An L/C is issued by bank X and is available with Bank A or Bank B by acceptance of draft to be drawn on bank X
.
Bank B considered that its role is not clear: Is it an accepting bank (in which case the draft must be drawn on it and not on X) or a negotiating bank (in which case credit should be available by negotiation I/O by acceptance).
Do you approve Bank B's request for clarification of this point. Thanks in advance
LC available by acceptance
LC available by acceptance
I should add that bank A was not convinced of our bank B request.
I welcome your comments
Regards antoine samaha
I welcome your comments
Regards antoine samaha
LC available by acceptance
Dear Samaha,
the issuing bank was not mistaken in his action as per article 9 of the UCP500, however if the nominated bank is willing to accept that the draft drawn on them they should express that to the issuing bank and request an amendment.
Regards,
Basel
the issuing bank was not mistaken in his action as per article 9 of the UCP500, however if the nominated bank is willing to accept that the draft drawn on them they should express that to the issuing bank and request an amendment.
Regards,
Basel
LC available by acceptance
Dear Antoine,
I would rather agree with bank B as seemingly lc is available at their counter. Otherwise I don't see how than they commit on an acceptance.
Did bank X asked for a confirmation, if yes by whom ?
Best regards
Monique Philippe
I would rather agree with bank B as seemingly lc is available at their counter. Otherwise I don't see how than they commit on an acceptance.
Did bank X asked for a confirmation, if yes by whom ?
Best regards
Monique Philippe
LC available by acceptance
Dear Monique,
This is my opinion too. By nominating bank A and bank B, the issuing bank authorises them to accept the draft as the L/C is "available by acceptance" with them (art 10 b). The draft therefore should be drawn on the nominated bank/s and not on the issuing bank.
If the issuing bank insists for the drawee to remain as is i.e. itself, the nominated banks A and B should then be given the authority to negotiate and not to accept the draft (i.e. credit should be available with A and B by Negotiation).
As Confirmation is not requested, I think that if draft is to be drawn on and accepted by bank A or B, these banks should inform both benef and issuing bank that despite that the draft is to be drawn on them, they will be under no obligation to accept it and the benef will have to re draw it on the issuing bank which will be obliged to accept it as per art 9 of UCP.
Best Regards
Antoine
This is my opinion too. By nominating bank A and bank B, the issuing bank authorises them to accept the draft as the L/C is "available by acceptance" with them (art 10 b). The draft therefore should be drawn on the nominated bank/s and not on the issuing bank.
If the issuing bank insists for the drawee to remain as is i.e. itself, the nominated banks A and B should then be given the authority to negotiate and not to accept the draft (i.e. credit should be available with A and B by Negotiation).
As Confirmation is not requested, I think that if draft is to be drawn on and accepted by bank A or B, these banks should inform both benef and issuing bank that despite that the draft is to be drawn on them, they will be under no obligation to accept it and the benef will have to re draw it on the issuing bank which will be obliged to accept it as per art 9 of UCP.
Best Regards
Antoine
LC available by acceptance
Hello all, back from the IIBLP Annual Survey in Prague. Very good it was too. Hope you had a good trip back Leo and that you were able to fit that stand in your luggage!
Giles, a credit simply cannot be available with a nominated bank by acceptance if the drafts are drawn on the issuing bank. If drafts are on the issuing bank the credit has to be available by negotiation if there is a nominated bank involved. Therefore, Bank B was quite correct in querying the availability of the credit. In the absence of such a clarification I would simply refuse to perform a nominated bank role.
Giles, a credit simply cannot be available with a nominated bank by acceptance if the drafts are drawn on the issuing bank. If drafts are on the issuing bank the credit has to be available by negotiation if there is a nominated bank involved. Therefore, Bank B was quite correct in querying the availability of the credit. In the absence of such a clarification I would simply refuse to perform a nominated bank role.
LC available by acceptance
At the IFSA's trade conference there was a brief discussion about LCs available by deferred payment that nominate another bank to act without specifying whether the nominated bank is authorized to incur a deferred payment undertaking or to negotiate documents or to do either or both. Of course, the LC should be specific, and the nominated bank should indicate to the beneficiary and to the issuer what it is doing, but in case of confusion the beneficiary and then the nominated bank should get the benefit of any doubt created by an unclear LC. Jim Barnes
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KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
LC available by acceptance
Dear Mr. Barnes,
I have been given your last posting a great deal of thought. First of all thanks for sharing this – secondly regarding this “unclear LC”. I have seen this used often as a “black and white statement”; i.e. either the LC is clear or it is unclear. I think however this case has proven, that things are not that simple. Had you asked me before the Santander Case if a deferred payment credit was “clear” in the sense that a nominated bank that had paid to the beneficiary before maturity was entitled to be reimbursed by the issuing bank – regardless of fraud – then I would have answered that the LC was absolutely clear; that of course the nominated bank should be reimbursed!
Now however exactly the same LC is not clear at all – or perhaps it is more correct to say that it is clear to the sense that the nominated bank is NOT entitled to be reimbursed. In addition to this it would probably also depend on the judge, jurisdiction and how the case is presented
So clear/unclear is not at all clear.
Beat regards
Kim
I have been given your last posting a great deal of thought. First of all thanks for sharing this – secondly regarding this “unclear LC”. I have seen this used often as a “black and white statement”; i.e. either the LC is clear or it is unclear. I think however this case has proven, that things are not that simple. Had you asked me before the Santander Case if a deferred payment credit was “clear” in the sense that a nominated bank that had paid to the beneficiary before maturity was entitled to be reimbursed by the issuing bank – regardless of fraud – then I would have answered that the LC was absolutely clear; that of course the nominated bank should be reimbursed!
Now however exactly the same LC is not clear at all – or perhaps it is more correct to say that it is clear to the sense that the nominated bank is NOT entitled to be reimbursed. In addition to this it would probably also depend on the judge, jurisdiction and how the case is presented
So clear/unclear is not at all clear.
Beat regards
Kim
LC available by acceptance
Kim, Sorry for not catching your response to my prior post until just now.
The LC in Santander was issued subject to UCP500, including Article 17 on fraudulent drawing by the beneficiary. That's clear enough for me that beneficiary fraud does not affect a nominated bank's right to reimbursement under UCP500 and standard LC nomination language.
The Santander court decided that the "discounting" confirming bank was not entitled to reimbursement because it never actually paid under its confirmation. The court did not look at the confirming bank's books to determine whether it paid. The court decided that the confirming bank was not authorized by the LC, UCP, or custom to pay before maturity. (This is the feature of Santander that UCP600 can easily change.) The court then decided that the establishment of beneficiary fraud before maturity legally obligated the confirming bank not to pay at maturity. The court then considered whether the bank as payee was entitled to receive payment notwithstanding established fraud. Here it decided, unsurprisingly, that the bank's rights as payee were acquired by assignment from the beneficiary. Because it was not the holder in due course of a negotiable instrument, it's rights as payee were no better than the original beneficiary's rights.
Santander results chiefly from the application of overriding English fraud law, not the terms of the LC or UCP500. (US law codifies LC fraud law. It does not obligate a confirming bank to refuse payment based on fraud. It separately protects holders of assigned DPUs as well as accepted drafts.)
My purpose here is not to summarize what I have said in DCI articles on Santander and UCP600, it's to distinguish the loss of clarity where fraud law meets LC law and practice from those situations where the LC bankers can more easily control the results.
I think LC bankers already have or could readily develop a consensus on the effect of unclear nominations. I.e., A nominated bank is authorized to incur and pay a DPU, accept and pay a time draft, purchase/negotiate documents, or any one of these, if the provisions on availability are incomplete or even contradictory. The posted question covered an LC that gave contradictory information -- authorizing a nominated bank to accept a draft drawn on the issuer. My posted reply covered an LC with incomplete information -- nominating a bank to act under a deferred payment credit without indicating whether the nominated bank was to incur the DPU or to purchase/negotiate documents to be sent to the issuer for it to incur the DPU. Whatever consensus emerges could be recorded in the next ISBP or affect the organization of availability information in SWIFT messages.
Regards, Jim Barnes
The LC in Santander was issued subject to UCP500, including Article 17 on fraudulent drawing by the beneficiary. That's clear enough for me that beneficiary fraud does not affect a nominated bank's right to reimbursement under UCP500 and standard LC nomination language.
The Santander court decided that the "discounting" confirming bank was not entitled to reimbursement because it never actually paid under its confirmation. The court did not look at the confirming bank's books to determine whether it paid. The court decided that the confirming bank was not authorized by the LC, UCP, or custom to pay before maturity. (This is the feature of Santander that UCP600 can easily change.) The court then decided that the establishment of beneficiary fraud before maturity legally obligated the confirming bank not to pay at maturity. The court then considered whether the bank as payee was entitled to receive payment notwithstanding established fraud. Here it decided, unsurprisingly, that the bank's rights as payee were acquired by assignment from the beneficiary. Because it was not the holder in due course of a negotiable instrument, it's rights as payee were no better than the original beneficiary's rights.
Santander results chiefly from the application of overriding English fraud law, not the terms of the LC or UCP500. (US law codifies LC fraud law. It does not obligate a confirming bank to refuse payment based on fraud. It separately protects holders of assigned DPUs as well as accepted drafts.)
My purpose here is not to summarize what I have said in DCI articles on Santander and UCP600, it's to distinguish the loss of clarity where fraud law meets LC law and practice from those situations where the LC bankers can more easily control the results.
I think LC bankers already have or could readily develop a consensus on the effect of unclear nominations. I.e., A nominated bank is authorized to incur and pay a DPU, accept and pay a time draft, purchase/negotiate documents, or any one of these, if the provisions on availability are incomplete or even contradictory. The posted question covered an LC that gave contradictory information -- authorizing a nominated bank to accept a draft drawn on the issuer. My posted reply covered an LC with incomplete information -- nominating a bank to act under a deferred payment credit without indicating whether the nominated bank was to incur the DPU or to purchase/negotiate documents to be sent to the issuer for it to incur the DPU. Whatever consensus emerges could be recorded in the next ISBP or affect the organization of availability information in SWIFT messages.
Regards, Jim Barnes