Daniel,
I do not share your views. Under UCP500 if documents are compliant under a credit available by negotiation that is due -say- 90 days after a specified event, the issuing bank will AUTOMATICALLY incur a ‘deferred payment undertaking’ (a commitment to pay at maturity that is not embodied in an accepted draft), i.e. it requires no action by the IB and the IB can do nothing to stop it. The fact the 9(a)(iv) does not say this and the fact that ‘deferred payment undertakings’ are only mentioned in UCP500 in the context of credits available by deferred payment is immaterial. This is why I say the position is no different under UCP500.
Regarding BA flights, the B’ham airport site (www.bhx.co.uk) shows BA flights operating normally this afternoon. If you are referring to some time in the future, BA European flights -at least out of ‘regional’ airports, e.g. B’ham- are operated by a subsidiary, BA Connect. BA is in the process of selling this to Flybe.
Jeremy
[edited 2/22/2007 3:43:10 PM]
Article 7(a) v.
Article 7(a) v.
Jeremy,
1.Thanks for the information
2. Anyway it is strange a credit available by this at one end and by that at the other end.
Daniel
1.Thanks for the information
2. Anyway it is strange a credit available by this at one end and by that at the other end.
Daniel
Article 7(a) v.
The above discussion got me thinking about ‘honour’ and Article 7. (Yes, I need to get out a lot more often.)
Article 2 defines a credit as:
‘any arrangement, however named or described, that is irrevocable and thereby constitutes a DEFINITE UNDERTAKING OF THE ISSUING BANK TO HONOUR a complying presentation.’
Therefore, under the definition all credits involve an undertaking to honour by the issuing bank.
However, Article 2 states that ‘Honour means:
‘a. to pay at sight IF the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity IF the credit is available by deferred payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity IF the credit is available by acceptance.’
Whether honour takes place -and the manner in which it does so- is here apparently dependent on the availability of the Credit. However, negotiation is not mentioned. If a Credit ‘constitutes a definite undertaking of the issuing bank to honour’ how can honour by the issuing bank take place if negotiation is not mentioned in the definition of honour? Yet sub-Article 7(a)(v) expressly covers honour by an issuing bank where a Credit is available by negotiation.
Sub-Article 7(a) states that:
a. ‘… the issuing bank must honour if the credit is available by:
i. sight payment, deferred payment or acceptance with the issuing bank;
ii. sight payment with a nominated bank AND THAT NOMINATED BANK DOES NOT PAY;
iii. deferred payment with a nominated bank AND THAT NOMINATED BANK DOES NOT INCUR ITS DEFERRED PAYMENT UNDERTAKING OR, HAVING INCURRED ITS DEFERRED PAYMENT UNDERTAKING, DOES NOT PAY AT MATURITY;
iv. acceptance with a nominated bank AND THAT NOMINATED BANK DOES NOT ACCEPT A DRAFT DRAWN ON IT OR, HAVING ACCEPTED A DRAFT DRAWN ON IT, DOES NOT PAY AT MATURITY;
v. negotiation with a nominated bank AND THAT NOMINATED BANK DOES NOT NEGOTIATE.’
This seems to suggest that where a credit is available with a nominated bank an issuing bank is only obliged to honour, and therefore honour by the issuing bank only takes place, where the nominated bank has not carried out its mandate. (In other words, if a nominated bank does carry out its mandate there is no obligation on an issuing bank to 'honour'. However, I recognise sub-Article 7(c) does create a 'reimbursement' obligation.) This seems to conflict with the Article 2 definition of a credit and sub-Article 7(b) which simply states:
‘An issuing bank is irrevocably BOUND TO HONOUR as of the time it issues the credit.’,
And, more to the point, Article 35 which states:
‘If a nominated bank determines that a presentation is complying … WHETHER OR NOT the nominated bank has honoured or negotiated, an issuing bank … MUST HONOUR or [!!!] negotiate’.
In other words sub-Article 7(b) and Article 35 seem to say -contrary to sub-Article 7(a)- that irrespective of the availability of a credit the issuing bank must always honour in all circumstances.
A further problem with sub-Article 7(a)(v) is that the Article 2 definition of ‘Honour’ does not appear to envisage ‘honour’ taking place where a credit is available by negotiation, yet it obliges an issuing bank to honour (that is provided the nominated bank has not negotiated!).
Overall, I am left with the impression that something somewhere is seriously flawed (of course, it could well be me) from a drafting perspective, but accept it is unlikely to cause a problem in practice. What do other think?
[edited 3/12/2007 10:21:32 AM: Reference to Article 35 included.]
Article 2 defines a credit as:
‘any arrangement, however named or described, that is irrevocable and thereby constitutes a DEFINITE UNDERTAKING OF THE ISSUING BANK TO HONOUR a complying presentation.’
Therefore, under the definition all credits involve an undertaking to honour by the issuing bank.
However, Article 2 states that ‘Honour means:
‘a. to pay at sight IF the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity IF the credit is available by deferred payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity IF the credit is available by acceptance.’
Whether honour takes place -and the manner in which it does so- is here apparently dependent on the availability of the Credit. However, negotiation is not mentioned. If a Credit ‘constitutes a definite undertaking of the issuing bank to honour’ how can honour by the issuing bank take place if negotiation is not mentioned in the definition of honour? Yet sub-Article 7(a)(v) expressly covers honour by an issuing bank where a Credit is available by negotiation.
Sub-Article 7(a) states that:
a. ‘… the issuing bank must honour if the credit is available by:
i. sight payment, deferred payment or acceptance with the issuing bank;
ii. sight payment with a nominated bank AND THAT NOMINATED BANK DOES NOT PAY;
iii. deferred payment with a nominated bank AND THAT NOMINATED BANK DOES NOT INCUR ITS DEFERRED PAYMENT UNDERTAKING OR, HAVING INCURRED ITS DEFERRED PAYMENT UNDERTAKING, DOES NOT PAY AT MATURITY;
iv. acceptance with a nominated bank AND THAT NOMINATED BANK DOES NOT ACCEPT A DRAFT DRAWN ON IT OR, HAVING ACCEPTED A DRAFT DRAWN ON IT, DOES NOT PAY AT MATURITY;
v. negotiation with a nominated bank AND THAT NOMINATED BANK DOES NOT NEGOTIATE.’
This seems to suggest that where a credit is available with a nominated bank an issuing bank is only obliged to honour, and therefore honour by the issuing bank only takes place, where the nominated bank has not carried out its mandate. (In other words, if a nominated bank does carry out its mandate there is no obligation on an issuing bank to 'honour'. However, I recognise sub-Article 7(c) does create a 'reimbursement' obligation.) This seems to conflict with the Article 2 definition of a credit and sub-Article 7(b) which simply states:
‘An issuing bank is irrevocably BOUND TO HONOUR as of the time it issues the credit.’,
And, more to the point, Article 35 which states:
‘If a nominated bank determines that a presentation is complying … WHETHER OR NOT the nominated bank has honoured or negotiated, an issuing bank … MUST HONOUR or [!!!] negotiate’.
In other words sub-Article 7(b) and Article 35 seem to say -contrary to sub-Article 7(a)- that irrespective of the availability of a credit the issuing bank must always honour in all circumstances.
A further problem with sub-Article 7(a)(v) is that the Article 2 definition of ‘Honour’ does not appear to envisage ‘honour’ taking place where a credit is available by negotiation, yet it obliges an issuing bank to honour (that is provided the nominated bank has not negotiated!).
Overall, I am left with the impression that something somewhere is seriously flawed (of course, it could well be me) from a drafting perspective, but accept it is unlikely to cause a problem in practice. What do other think?
[edited 3/12/2007 10:21:32 AM: Reference to Article 35 included.]
Article 7(a) v.
Jeremy,
I think that I would like to know how an IB honours a credit available by negotiation which as not been negotiated by the NB
(Due to the fact that "honour" means three different things whereas "pay" in 500 seemed to mean only one).
In my opinion "honour" should not be in conflict (if I may say so) with the way the credit was negotiable.
Daniel
I think that I would like to know how an IB honours a credit available by negotiation which as not been negotiated by the NB
(Due to the fact that "honour" means three different things whereas "pay" in 500 seemed to mean only one).
In my opinion "honour" should not be in conflict (if I may say so) with the way the credit was negotiable.
Daniel
Article 7(a) v.
Daniel,
In practice an IB will honour a credit available by negotiation, irrespective of whether or not the nominated bank has negotiated (i.e. in all instances), in exactly the same way as it currently does under UCP500, i.e. by:
- paying the presenter at sight if the IB undertakes to settle complying documents at sight.
- incurring a deferred payment undertaking and paying at maturity if the IB undertakes to settle complying documents on a specified date and the credit does not require a draft on the IB.
- accepting a draft drawn by the beneficiary and paying at maturity if the IB undertakes to settle complying documents on a specified date and the credit requires a draft on the IB.
Incidentally, one argument I imagine that might be advanced to defend the definition of ‘honour’ in Article 2 omitting reference to where a credit is available by negotiation is that where a credit is available by negotiation it is also automatically available with the issuing bank by sight payment, deferred payment or acceptance.
Regards, Jeremy
In practice an IB will honour a credit available by negotiation, irrespective of whether or not the nominated bank has negotiated (i.e. in all instances), in exactly the same way as it currently does under UCP500, i.e. by:
- paying the presenter at sight if the IB undertakes to settle complying documents at sight.
- incurring a deferred payment undertaking and paying at maturity if the IB undertakes to settle complying documents on a specified date and the credit does not require a draft on the IB.
- accepting a draft drawn by the beneficiary and paying at maturity if the IB undertakes to settle complying documents on a specified date and the credit requires a draft on the IB.
Incidentally, one argument I imagine that might be advanced to defend the definition of ‘honour’ in Article 2 omitting reference to where a credit is available by negotiation is that where a credit is available by negotiation it is also automatically available with the issuing bank by sight payment, deferred payment or acceptance.
Regards, Jeremy
Article 7(a) v.
Jeremy,
I agree with your answer, pleased with it and I conclude from this discussion that Article 7 is a good one, after all.
Daniel
I agree with your answer, pleased with it and I conclude from this discussion that Article 7 is a good one, after all.
Daniel