Confirming LC Which Is Available With Issuing Bank Only

[nesarul]

Dear all,
Credit avaiable : at the counter of issuing bank
Confirmation: confirm
Request for confirm the credit: Bank X
.
If the confirming bank (Bank X) has decided to confirm the credit, what procedure the confirming bank should follow?
Regards
nesar

[Currer]

Dear Nesar, from my point of view the best way forward for Bank X would be to ask for an amendment making the credit available with Bank X prior to adding its confirmation.

The documentary credit currently does not ask Bank X to honour or negotiate. It is available with the issuing bank only.

By asking a bank to add its confirmation the issuing bank asks it to give an undertaking to honour or negotiate. The determination of availability being with the issuing bank and asking another bank to honour is a contradiction within the terms of the documentary credit.

Besides the question of which bank is authorized to do what, Bank X should also consider the place and expiry date for presentation. If such place is with the issuing bank, they take an additional risk.

Regards


Currer

[Md.zakir Hossen]

Sometimes I found in the credit following condition:
Expiry date and Place: xxxxxxxxxx,Bangladesh
Credit available with:Issuing Bank counter, Hongkong.

Important point here is that the Issuing Bank does not exclude the article no 6(a) of UCP-600.
I think in such case exclusion of this article is important.


In confirmation we Pre-settle the add confirmation with confirming Bank .

I think amendmend of the credit is not necessary.Confirming Bank can add its confirmation without considering simply this condition, if other thing remain same.

[shahriar]

dear zakir bhaia,

could you please discuss your thought in detail

shahriar

[nesarul]

DEAR ZAKIR BHAI,
I AM ALSO EAGERLY AWAITING FOR.....
REGARDS
NESAR

[Md.zakir Hossen]

From Commentary of UCP-600

UCP 600 article 6 details the rules for availability of the documentary credit, expiry date and place for presentation. Sub-article 6 (a) establishes the rule that a documentary credit must indicate the bank with which it is available or, in the case of a freely available documentary credit, that it is available with any bank. Structured properly, a documentary credit can be made available with any bank for payment, acceptance or deferred payment — the three methods that make up the term “honour”. Sub-article (a) also states the general rule that whilst a documentary credit may be made available with a nominated bank, it is always available with the issuing bank. As a result, a beneficiary always has the right to present documents either to the nominated bank or directly to the issuing bank.

When an Issuing Bank says Credit available with Issuing Bank Counter but says that expiry date and Place at Beneifciry's Bank Counter then I think that Article 6(a) should be excluded to execute the transaction.

Confirmation: In my cases, Applicant wants confirm Credit in favor of the supplier.We forward the proposal to Head office and they determine the Confirm Bank.

[nesarul]

Dear zakir bhai,
here i try to analysis the exclusion of your mentioned sub article and its impact on overall particular letter of credit transaction:[pls note that if ai go wrong way, pls help me to ractify myself]
sub article 6(a):
This sub article has got three part:
1.a credit must state with the bank[emphasis added] which credit is available.
my explanation: this line is applicable where avaiability of credit is restricted to a particular bank, it may be nominated bank, issuing bank, or non bank etc.
-------------0R
2.Whether it is available with any bank:
my explanation: this line is applicable where credit available with any bank [freely available]

now line 3:
a credit is available with a nominated bank is also available with the issuing bank.
my explanation:
this 3rd line is applicable for above two situation, where the beneficiary or its authorized agent make a presentation to issuing bank directly although there is a chance to present the same to nominated bank.
let assume:
exclusion of sub article 6(a) from your particular letter of credit transaction:
from above analysis, we infer that exclusion of sub article 6(a) is not only omited credit avaiability with nominated bank or freely avaiability but also OMITED AVAIABILITY TO THE ISSUING BANK'S COUNTER ALSO.
SO THE OBJECTIVE FOR EXCLUSION OF SUB ARTICLE 6(A) IS NOT ACHIEVED.
ANOTHER POINT:
STIL THERE ARE SUB ARTICLE 6(D)(II), WHICH ALSO HAVE AN INDICATION OF INDIRECT AVAILABILITY OF CREDIT.
ISN'T IT?????????
EAGERLY AWAITING FOR OTHERS COMMENTS>
REGARDS
NESAR

[Md.zakir Hossen]

Dear Nesar,
Nice explation and nice break up
starting from your point :"exclusion of sub article 6(a) from your particular letter of credit transaction:
from above analysis, we infer that exclusion of sub article 6(a) is not only omited credit avaiability with nominated bank or freely avaiability but also OMITED AVAIABILITY TO THE ISSUING BANK'S COUNTER ALSO.
SO THE OBJECTIVE FOR EXCLUSION OF SUB ARTICLE 6(A) IS NOT ACHIEVED."

For this L/C is available with Issuing Bank
For Your Second Point "
ANOTHER POINT:
STIL THERE ARE SUB ARTICLE 6(D)(II), WHICH ALSO HAVE AN INDICATION OF INDIRECT AVAILABILITY OF CREDIT."
I am just reading an interview of Gary Collyer regarding "Exclusions, interpretations and the future of the UCP " in DC Insight

I quote one question and answer

DCI :On that point, if a provision is excluded without stating the conditions for the exclusion, does this automatically mean that the opposite of the exclusion then applies?
Collyer :No. It is important to note that in most cases, if you exclude a rule of the UCP, you have to put something back. In other words, you have to insert language in the letter of credit to fill the void left by the exclusion of the UCP provision. In our last Banking Commission meeting, we were discussing a query concerning exclusion clauses that had been seen in four or five sets of circumstances, and the overwhelming response was that the Opinion should clearly indicate that exclusions should not be necessary in every event and, where applied, should be kept to a minimum.
If some articles are excluded without providing a clear statement of what is required, in some cases the issuing bank will place itself and the applicant in a situation of severe risk, as ultimately they are the ones that face the risk of any ambiguity in the credit. If an issuing bank excludes one or more rules, it can be open to a nominated bank or the beneficiary making their own assumptions as to what is acceptable, and the issuing bank may not have grounds for a refusal by subsequently saying that when it deleted the clause, it actually meant something different, but this requirement was not clearly articulated in its credit. "

UCP-600 articles are inter related andexclusion of some article does not effective for this reason.

[nesarul]

Dear zakir bhai,
thanks for sharing, the intention of my analysis is also make an emphasis on that, " an issuing bank should noty exclude any of sub article or article of UCP by merely incorporating that Sub article x or article x excluded. it must mentioned what objective an issuing bank can achieve by excluding any sub article x or article x. or else it is the issuing who has to face the mugic if any complexity therein.

moreover, exclusion of sub article 6(a) will not help to achieve your objective because of existence of sub article 6(d)(ii).isn't it.
pls help.

regards
nesar

[shahriar]

nice discussion.

the first thing is UCP is like mr. bean's law. "follow it as long as it fits you" - this is the general concept of it users.

about exclusion effect -

a. A credit must state the bank with which it is available or whether it is available with any bank. A credit available with a nominated bank is also available with the issuing bank.

forget an exclusion. what if a credit dont state such? the default interpretation is that it is still available with issuing bank coz the undertaking is still there. to me the important words here are

"whether it is available with any bank" and "also available with the issuing bank"

therefore to me exclusion has no impact on its availability with the issuing bank.

b. A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation.

this is something important but excluding it while having filled up swift 42c and 41d has no significant impact.

c. A credit must not be issued available by a draft drawn on the applicant; not important for this case
d. same case

"excluding and violating are not same thing". what article 6 says are the very basic of lc and can hardly be established violating these rules and is important especially when the lc is freely available.


regd

shahriar