ISBP 681E no.46(a) - due date fixed by drawee bank on compli

[NigelHolt]

Yat,

Sorry, but I think you have misunderstood what you have quoted and furthermore that what you have quoted does not actually support your apparent view that a bank cannot confirm a credit available by negotiation where drafts are drawn on the issuing bank.

If we look at what UCP600 actually says, it states in Article 8 that:

'a. Provided that the stipulated documents are presented to the confirming bank .. the confirming bank must:
…….
ii. NEGOTIATE, without recourse, if the credit is available by NEGOTIATION WITH THE CONFIRMING BANK.’ [emphasis added]

Thus, UCP600 expressly recognises that a credit can be available by negotiation with a confirming bank and thus that a bank can confirm a credit where any drafts are drawn on the issuing bank.

Negotiation by the confirming bank will simply be carried out as described in Article 2, i.e. the confirming bank will purchase the drafts and documents by advancing or agreeing to advance funds etc and such purchase will be -per sub-Article 8(a)(ii)- without recourse.

By purchasing the draft the confirming bank DOES become a holder of it, but not a party to it, but by reason of it having purchased the bill without recourse it is precluded from exercising the recourse rights a holder otherwsie has against the drawer (beneficiary) in the event the bill is not honoured by the drawee (issuing bank).

Lastly, where a draft is drawn at X days sight on the issuing bank, the fact that the confirming bank cannot know for certain exactly what the due date will be is not a barrier to it confirming the credit.

Regards, Jeremy


[edited 1/15/2010 3:33:47 PM]

[JohnLim]

Thanks again, Jeremy.
I am sorry that i was not clear enough in my previous postings and had misunderstood you in certain extent.
With due respect to your comment on last para, for usance drafts drawn on issuing bank at X days sight especially, i do believe
1. in view of ISBP no.46a, to avoid running into any potential argument with issuing bank on fixing of due date, it is advisable for a confirming bank who intend to purchase the bill to ensure the relating draft is drawn on themselves.
2. while the confirming bank could not negotiate draft drawn on themselves - with regards to the negotiation definition -, they could prepay or purchase it under the protection of art.7c and art.12 b of UCP 600 from which it seems to suggest that the credit should be made available with confirming bank by acceptance.

Another point to note, to me, the term “negotiation” appears in UCP articles seems only associate with sight draft which drawn on issuing bank.

Regards
Yat.

[GlennRansier_]

Interesting chain. To Yat, with regards to your last comment regarding the definition of Negotiation, I note that LC's available by "negotiation" can be sight or time LC's.
Prepaying a "by negotiation" LC is allowable.
There should not be cases where the issuer must set the maturity date after the confirmer had found the documents in compliance. This rare and should be avoided. However, it is doable by predicting when the issuer will receive the documents and examine and determine their compliance. However, it is not recommended.

[NigelHolt]

I do not see any difference in difficulty in calculating when reimbursement is due from the issuing bank where negotiating a draft drawn at sight on the issuing bank and negotiating a draft drawn at X days sight on the issuing bank. Logically the process is exactly the same except one simply has to add the tenor of the draft to one’s calculations in the latter case.