A non confirming NB, at the request of the bnf, examines the docts and certifies their conformity in the remittance letter to the issuing bank, but without honoring/negotiating.
The IB discovers that they are not conform and rejects them.
Would the bnf oblige the NB to honor/negotiate.
Tks - Antoine
Examination of documents
Examination of documents
Antoine,
I note that sub-Art 12(c) says:
‘examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate’.
However, if a bank (whether nominated or not) holds out to a beneficiary that documents are compliant and -as a question of fact- they are not then the bank might well have a liability to the beneficiary for any loss that the beneficiary sustains by reason of the bank’s breach of contract or negligence.
Loss would arguably arise where the issuing bank refuses definitively to honour and had the documents been correctly examined the beneficiary would have been in a position to cure the discrepancies identified within the credit deadlines (expiry etc.) and therefore to make a complying (re-) presentation. If a complying (re-) presentation would have not been possible (e.g. post-shipment presentation period exceeded) the beneficiary has logically not suffered loss by reason of the examining bank’s actions.
Ultimately, the position will be a product of the applicable law.
Jeremy
I note that sub-Art 12(c) says:
‘examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate’.
However, if a bank (whether nominated or not) holds out to a beneficiary that documents are compliant and -as a question of fact- they are not then the bank might well have a liability to the beneficiary for any loss that the beneficiary sustains by reason of the bank’s breach of contract or negligence.
Loss would arguably arise where the issuing bank refuses definitively to honour and had the documents been correctly examined the beneficiary would have been in a position to cure the discrepancies identified within the credit deadlines (expiry etc.) and therefore to make a complying (re-) presentation. If a complying (re-) presentation would have not been possible (e.g. post-shipment presentation period exceeded) the beneficiary has logically not suffered loss by reason of the examining bank’s actions.
Ultimately, the position will be a product of the applicable law.
Jeremy
Examination of documents
UCP 600 does not provide a basis for liability for a nominated bank that neither confirms nor gives value for documents. Article 12c denies such liability. Article 16 excludes such liability, unless "acting on its nomination" is very broadly interpreted and applied.
Articles 14a and 16g pretty clearly indicate that NB certification of compliance does not relieve the issuing bank from making its own examination and determination. Therefore, an IB that honors or is precluded from dishonoring can't use UCP to avoid or reverse its obligation to make final payment.
Of course, the NB can have a separate agreement with the beneficiary that provides a basis for liability to the bnf. That agreement might also establish or limit remedies for any incorrect statement by the NB that the presentation complies.
Absent a clear NB-Bnf agreement, applicable law is likely to ask whether the certification was made to the IB only, and, if so, what difference it made to the Bnf.
I see compliance certifications in a fair number of cover letters forwarding documents to IBs, frequently as printed language in a form letter. I have never understood why banks do this, as they have no obligation (and no incentive) to do so. (There may be some history to this, but I can't recall UCP support for such inter-bank certifications ever.)
And if I want to provide that the NB's recourse rights are waived (assuming the NB gives value) or I want to provide that the NB shall be liable to the Bnf for its favorable finding on compliance, then I want a clear agreement between the NB and Bnf and would not rely on whatever the NB writes to the IB.
Regards, Jim Barnes
Articles 14a and 16g pretty clearly indicate that NB certification of compliance does not relieve the issuing bank from making its own examination and determination. Therefore, an IB that honors or is precluded from dishonoring can't use UCP to avoid or reverse its obligation to make final payment.
Of course, the NB can have a separate agreement with the beneficiary that provides a basis for liability to the bnf. That agreement might also establish or limit remedies for any incorrect statement by the NB that the presentation complies.
Absent a clear NB-Bnf agreement, applicable law is likely to ask whether the certification was made to the IB only, and, if so, what difference it made to the Bnf.
I see compliance certifications in a fair number of cover letters forwarding documents to IBs, frequently as printed language in a form letter. I have never understood why banks do this, as they have no obligation (and no incentive) to do so. (There may be some history to this, but I can't recall UCP support for such inter-bank certifications ever.)
And if I want to provide that the NB's recourse rights are waived (assuming the NB gives value) or I want to provide that the NB shall be liable to the Bnf for its favorable finding on compliance, then I want a clear agreement between the NB and Bnf and would not rely on whatever the NB writes to the IB.
Regards, Jim Barnes
Examination of documents
Jim,
Quite agree with the above, especially the need for an express written agreement so as to put the matter beyond any doubt.
However, I think a potential problem for a nominated bank is that they might unwittingly (i.e. without realising it) enter into a contract with, or other obligation to, the beneficiary notwithstanding the absence of an express written agreement. This could arise from say:
1. the beneficiary simply presenting documents to the nominated bank;
2. the nominated bank indicating to the beneficiary that the documents comply but that the nominated bank is not in a position to honour/negotiate (a not uncommon occurrence I believe);
3. the beneficiary instructing the nominated bank to send the documents to the issuing bank for honour;
4. the issuing bank validly refusing the documents and the applicant refusing to grant a waiver of discrepancies, and:
5. a court either:
A. implying a contract between the bank and beneficiary or:
B. considering that the nominated bank owed the beneficiary a ‘duty of care’;
and that the nominated bank was in breach of one or other and that as a result it was liable to the beneficiary for consequential loss / damages by reason of having the possibility of making a complying re-presentation denied by the nominated bank’s incorrect examination of the documents.
This of course might not fit the full facts of the scenario that has given rise to Antoine’s query. One thing that is not clear is what communication there was between nominated bank and beneficiary.
Regards, Jeremy
[edited 11/10/2008 5:30:58 PM]
Quite agree with the above, especially the need for an express written agreement so as to put the matter beyond any doubt.
However, I think a potential problem for a nominated bank is that they might unwittingly (i.e. without realising it) enter into a contract with, or other obligation to, the beneficiary notwithstanding the absence of an express written agreement. This could arise from say:
1. the beneficiary simply presenting documents to the nominated bank;
2. the nominated bank indicating to the beneficiary that the documents comply but that the nominated bank is not in a position to honour/negotiate (a not uncommon occurrence I believe);
3. the beneficiary instructing the nominated bank to send the documents to the issuing bank for honour;
4. the issuing bank validly refusing the documents and the applicant refusing to grant a waiver of discrepancies, and:
5. a court either:
A. implying a contract between the bank and beneficiary or:
B. considering that the nominated bank owed the beneficiary a ‘duty of care’;
and that the nominated bank was in breach of one or other and that as a result it was liable to the beneficiary for consequential loss / damages by reason of having the possibility of making a complying re-presentation denied by the nominated bank’s incorrect examination of the documents.
This of course might not fit the full facts of the scenario that has given rise to Antoine’s query. One thing that is not clear is what communication there was between nominated bank and beneficiary.
Regards, Jeremy
[edited 11/10/2008 5:30:58 PM]
Examination of documents
Regards, Jim Barnes
Jeremy,
I agree. My focus was on the effect of an NB's statements about compliance in the NB's communications to the IB covering the presentation. One should not ignore the effects of an NB's statements about compliance and related conduct toward the Bnf., e.g., the purported basis for the fees the NB is charging the Bnf.
At the IIBLP program in Tampa last March we had a good discussion on the desirability of having a standard agreement to cover all beneficiary relations with non-issuing banks, in light of possible government sanctions as well as exposure to the Bnf. after issuing bank dishonor.
Regards, Jim
Jeremy,
I agree. My focus was on the effect of an NB's statements about compliance in the NB's communications to the IB covering the presentation. One should not ignore the effects of an NB's statements about compliance and related conduct toward the Bnf., e.g., the purported basis for the fees the NB is charging the Bnf.
At the IIBLP program in Tampa last March we had a good discussion on the desirability of having a standard agreement to cover all beneficiary relations with non-issuing banks, in light of possible government sanctions as well as exposure to the Bnf. after issuing bank dishonor.
Regards, Jim