My understanding is if we are the Confirming Bank and receive documents, we declare documents to have no discrepancies however the Issuing Bank finds a discrepancy we are on the hook and our client could take legal action against us.
If we are the mere advising bank and we receive documents and check them and we miss a discrepancy, then our client has no legal avenues to follow.
Do you know if there are any ICC opinions on this???
Shahed
Toronto, Canada
Confirming Bank's liability
Confirming Bank's liability
Hi Shahed,
You are absolutely right. As a confirming bank, if you find documents in order you must honour in accordance with UCP Article 8. 'Honour' is defined in Article 2.
Rgds
You are absolutely right. As a confirming bank, if you find documents in order you must honour in accordance with UCP Article 8. 'Honour' is defined in Article 2.
Rgds
Confirming Bank's liability
Whether a beneficiary might have rights or remedies against a "mere advising bank" would depend on the agreement or other basis on which the bank gave its opinion on compliance. Neither UCP500 nor UCP600 indicates whether or on what basis an advising bank may be liable to a beneficiary for any action or inaction beyond accurate advice and authentication. Applicable law might, however, establish rights and remedies, particularly if the bank charged for giving its opinion. Regards, Jim Barnes
Confirming Bank's liability
Shahed,
If you are the confirming bank, receive documents and examine them -as you are obliged to do- and determine that they are complying, you are obliged to honour / negotiate without recourse as appropriate. If the issuing bank subsequently determines these documents are discrepant that is a matter purely between you and it and nothing to do with the beneficiary as you will ALREADY have honoured / negotiated without recourse.
If you are not a confirming bank, examine documents, and notify the beneficiary they are compliant, but do not honour or negotiate, the beneficiary may be able to sue you for negligence / breach of contract if they turn out to be non-compliant and the beneficiary suffers loss as a result of your not examining the documents correctly, especially if you have levied a charge for the examination.
If you are the confirming bank, receive documents and examine them -as you are obliged to do- and determine that they are complying, you are obliged to honour / negotiate without recourse as appropriate. If the issuing bank subsequently determines these documents are discrepant that is a matter purely between you and it and nothing to do with the beneficiary as you will ALREADY have honoured / negotiated without recourse.
If you are not a confirming bank, examine documents, and notify the beneficiary they are compliant, but do not honour or negotiate, the beneficiary may be able to sue you for negligence / breach of contract if they turn out to be non-compliant and the beneficiary suffers loss as a result of your not examining the documents correctly, especially if you have levied a charge for the examination.
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VincentMaulella
- Posts: 9
- Joined: Fri Apr 05, 2019 5:22 pm
Confirming Bank's liability
Shahed,
I would agree that a confirming bank does what it does under UCP "without recourse" (a term not defined in UCP) unless of course, the confirming bank qualifies its engagement to the bene in a separate "negotation agreement." UCP implies that a nominated bank that has not confirmed, (I don't know why you used "mere advising bank") does what it does with recourse. The question then is when does that bank have recourse. I would take the position that a confirming bank may have recourse if the discrepancy noted by the issuing bank is not curable, i.e., even if the confirming bank had noted it, the bene could not cure it. In that case, the bene was not harmed by the CB failure to note the discrepancy and was not entitled to honor and therefore was unjustly enriched due to a clerical error/oversight by the CB. It follows that if the discrepancy was curable, e.g. invoice not signed, the bene could have cured it and the CB failure to note it deprived bene of right to present a complying presentation.
I would agree that a confirming bank does what it does under UCP "without recourse" (a term not defined in UCP) unless of course, the confirming bank qualifies its engagement to the bene in a separate "negotation agreement." UCP implies that a nominated bank that has not confirmed, (I don't know why you used "mere advising bank") does what it does with recourse. The question then is when does that bank have recourse. I would take the position that a confirming bank may have recourse if the discrepancy noted by the issuing bank is not curable, i.e., even if the confirming bank had noted it, the bene could not cure it. In that case, the bene was not harmed by the CB failure to note the discrepancy and was not entitled to honor and therefore was unjustly enriched due to a clerical error/oversight by the CB. It follows that if the discrepancy was curable, e.g. invoice not signed, the bene could have cured it and the CB failure to note it deprived bene of right to present a complying presentation.
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SandraBoxley
- Posts: 3
- Joined: Fri Apr 05, 2019 5:26 pm
Confirming Bank's liability
Vin,
I can understand the point you make of whether the confirming bank honours/negotiates with or without "recourse" might hinge on the terms of its confirmation agreement with the beneficiary - this assuming that the confirmer clearly states any qualifications to their confirmation to the beneficiary "up front" at time of advice. However, I am unclear as to whether the UCP 600 contemplates affording the confirmer recourse if they fail to note any discrepancy - whether curable or not - and, upon certifying the presentation as complying, it honours or negotiates as per the terms of its nomination. Perhaps I have misunderstood your point.
I can understand the point you make of whether the confirming bank honours/negotiates with or without "recourse" might hinge on the terms of its confirmation agreement with the beneficiary - this assuming that the confirmer clearly states any qualifications to their confirmation to the beneficiary "up front" at time of advice. However, I am unclear as to whether the UCP 600 contemplates affording the confirmer recourse if they fail to note any discrepancy - whether curable or not - and, upon certifying the presentation as complying, it honours or negotiates as per the terms of its nomination. Perhaps I have misunderstood your point.
Confirming Bank's liability
Vin's point regarding unjust enrichment has nothing to do with the UCP and is a question of the applicable law. Another legal doctrine that has occasionally been 'floated' that might allow a nominated bank, that has mistakenly honoured discrepant documents, to recover from the beneficiary is 'payment under mistake of fact'. I am not aware of either doctrine being tested in a court of law with respect to discrepant documents.
Confirming Bank's liability
There is case law in the US, mostly old, that allows a nominated bank to sue the beneficiary to recover the value it gave against a presentation that is later refused or otherwise unpaid by the issuer. The theories of recovery include mistake, warranty, and, where a draft was negotiated (rather than paid or accepted), recourse under negotiable instruments law.
LC law and practice rules generally prohibit an issuer or confirmer from pursuing any of these theories that would defeat the finality of honor (and draft acceptance or DPU incurrence). The qualifications to that statement are that LC law in the US, and perhaps elsewhere, allows an unreimbursed issuer or confirmer to sue the beneficiary in case of LC fraud and, perhaps, to assert on a subrogation or assignment theory whatever rights the applicant might have against the beneficiary.
I think it is fair to say the UCP has deliberately made honor by an issuer and confirmer final, but not extended that to nominated banks that do not technically honor when they give value. So, recovery has been left to applicable law and whatever agreement the nominated bank has with the beneficiary. Applicable law, not surprisingly, is fuzzy about what to do, particularly about what effect to give to any nominated bank charge for examining a presentation, saying it complies, and giving value.
Regards, Jim Barnes
LC law and practice rules generally prohibit an issuer or confirmer from pursuing any of these theories that would defeat the finality of honor (and draft acceptance or DPU incurrence). The qualifications to that statement are that LC law in the US, and perhaps elsewhere, allows an unreimbursed issuer or confirmer to sue the beneficiary in case of LC fraud and, perhaps, to assert on a subrogation or assignment theory whatever rights the applicant might have against the beneficiary.
I think it is fair to say the UCP has deliberately made honor by an issuer and confirmer final, but not extended that to nominated banks that do not technically honor when they give value. So, recovery has been left to applicable law and whatever agreement the nominated bank has with the beneficiary. Applicable law, not surprisingly, is fuzzy about what to do, particularly about what effect to give to any nominated bank charge for examining a presentation, saying it complies, and giving value.
Regards, Jim Barnes