Is Silent Confirmation By Nomintaed Bank Protected Under UCP

[jmitra]

Dear all,

if a nominated bank adds its silent confirmation to a letter of credit and acts on its nomination, is it protected under UCP? to me yes. if the presentation is complying and nominated bank acts on its nomination, i see no significant differences between a silent confirmation and a real confirmation. do you agree?

mitra

[shahriar]

dear mitra,

i agree with you. in fact UCP does not give any extra protection to a confirming bank but as a nominated bank only. the confirming bank only mitigate the country risk or bank risk.

when a bank does the job of confirmation at the request of the issuing bank, it generally have a correspondent arrangement with the issuing bank. while doing a silent confirmation, the bank has no such arrangement and therefore a bit vulnerable according to the risk. for this reason, silent confirmation charges are generally higher than the confirmation charges.

regd

shahriar

[nesarul]

Hi,
I do agree with all that If a nominated bank extend its silent confirmation to the beneficiary, it will be protected by 7(c).
But
Let assume that the nominated bank extend its silent confirmation to the beneficiary as on 01.01.08, and L/C is cancelled with an agreement of bth party [issuing bank and beneficiary] as on 04.01.08, the silent confirmer may not realize its confming charges neither from the beneficiary nor from the issuing bank. which a confirming bank can realize from the issuing bank.
regards
nesar

[shahriar]

dear nesar,

i think it cant be said for sure. you are right to say that the issuing bank in any case is liable to pay to the confirmation charges even if the credit is canceled before advising. but silent confirmation is a separate arrangement between the beneficiary and the confirming bank. i think the silently confirming bank will charge the beneficiary as soon as it confirms the credit.

regd

shahriar

[cristiand969]

Whilst Nominated Banks will usually pay or negotiate with recourse they may in certain circumstances provide a commitment to the Beneficiary that has a similar effect to adding a confirmation to the Credit. Such commitments go under a number of names but the most frequently used terminology is ‘silent confirmation’.
.
Negotiating ban is not protected by UCP in silet confirmation.

regards
Cristian

[shahriar]

dear Cristian,

to me no bank under ucp600 is protected for its confirmation. article 2 only says issuing bank authorizes or request confirming bank to confirm a letter of credit. but has no clue how a confirming bank is protected. is there any?

regd

shahriar

[cristiand969]

Dear Shahriar,
What about an amendment received under silent confirmation 'added' who makes confirming bank unable to receive their funds? How can such a 'confirming bank' make use of art.10 a of UCP 600 which says: Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary. In this situation the confirming bank is not that confirming bank protected by UCP and is obliged to accept such an amendment.
On the other hand in case of real confirmation beneficiary has a prohibition of presenting documents to issuing bank and issuing bank a prohibition of honouring them by virtue of art.8 a. If a fraudulent beneficiary presents simulateneously one set of docs to issuing bank and one set of docs to 'confirming' (to be read who added silent confirmation) the issuing bank will honour by virtue of art.7a and also 'confirming' bank advances funds who is the one who loose at the end?
There are many many other situations....

[shahriar]

dear cristian,

another good post. but im not sure what do you actally mean by
"an amendment received under silent confirmation 'added' who makes confirming bank unable to receive their funds?"

if a bank is unable to reimburse itself from the issuing bank, i believe that bank is no more a nominated bank. and if a non nominated bank confirms a credit, then anything is possible.

im bit confused with your statement that "On the other hand in case of real confirmation beneficiary has a prohibition of presenting documents to issuing bank and issuing bank a prohibition of honouring them by virtue of art.8 a."

if my understanding is correct, UCP does not put any bar to present the document to the issuing bank directly. while we are discussing how how a silently confirming bank is protected under the UCP, i must also say that a silently confirming bank is not governed by article 8. it depends on what condition the bank has added its confimration. so a presentation issue is less likely to affect the bank which has added its silent confirmation. do you agree

regd

shahriar

[cristiand969]

Dear Shariar,
For saving time and words I cannot give lengthly explanations on any issue. For example, you said im bit confused with your statement that "On the other hand in case of real confirmation beneficiary has a prohibition of presenting documents to issuing bank and issuing bank a prohibition of honouring them by virtue of art.8 a."
For the purpose of clarification I will expand this article which says:
Art. 8 a: 'Provided that the stipulated docs are presented to the confirming bank or any other nominated bank and that they constitute a complying presentation....'. In whole art. 8 I do not see issuing bank permitted to receive documents directly where confirmation has been added but only confirming or any nominated bank. Issuing bank can be neither confirming bank nor nominated bank.
The rest of my response follows the same principle.
Hope this will help.
regards
Cristian

[shahriar]

dear cristian,

again quoting article 8a

provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must:

i dont think that this line says that document must be presented to the confirming bank. rather it says that what will happen if it is presented to the confirming bank. i will also catch your attention to article 6a

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.

and questions at last

what will happen if the confirming bank does not confirm an amendment?

what happen if the confirming bank determines a discrepancy and return the document?

what will happen if the credit is not available with the confirming bank?

regd

shahriar

[nesarul]

Dear Shahriar,
Query 1:
what will happen if the confirming bank does not confirm an amendment?
My thinking:
First of all must inform the issuing bank without delay.
regarding presentation:
Depending upon the nature of amendment, If the amendment is related to value increase, the confirimng bank is alive as an obligator for the original amount only, and the rest of part, it may act as a nominated bank.
.
In all other cases where amendment relatd to terms and conditions and beneficiary accepted it subsequently, the confirimng bank may act as a nominated bank only.

what happen if the confirming bank determines a discrepancy and return the document?
My thinking:
After providing a notice of refusal it may return the document to the presenter. the beneficary can present the document directly to the issuing bank. Now the most critical question is that whether the issuing bank claimed late presentation[if any] or not.
My best guess is that if the beneficiary presented the document along with the rejection notice of confirming bank, Issuing bank can not claimed this discrepancy [late presentation, if any] due to sub article 7(a) [ EAGERLY AWAITING FOR ALL FORUM MEMBERS COMMENTS]
.
what will happen if the credit is not available with the confirming bank?
.
this is VERY contentious issue, i try my level best to explain it later.
.
REGARDS
NESAR

[shahriar]

dear nesar,

my fault. actually my intention was to ask what if the confirming bank does not confirm the amended increased value, should the beneficiary still be bound to present the document to the confirming bank? assuming that the confirming bank is not ready to honor or negotiate the increased value. one more thing. if the LC is available with the confirming bank by negotiation and the beneficiary has a good access to the issuing bank, then it may want to make a direct presentation to avoid charges

regd

shahriar

[nesarul]

Dear Shahriar,
Let assume,
Credit amount=USD1000
Avaibale with confirming bank by negotiation. confirming bank add its confirmation. partial shipment= not allowed
Value increased=50., confirming bank didn't extend its confirmation but beneficiary accept it[amendment]
.
now two possible situation:
1.Beneficiary present the document for USD1050 at confirming bank counter.
course of action of CB:
CB has an obligation to negotiate upto USD1000 and negotiation of the remaining USD50 is up to the CB discretion, it may or not.
2. Beneficiary submited the document to the issuing bank:
This is very argumental issue. The present position of ICC is that Without making a presentation to the CB, it[CB] will discharge from its obligation.
regards
nesar

[shahriar]

dear nesar,

about your last line,
The present position of ICC is that Without making a presentation to the CB, it[CB] will discharge from its obligation.

do you mean that if beneficiary bypasses the confirming bank, the confirmation will be no more?

regd

shahriar

[cristiand969]

Dear Shahriar,
I would say your last posting is not 100% fair. While the beneficiary want to be protected by an additional undertaking given in this case by confirming bank, 'your beneficiary' tries to escape paying their fees just because they were not able to present documents in order or subsequently doesn't want to. Think that at the time of confirming a credit the confirming bank books a credit risk line which diminish total value existing between 2 banks. You don't have to trust me, ask someone else for this.
The main problem has turned in other one. But let reply to this new one. The confirming bank is bound to honour as the time it adds confirmation. It would mean,
1. In case of amendment accepted by beneficiary and docs conform with credit and amendment thereof. The confirming bank undertaking is for the original value not increased. Only the issuing bank is bound to honour total value (issuing bank is bound at the time issues amendment)
2. In case docs not conform, regardless the beneficiary accepted or not an amendment. Confirming bank has no undertaking (see article 8a : ... and constitute a complying presentation - which we haven't anymore).
Straight to your question: beneficiary can do whatever he likes but he cannot expect to have a complying presentation towards confirming bank. When a credit is available with a nominated bank regardless whether confirmed the credit or not it is the responsibility of the issuing bank to check whith the nominated bank whether it was the only presentation made by beneficiary, due to the rules of article 7c first paragraph.

[shahriar]

dear cristian,

thanks for your post. its not that i dont agree with you. i agree you mostly except except where you said

On the other hand in case of real confirmation beneficiary has a prohibition of presenting documents to issuing bank and issuing bank a prohibition of honouring them by virtue of art.8 a."

i was trying to say that the document may be presented to the issuing bank directly. in fact i believe that you will agree that its not a new issue. anyway you are correct to say that "my beneficiaries" intention is escape negotiation charges doesn't make any sense. my argument was a pure theory and fairly unfit for the real world.

regd

shahriar

[cristiand969]

Dear Shahriar,
Thank you for your reply. I admit I have probably made a mistake by not explaining in detail what I had in mind at that time. I linked all info to confirming bank. I wanted to say that issuing bank should firstly ask confirming bank if a negotiation was taking place at the confirming bank counters while the issuing bank received documents from beneficiary. If I were an issuing bank I would not honour until I receive confirmation bank's reply in this respect.
On the other hand beneficiary has a prohibition to present doc to the issuing bank if he wants the credit to stay 'confirmed'. If he decides to take risks in his hand he can do whatever he likes even to forward docs to applicant instructing him to effect payment. It's all about trust.

[shahriar]

dear cristian

fully agreed


regd

shahriar