Article

Factual Summary: Issuing Bank issued a commercial LC for USD 9,993,239.54 with an expiration date of 25 March 2012 in favor of Beneficiary. Beneficiary presented complying documents to Nominated Bank, which were received on 16 March 2012. Nominated Bank forwarded the documents to Issuing Bank on 18 April 2012. On 19 April 2012, Issuer notified Nominated Bank that it was rejecting the presentation and refused to honor the LC on grounds of "late negotiation and expiry".

Beneficiary then sued Nominated Bank, claiming that Nominated Bank agreed to act as a Confirming or Negotiating Bank. Beneficiary sought a judgment for the full amount of the LC from the Nominated Bank if it was found to be a Confirming Bank and a discounted amount of USD 9,890,408.63 if it was found to be a Negotiating Bank.

Beneficiary also sued Issuing Bank for the full LC amount on the ground that it had presented the complying documents before the expiration date to Nominated Bank.

The Judge ruled that Nominated Bank did not agree to act as a confirming or negotiating Bank. Moreover, the Judge ruled that since complying documents were presented before the expiration date to either Nominated or Issuing Bank, Issuing Bank was required to honor a complying LC drawing.

Legal Analysis:

1. Oral Confirmation: Beneficiary claimed that Nominated Bank agreed to confirm or negotiate the LC in a telephone conversation. The Judge examined the parties' conduct before and after the call as possible evidence of an oral contract, but found that the telephone conversation that allegedly contained Nominated Bank's agreement to confirm or negotiate related to a different LC. Moreover, email communications following the telephone conversation indicated that any contract to confirm or negotiate was still in formation.

The Judge noted that the Nominated Bank's correspondence contained disclaimers which read "Please note that this letter does not constitute a confirmation of the credit on our part...". The Judge also found that Nominated Bank informed Beneficiary that a current account with Nominated Bank was required before Nominated Bank would agree to confirm or negotiate. Relying on UCP600 Art. 2 (Definitions) definitions of "Confirmation" and "Nomination", the Judge ruled that Nominated Bank had not agreed to Confirm or Negotiate, orally or by their written communications.

2. Silence as Acceptance: Beneficiary also claimed that under UCP600 Art. 8 (Confirming Bank Undertaking), Nominated Bank had agreed to act as a Confirming Bank because of its silence in response to Issuing Bank's request that Nominated Bank add its confirmation. The Judge ruled that a request made by an issuing bank does not obligate a nominated bank to confirm and that a nominated bank must expressly agree to confirm and communicate such agreement to a beneficiary. Thus, the Judge dismissed Beneficiary's claim against the Nominated Bank, citing UCP Art. 12(a) (Nomination).

3. Nominated Bank; Presentation of Complying Documents; Expiration Date: Beneficiary also sued Issuing Bank for the full amount of the LC. Issuing Bank defended by arguing that it did not receive the documents from Nominated Bank until after the expiration date. The Judge rejected this argument, referring to UCP600 Art. 7 (Issuing Bank Undertaking), which allows for presentation of complying documents to either the nominated bank or the issuing bank before the expiration date.

The Judge also referred to commentaries on UCP600, including IIBLP's UCP600: An Analytical Commentary, that provide authority for that proposition that an issuing bank has an obligation to honor when complying documents are presented to a nominated bank before the expiration date. The Judge moreover opined that even though no fixed period is stipulated for the forwarding of documents from the nominated bank to the issuing bank, to release the issuing bank from its obligation to honor the LC would be to punish the beneficiary for the nominated bank's delay. The Judge ruled that Issuing Bank could not disclaim its liability.

4. Issuing Bank's Counterclaim Against Nominated Bank: Issuing Bank claimed that Nominated Bank had agreed to act on its nomination and had breached the LC by failing to determine whether the presented documents complied within five days of their presentation. However, the Judge rejected this claim and, relying on UCP600 Art.14 (Standard for Examination of Documents), ruled that the Nominated Bank had not acted on its nomination in the formal sense and had not incurred the responsibilities that Issuing Bank alleged.

Comments:

This decision was decided on the narrow ground that the evidence did not demonstrate an oral confirmation, leaving open the question of whether there can be an oral confirmation.

While the decision that the issuer is obligated to honor a timely presentation to a nominated bank is correct, one wonders whether the nominated bank must answer for any loss due to the delay in forwarding the documents.

[ALC]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.