Issuing Bank Undertaking To Nominated & Confirming Bank

[jmitra]

dear experts,

i would like to know your views on issuing bank undertaking towards nominated bank acting on its nomination and confirming bank. is there any differences in the obligation of nominated bank and confirming bank once nominated bank has acted on its nomination?

have a nice day.

Mitra

[nesarul]

Dear,
pls don't mentioned expert. if u do so, one fill hesitant to make one's posting in a cosy way.
.
Its better to analysis your posting based on availability of credit :
Assumption: nominated bank acting on its nomination in one credit
And there is an confirming bank on another credit.

Availability based on honour:
1.by payment:
This nominated bank is called paying bank although UCP 600 made no reference to it. Here paying bank's payment is final and always without recourse. No advance facility towards beneficiary is applicable, because normally, under this type of credit followed a reimbursement clause. So paying bank's payment is as like as issuing bank's payment. Therefore no difference have found between nominated bank acting on its nomination and confirming bank.
.
Please note that no nominated bank is agreed to act under this credit until it(NB) has credit line with an issuing bank or an undertaking from another bank like reimbursement undertaking.

2. By deferred payment and acceptance credit:

As per as advancing fund by creating own DPU or accepted draft is concerned, nominated bank and confirming bank has got no obligation and always protected by sub article 7(c) regarding reimbursement from issuing bank.

under normal circumstances, the above advancing is without recourse basis, but one can change its nature through agreement with the beneficiary.

It is worth to mentioned here that of late, nominated bank's raises their voice regarding sub article 12(b) that under this type of credit NB has to advance fund as like as confirming bank without getting confirming charge.[emphasis added]

Credit available by negotiation:

Here confirming bank function is always without recourse as per sub article 8(a)(ii) where nominated bank's negotiation is normally with recourse solely based upon agreement.
.
I want to put something more here that:

Suppose as per sub article 12(a):
Nominated bank provide express consent towards beneficiary that it will honour(if credit available by payment, deferred payment, acceptance) or negotiate under a complying presentation:
Now the difference between nominated bank and confirimng bank as follows:
as per as complying presentation is concerned the above explanation seems to me correct (rectify me if i am wrong)

if beneficiary present discrepant document:

as per article 16(f) of UCP 600, confirimng bank is obligated to provide discrepant notice to the presenter whereas nominated bank is not( but it is not advisable).
i think this will add.
Waiting for other forum member’s reply.
Regards
nesar

[jmitra]

dear nesar,

i think i my question was not very clear. let me rewrite it. say two letter of credit. one is confirmed by ABC bank. for other one, ABC bank is merely a nominated bank. both LCs are available by payment. under the two LCs, complying presentation was made and ABC bank honored them accordingly. what is the difference in these two cases for the ABC bank?

in fine, when a nominated bank is acting on its nomination, is there any differences between the nominated bank and the confirming bank?

regards

mitra

[Md.zakir Hossen]

I WANT TO ADD WHAT NESAR SAID:
IN CASE OF A CONFIRMED DOCUMENTARY CREDIT THE CREDIT WOULD BE NORMALLY BE AVAILABLE WITH THE CONFIRMING BANK WHICH WOULD THAN ALSO BE A NOMINATED BANK.

A NOMINATED BANK THAT HAS NOT CONFIRMED THE CREDIT DOES NOT HAVE TO ACCEPT THE NOMINATION OF ISSUING BANK AND THE MERE NOMINATION DOES NOT IN ITSELF IMPOSE AN OBLIGATION.THE NOMINATED BANK SHOULD COMMUNICATE TO THE BENEFICIARY ITS AGREEMENT TO ACT IN THIS CAPACITY.THE RECEIPT BY THE NOMINATED BANK OF DOCUMENTS, THEIR EXAMINATION OR THEIR FORWARDING DOES NOT, IN ITSELF,OBLIGATE THE BANK IN THE ABSENCE OF ANY AGREEMENT.

ALSO ANOTHER 02 POINTS IN CASE OF NON-CONFORMING DOCS;
IF DOCS ARE IN COMPLIANCE ON PRESENTATION AT THE NOMINATED BANK BUT NOT IN COMPLIANCE ON PRESENTATION AT THE CONFIRMING BANK:
THE CONFIRMING BANK WILL NOT PAY THE NOMINATED BANK;
THE NOMINATED BANK MAY RECOVER FROM THE BENEFICIARY BECAUSE PAYMENT TO THE BENEFICIARY MAY HAVE BEEN MADE WITH RECOURSE.

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;
THE CONFIRMING BANK CANNOT RECOVER FROM THE NOMINATED BANK BECAUSE THE CONFIRMING BANK PAYMENT WAS WITHOUT RECOURSE BASIS.

[nesarul]

Dear ,
Pls read point no.1 of my previous posting and comments whether i am right or wrong.
regards
nesar

[cristiand969]

There is a clear difference between 2 situation:
- one one hand the confirming bank , is obliged to pay beneficiary based on compliant documents whether or not the confirming bank will be reimbursed by issuing bank (i.e payment is without recourse)
- on the other hand , when the nominated bank has not confirmed the credit even if the nominated bank agrees to act on its nomination, the payment to beneficiary is always with recourse (i.e in case the nominated bank obtained reimbursement from a third bank and issuing bank refuse documents based on discrepancies, the beneficiary must reimburse the nominated bank)
I hope this will helps you
best regards
cristian D

[iLC]

dear all,

i think we are missing a point. mitra is taking about LCs which have been honored by a bank; not negotiated.

i completely agree with zakir. if the LC is available with confirming bank, then it becomes a nominated bank. to me under the two scenario stipulated by mitra, the ABC bank is protected by the same UCP article 7.

regards

iLC

[Md.zakir Hossen]

DEAR NESAR'
I HAVE CONFUSION IN YOUR OPINION NO.1
"paying bank's payment is final and always without recourse."
WHY IT IS WITHOUT RECOURSE BASIS?

[nesarul]

Dear Zakir Vai,
the main point is credit available by payment.
So we can analyze how by payment type letter of credit constitute.
When the credit is available by payment, the letter of credit is called straight letter of credit.
according to "Documentary credit operation" under UCP 500 by Charles Del Busto:
" The credit through which the issuing bank extend its obligation TOWARDS BENEFICIARY ONLY[EMPHASIS ADDED] NOT TO ANY OTHER PARTY.
Under the above definition we can reach the following decisions:
1. Since the issuing bank entend its obligation towards beneficiary only, its is not at all an advancing fund instrument.
2. Normally this letter of credit available with issuing Bank only.
3. It may be available with another nominated bank, but no nominated bank will agreed to act on it until it(NB) has credit line with an issuing bank or an undertaking from another bank like reimbursement undertaking.
.
Moreover, the term "Payment" its is a part of Honour as per definition of honour of article 2 in UCP 600.
.
if any bank acting as a nominated bank under this type of credit then its called "paying bank" not negotiating bank.
.
you will find a fine distinction between these two bank on "Explanation of UCP 400" an Indian ICC publication most probably the writers name is Mr.bedi[may be i am wrong]
.
according to james e bryne in its article "Negotiation in letter of credit practice as law:" the evolution of doctrine" published in texas international law journal, Vol 42: page 561" [pls try to collect it, the best article have i ever seen] foot note 19,
"The UCP has never systematically addresses the role of paying bank..............................when drafts are used, the draft would be drawn on a paying bank, as the drawee, its payment would be final since payment by the drawee would extinguish the draft without there being any right of recourse"
.
Since by the nature of this type of credit, utilization of nominated bank's own fund has got no room and the nominated bank just received and made payment to the beneficiary from the issuing bank as like as issuing bank's made payment to the beneficiary, so payment by a nominated bank under credit abailable by payment is without recourse.
.
I think this will add.
sorry for wrong posting.
regards
nesar