Article

The meanings of "nominated bank" in UCP 600

by Ray Sun (Sun Lei) (CDCS)

Letters of credit are widely used in the international trade as a tool of settlement. Two or more parties will be involved in one L/C transaction, according to the requirements of the specific case. As a payment undertaking made by the issuing bank to the beneficiary, an L/C involves essentially only these two parties. However, most L/Cs will also involve one or more nominated banks that have a crucial role. Their importance can be evidenced by the 51 times the term "nominated bank" is repeated in UCP 600. But what does the term really mean and do all 51 citations of the term have the same meaning?

Consider a familiar query from a beneficiary. When the beneficiary presents documents to the nominated bank stated in the L/C (which has not communicated its acceptance of the nomination to the beneficiary), and that bank does not honour or negotiate the presentation and only agrees to send the documents to issuing bank on behalf of the beneficiary without any responsibility for itself, this means it does not act as a nominated bank in this transaction. Does the beneficiary then have to make its presentation to another nominated bank to honour or negotiate, or must it deliver the documents directly to the issuing bank on or before the latest date for presentation? In short, if the nominated bank does not accept its nomination, is it still a valid place to make the presentation?

Three levels of meaning

In my view, the term "nominated bank" in UCP 600 can be interpreted on three levels, depending on its role in the transaction.

When the L/C states that Bank A is the nominated bank (much as field 41a of a SWIFT MT700 message shows "available with Bank A by negotiation/payment/ acceptance/deferred payment"), it simply means that the counter of Bank A is a valid place to make the presentation, and Bank A is authorized to honour or negotiate upon receiving the beneficiary's complying presentation. It imposes no obligation on Bank A unless Bank A consents to take on the responsibility of nomination. Therefore, the term "nominated bank" in article 2, sub-article 6 (a), etc., of UCP 600 reflects the first level of the meaning of the term. One might call this the "named nominated bank".

When Bank A confirms the acceptance of its nomination to the beneficiary - which means that it undertakes to honour or negotiate once the beneficiary makes the complying presentation - it gives its own conditional undertaking to the beneficiary. This is the second level of meaning of "nominated bank", which conforms to the use of the term in articles 14, 16, etc., of UCP 600. The beneficiary will be more comfortable if it can obtain this conditional undertaking. As long as the beneficiary makes a complying presentation, it is sure that it can receive funds from the nominated bank. Hence, in these instances one might call Bank A the "intended nominated bank".

If - and only if - Bank A honours or negotiates the beneficiary's complying presentation, it will become the valid nominated bank and be protected by UCP 600 while obtaining the right to claim on the issuing bank on its own behalf. This is the third level of meaning of "nominated bank". At this point in the transaction, the beneficiary receives the payments or payment undertaking, which is without recourse unless, under the L/C, it is available by negotiation. Furthermore, if it is a usance L/C, the beneficiary can require Bank A to discount the payment undertaking as per its own capital flow. Bank A acquires the identity of a holder in due course and will obtain an independent reimbursement undertaking from the issuing bank. In this, the third level, one can call Bank A the "acting nominated bank".

After analyzing the character of the nominated bank, it is easy to answer the above-mentioned query from the beneficiary. When Bank A is nominated by the issuing bank, it is a valid place for presenting documents, whether it accepts to act under its nomination or not. As long as the beneficiary makes a complying presentation to Bank A, it fulfils the issuing bank's requirement and obtains the right to be paid. If Bank A does not honour or negotiate the presentation, the issuing bank can go to the beneficiary directly and will have no responsibility towards Bank A.

Article 35

The use of the term "nominated bank" in article 35 of UCP 600 is an interesting and significant case. In the last paragraph of that article, the term, which is repeated four times, can be interpreted differently in each instance.

This paragraph reads: "If a nominated bank -1- determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank -2- has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank -3- , even when the documents have been lost in transit between the nominated bank -4- and the issuing bank or confirming bank, or between the confirming bank and the issuing bank" (emphasis and numbering added).

The first and second use of "nominated bank" refers to the "named nominated bank" and "intended nominated bank" since, in this case, the bank is only required to be the valid place for presentation. However, the third use of the term certainly means the "acting nominated bank", because only a bank that has already honoured or negotiated a beneficiary's presentation can obtain the right to be reimbursed by the issuing bank. The fourth use of the term includes all the three levels and is a general term covering all kinds of situations.

Conclusion

A beneficiary only needs to know which bank is the "named nominated bank" in order to make a presentation to the right one. It is preferable, however, to receive the bank's acceptance of its nomination, i.e., for it to be the "intended nominated bank", since this can make the beneficiary feel more comfortable. When the "acting nominated bank" appears, the beneficiary can rest easy. As for the nominated bank, its status can change depending on the action (or inaction) it takes. Once the "named nominated bank" and "intended nominated bank" honours or negotiates the beneficiary's complying presentation, it becomes the "acting nominated bank" and obtains all relative rights.

The above analysis concerns only a complying presentation. If the issuing bank or confirming bank argues the question of discrepancies with the nominated bank, the settlement of the case will depend on whether the discrepancies are valid.

It is worthwhile for all parties to clarify the nature of the nominated bank in a transaction, since this can help the beneficiary judge the risks and can make the nominated bank more aware of its role.

Ray Sun (Sun Lei) (CDCS) is Product Manager, Trade Finance, Bank of China H.O. in Beijing. His e-mail is yy_sunlei@bank-of-china.com

Whether the issuance date must be indicated in a B/L

by Wang Shanlun

Normally, a bill of lading bears its date of issuance and, in certain circumstances, also a separate on board date. Since the date of the bill of lading is critical for banks, there is a clear stipulation in UCP 600 article 20: "The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment." ISBP 681 has more detailed provisions on this subject.

With regard to a bill of lading which only contains an issuing date, or contains such a date together with an on board date, the situation is clear under the above-mentioned provisions. But there is a third possibility, namely a bill of lading that contains only an on board date without an indication of the issuing date. Most banks would deem such a bill of lading to be a discrepant document.

A recent ICC Banking Commission Opinion (TA 634rev) addresses this issue. The Opinion responded to the question of whether a document was discrepant because it did not contain a date of issuance and whether the shipped on board date would constitute the date of the bill of lading for the purposes of ISBP publication 681 paragraph 13.

The conclusion of TA 634rev was that if there is no field for a place and/or date of issue, the bill of lading which only bears an on board date (without an issuing date) is still acceptable. But this conclusion leaves open another question: what if there is a field for a place and/or date of issue? In that case, does an issuing date constitute a must for bill of lading?

My view is that if bill of lading must contain its date of issuance, such date must be indicated in the bill of lading, whether or not there is field for a place and/or date of issue. Data in a document should not be confined by its pre-printed fields. Consider the conclusion of ICC Opinion R 274 on a related subject: "The mere fact that a document has a place for a signature does not necessarily mean that it is to be signed in all instances."

UCP 500 and 600 compared

UCP 500 article 22 says: " ... banks will accept a document bearing a date of issuance prior to that of the Credit ... ." UCP 600 sub-article 14 (i) says: "A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation." To me, the changes in wording show that the date of the document can include, but is not limited to, the date of issuance.

Consider also ISBP 681 paragraph 13: "Drafts, transport documents and insurance documents must be dated even if a credit does not expressly so require." This paragraph does not only refer to the date of issuance and, to a certain extent, the conclusion in TA 634rev supports this concept.

On board date v. issuance date

ISBP 681 paragraph 96 states: "If a pre-printed 'Shipped on board' bill of lading is presented, its issuance date will be deemed to be the date of shipment unless it bears a separate dated on board notation, in which event the date of the on board notation will be deemed to be the date of shipment whether or not the on board date is before or after the issuance date of the bill of lading (emphasis added)."

The purposes of requiring a bill of lading to be dated are (1) to calculate the date of presentation, (2) to determine whether there is late shipment or not, and (3) to calculate the maturity date of the draft (when necessary). If a bill of lading already bears an on board date, this date could serve these purposes. Thus, in these cases the "on board" date matters more than the date of issuance of the document.

Issuing date

In the text of UCP 600, an air transport document is the only one clearly required to indicate the date of issuance. As per the rule of expressio unius est exclsio alterius, it could be inferred that transport documents other than an air transport document need not contain a date of issuance.

Furthermore, the Hamburg Rules (United Nations Convention on the Carriage of Goods by Sea, 1978) require a bill of lading only to indicate the date on which the goods were taken over by the carrier at the port of loading (Article15.1.f ) without mentioning the date of issuance.

The UNCITRAL draft Convention on the Carriage of Goods Wholly or Partly by Sea requires a bill of lading to indicate the date on which the carrier or a performing party received the goods, or on which the goods were loaded on board the ship, or on which the transport document or electronic transport record was issued (Article 38.2.c).

To repeat: my conclusion is that a date of issuance does not constitute a must for a bill of lading, whether there is field for a place and/or date of issue or not. In another words, the shipped on board date should constitute the date of the bill of lading for the purposes of ISBP 681 paragraph 13, even if the B/L does not contain a date of issuance.

Wang Shanlun is an Associate Professor lecturing at Jiangxi University of Finance and Economics, in China. He has had 15 years of experience in studying, practising and lecturing on letters of credit. His e-mail is wangshanlun@jxufe.edu.cn