When does the Nominated Bank Negotiates?

[JessieLiew]

I seek the learned views of the DC-Pro forumers on the following point/our practice:-

Article 2 (UCP600) refers to “Negotiation” as being “the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.”

Sub-article 12 (c) states that the receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not constitute honour or negotiation.

(1) Currently, for usance LC, we would only purchase the drafts and/or documents after the receipt of the acceptance notice by the issuing bank even though we are the nominated bank.

(2) There are also documents (where we are the nominated bank) that the beneficiary had initially requested us to forward to the issuing bank for payment and to pay them only upon receipt of funds, but subsequently requested us to purchase prior to receipt of funds due to unanticipated delays in the receipt of funds from the issuing bank.

In both cases, we did not act as the confirming bank. However, the LC is available with us.

From the above (1) and (2) scenario, it seems that we may not be a negotiating bank (taking up our nomination) as defined in the above sub-articles and in the event of fraud,court injunctions, and documents lost in transit, we may not be protected under the UCP.

May I have your views on the above and how to mitigate it?

[JimBarnes]

Whether a nominated bank is protected against a fraud claim after purchasing documents is likely to depends more on applicable law than on UCP rights. US law (UCC 5-109), where applicable, would likely protect a nominated bank on the basis of giving value before receiving notice of fraud. The non-US law tests for protecting nominated banks are generally uncodified and uncertain. Regards, Jim Barnes