ICC Digital Library Forum

James,

Firstly, a rare honour indeed!

Secondly, I am not sure what you mean by ‘the question’ but if it refers to my first posting I was not thinking in terms of any of the three categories of bank that you mention. I was thinking in terms of the four ways by which a Credit may be available under Article 10, especially sub-Article 10(b)(i).

Based on this approach, to me what you describe as ‘an LC ... available with the issuer by acceptance or sight or deferred payment, and also nominates one or more other banks to negotiate’ is simply a credit that is available by negotiation, per sub-Article 10(b)(i), and no more. Based on this approach, I consider that if a credit is expressed to be available by deferred payment or acceptance it simply cannot -given the provisions of sub-Article 10(b)(i)- permit negotiation and if it does it ceases -given the provisions of sub-Article 10(b)(i)- to be available by deferred payment or acceptance and is instead simply available by negotiation. Perhaps this is where the confusion lies between bankers and lawyers?

Thirdly, regarding your remark ‘I don't think that UCP now or as revised will change the rights of banks in the third category’, as I cannot see that the UCP currently gives such banks any express rights at all you are presumably saying you consider they will continue not to have any express rights.

Lastly, I my initial impression of the proposed sub-Article 12b, allied with the proposed sub-Articles 7(a)(vi) & 8(a)(vi), is that it covers the rights of a bank that ‘discounts’ a draft it has accepted or DPU it has incurred.

Perhaps I’ll see you in Prague.

Regards, Jeremy

[edited 3/10/2006 1:34:11 PM]
[edited 3/10/2006 1:36:06 PM]

I think that UCP and industry terminology has long been unclear as to whether an issuing bank is also a "nominated bank" and whether an LC available with another bank is also "available" with the issuing bank.

There is no ambiguity, however, about the substantive right of the beneficiary to present documents to the issuing bank as well as to the nominated bank. It is therefore implicit, and could be made explicit in an LC that is freely negotiable or nominates a bank to negotiate, that a beneficiary may present to the issuing bank for honour (including deferred payment or acceptance) and to a nominated bank for negotiation. (As far as I know, we haven't had a lot of actual problems with the possibility that a beneficiary may make multiple presentations or with the possibility that an issuing bank's payment should really go to the beneficiary and not to a nominated bank claiming reimbursement.

The UCP drafters have addressed some of the problems with exaggerated claims for reimbursement by "negotiating" banks by tinkering with the definition of "negotiation".) In any case, while I concede that UCP dictates four methods of availability and contemplates that an issuer will bind itself to one, I think it allows for availability at more than one bank and by more than one method of availability.

The big red "or" in my UCP500 sub-article 9a and b leaflet is for types of acceptance, not types of availability. So, an issuing bank could undertake to incur a DPU and pay it at maturity and nominate another bank to incur a DPU and pay it at maturity or to negotiate the documents or to negotiate its or the issuer's DPU. Any such authorization to negotiate would be express authorization to discount.

The confusion on the meaning of "availability" carries over to the notion that an LC expires at one place when the issuing and nominated banks are in different places. But that is history, and I expect that LCs will continue invoke the UCP and obligate the issuer to incur a DPU and authorize another bank to negotiate documents under it, and I would hope that the authorized bank that gives present value for documents would be entitled to reimbursement at maturity, notwithstanding an intervening fraud defense.

Similarly, I would hope that a nominated bank that itself incurred a DPU and then discounted it would be similarly protected. Let's hope revised UCP (see the sub-articles cited in Jeremy's March 10 posting) will protect these nominated banks. Whether others should get protection, notably non-beneficiary holders of acceptances and incurred DPUs, is probably not something that UCP can dictate.

I'm not ready to say that the proposed definition of "honour" will make no difference, but it is my understanding that the drafting intention was to streamline UCP and not introduce change. That said, UCP500 indicated that a nominated bank's right of reimbursement accrued at incurrence of a DPU, and the draft revision appears to postpone accrual to the date of payment of the incurred DPU.

Regards, Jim Barnes

[edited 3/10/2006 11:20:24 PM]