 25, 2009

Banks I, N, C are quite different banks.

Beneficiary read 8a and makes presentation to confirming Bank C skipping nominated Bank N.
Confirming Bank C receives docs on June 22, 2009.
Makes checking and finds presentation complying on June 25, 2009.
Sends docs to the issuing Bank I which the latter receives on June 29, 2009.

"Finita la comedia" - late presenation discrepancy

But this is another story.

Good luck

[wongvv]

Hi !

I try to extract more references from what I know. The following statements are extracted from page 95 (concerning Article 8 of UCP600) of the book -

The Comparsion of UCP600 & UCP500
by Professor James E.Byrne
(Director of Institute of International Banking Law & Practice, Inc.)

"There is a potential gap in these provisions. They do not fully address the obligation of the confirmer to the beneficiary in the situation where the beneficiary presents the documents to the nominated bank and that bank, for whatever reason, forwards them directly to the issuer without sending them to the confirmer. Where the nominated bank in such a situation has acted pursuant to its nomination and paid, incurred a deferred payment undertaking an paid, accepted and paid, or negotiated, the nominated bank forfeits its right to reimbursement from the confirmer because it has by-passed the confirmer. ....... However, in rare and unlikely situation where the issuer fails to honor a timely presentation that complies on its face with the terms and conditions of the credit, the confirmer may be obligated to honor or cover for the nominated bank even thought it has not received the documents. Where its undertaking to the beneficiary entitles the beneficiary to present the documents to a nominated bank, the confirmer cannot avoid the liability for something that occurs after the beneficiary acts accordingly. Admittedly, the risk of occurrence of such an event is low but the risk remains."

Another similar ideas can also be found in the book "UCP 600 Legal Analysis and Case Studies" by King Tak Fung (Technical Adviser, ICC Commission on Banking Technique and Practice) page 41.

V.V.

[Judith]

I agree with V.V. although I don’t think that there’s any conflict in the article! (However, it could definitely have been worded better!)

In my opinion, if a bank has confirmed a credit, they must honour the presentation as long as the beneficiary has presented compliant documents to a nominated or confirming bank.

This applies even if the nominated bank does not forward documents to the confirming bank on account of Article 8(c) which says:
"A confirming bank’s undertaking to reimburse another nominated bank is independent of the confirming bank’s undertaking to the beneficiary."

Note 1
However, if the nominated bank does not forward documents to the confirming bank, it may not be able to claim reimbursement from the confirming bank because as per Article 8(c) first sentence, it should have: “…forwarded the documents to confirming bank.”

Note 2
If the beneficiary is not presenting documents directly to the confirming bank, it should ensure that the nominated bank to which documents are presented is indeed acting as a nominated bank (i.e. that they have determined compliance)

If it does not, it may not be able to prove to the confirming bank that it made a valid presentation was made as per 8(a).

Note 3
If the confirming bank (which is not the nominated bank) wants an opportunity to examine documents, it ought to put that as a condition of confirmation.

In many cases, the confirming bank will want to examine documents. But I have also seen LC structures where the confirming banks do not want to examine documents. (They play more of a role of providing an irrevocable reimbursement undertaking.)

Hope this helps.