Discounting-Recourse- Operational Risk

[NeilKlug]

We have an export letter of credit case scenario where we, the negotiating Bank (Bank B) has negotiated documents under our confirmed letter of credit with no discrepancies raised. Client request immediate discounting of proceeds which we duly did. The issueing bank (Bank A), upon receipt of docs raised a material discrepancy.
1. As the negotiating confirming bank, do we have recourse to any party?
2. In the Southern African continent, it is business practice to immediately discount a negotiation provided the L/C is confirmed, a clean negotiation without awaiting a response from the issueing bank that they also find the docs clean. Is it common practice in European and other countries to await for issueing banks' response first, before discounting and thus nullifying any operational risk.

[KimChristensen]

Dear Neil,

I think that even within Europe you will find that practice varies.
My view is that if I have confirmed the LC and a complying presentation is made – then I will surely offer discounting. I consider it my risk if documents are subsequently refused based on material discrepancies that I have overlooked.
In any case – regardless if you discount or not you are still responsible for your examination of documents if you have charged money for it.

Best regards
Kim

[POLTERD.]

As per 600's art.8a(ii) a confirming bank must negotiate without recourse. So you have no recourse on bnf, but only the freedom to pray for the issuing bank to accept the docs till maturity.
As Kim wrote,it is a risk you assumed and regardless if you discounted or not you're responsible for your examination of docs.
good luck and regards,
bogdan

[DonSmith]

Agree with Kim and also consistent with U.S. practice to offer discounting when you have confirmed and found documents to comply. Not required to discount of course, but practice is to offer.
Regards,
Don

[JimBarnes]

Having undertaken to act without recourse as a confirming bank (under both UCP500 and 600), you should have no claim against the beneficiary based on non-reimbursement from the issuing bank. Having failed to give a sufficient notice of refusal, you should be precluded as a confirming bank (under both UCP500 and 600) from raising a discrepancy defense or claim against the beneficiary.

It shouldn't matter whether you purchased or prepaid. By confirming you took the risk under both UCP500 and 600 that the issuing bank would raise a valid, invalid, or arguable discrepancy defense against reimbursement.

UCP600 would help you more than 500 if the issuing bank raised fraud/abuse, rather than discrepancy, as a defense to reimbursement.

Regards, Jim Barnes