Although Sub art 13b &14(d)i.allows the Issuing/ Confirming/nominated bank a reasonable time not to exceed 7 banking days to determine if the documents are in compliance and to give notice of refusal if it decides to refuse the documents.
However the preclusion under Sub Art 14 (e) only penalizes the Issuing/Confirming bank for failing to act in accordance with the provisions of art 14. A nominated bank that has not added its confirmation to the credit is not included in this preclusion. Does this mean that the failure of the nominated bank to act in accordance with art 14 can at best be only be reprimanded? For instance if the nominated bank gives its notice of refusal after one month the presenting bank & the beneficiary seems to have no redress against it. This seems to be a grey area in the UCP.
Khalid
Refusal Notice
-
larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Refusal Notice
Article 13 b establishes the principle that the Nominated bank may act on behalf of the Issuing or Confirming bank. Therefore Article 14 e, which relates to the Issuing or Confirming banks, also relates to the Nominated banks.
Laurence
Laurence
Refusal Notice
A BANK’S PAYMENT OBLIGATION IS THE DECISIVE FACTOR
For the issue why THREE banks (the Issuing Bank, the Confirming Bank and the Nominated Bank) are involved in sub Articles 13 (b) and 14(d)(i) & (ii) and only TWO banks (the Issuing Bank and the Confirming Bank) are involved in sub Article 14 (e), we have consulted Charles del Busto, the Chairman of the UCP 500 Working Party, when the UCP 500 was first introduced. The answer from him is that according to sub Article 10 (c), the Nominated Bank has no payment obligation BY ITSELF (as a Principal not as an agent of the Issuing Bank) unless otherwise agreed. Therefore it is not fair to impose such serious penalty to the Nominated Bank.
ACTION OF AN AGENT WOULD BIND ITS PRINCIPAL
However, as Laurence has already pointed out, the Nominated Bank is an agent of the Issuing Bank and so its action would bind its Principal, the Issuing Bank.
IS THE NOMINATED BANK AN AGENT OF THE CONFIRMING BANK?
Whether the action of the Nominated Bank (sending its refusal notice on the 8th banking day for example) would ALSO bind the Confirming Bank, this is a legal issue. We are glad to hear the comments from members for this issue.
ALWAYS PRESENT TO THE CONFIRMING BANK FIRST
That is why we always recommend our customers/clients to make their presentation to the Confirming Bank first to avoid such problems.
Merry Christmas & A Happy New Year (of the Horse according to the Chinese Rural Calendar) to You All!
DISCLAIMERS:
The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.
http://www.tolee.com
[edited 12/27/01 5:39:42 PM]
For the issue why THREE banks (the Issuing Bank, the Confirming Bank and the Nominated Bank) are involved in sub Articles 13 (b) and 14(d)(i) & (ii) and only TWO banks (the Issuing Bank and the Confirming Bank) are involved in sub Article 14 (e), we have consulted Charles del Busto, the Chairman of the UCP 500 Working Party, when the UCP 500 was first introduced. The answer from him is that according to sub Article 10 (c), the Nominated Bank has no payment obligation BY ITSELF (as a Principal not as an agent of the Issuing Bank) unless otherwise agreed. Therefore it is not fair to impose such serious penalty to the Nominated Bank.
ACTION OF AN AGENT WOULD BIND ITS PRINCIPAL
However, as Laurence has already pointed out, the Nominated Bank is an agent of the Issuing Bank and so its action would bind its Principal, the Issuing Bank.
IS THE NOMINATED BANK AN AGENT OF THE CONFIRMING BANK?
Whether the action of the Nominated Bank (sending its refusal notice on the 8th banking day for example) would ALSO bind the Confirming Bank, this is a legal issue. We are glad to hear the comments from members for this issue.
ALWAYS PRESENT TO THE CONFIRMING BANK FIRST
That is why we always recommend our customers/clients to make their presentation to the Confirming Bank first to avoid such problems.
Merry Christmas & A Happy New Year (of the Horse according to the Chinese Rural Calendar) to You All!
DISCLAIMERS:
The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.
http://www.tolee.com
[edited 12/27/01 5:39:42 PM]
Refusal Notice
My personal views, without responsibility, are:
As T.O. indicates, it would not be appropriate to oblige a non-confirming nominated bank to make settlement if it failed to adhere to the time limits laid down in Articles 13 and 14, given it is under no obligation to examine documents, let alone take up complying documents.
As to any legal sanction against a nominated bank that failed to promptly notify the beneficiary it was not prepared to examine documents, or having examined documents, that failed adhere to the time limits laid down in Articles 13 and 14 etc, based on English law I would expect the beneficiary to have to show that they have suffered real loss by the non-confirming nominated bank’s (negligent) actions, in order to have any rights against that bank. If the beneficiary were able to do so, I would expect a court to award damages to the extent of that loss (although not in excess of the credit amount).
Finally, I would not anticipate that failure by a non-confirming nominated bank to adhere to the Article 13/14 time limits would have any legal repercussions for an issuing or confirming bank.
[edited 12/27/01 10:10:49 AM]
As T.O. indicates, it would not be appropriate to oblige a non-confirming nominated bank to make settlement if it failed to adhere to the time limits laid down in Articles 13 and 14, given it is under no obligation to examine documents, let alone take up complying documents.
As to any legal sanction against a nominated bank that failed to promptly notify the beneficiary it was not prepared to examine documents, or having examined documents, that failed adhere to the time limits laid down in Articles 13 and 14 etc, based on English law I would expect the beneficiary to have to show that they have suffered real loss by the non-confirming nominated bank’s (negligent) actions, in order to have any rights against that bank. If the beneficiary were able to do so, I would expect a court to award damages to the extent of that loss (although not in excess of the credit amount).
Finally, I would not anticipate that failure by a non-confirming nominated bank to adhere to the Article 13/14 time limits would have any legal repercussions for an issuing or confirming bank.
[edited 12/27/01 10:10:49 AM]
Refusal Notice
I agree with the statement „A BANK’S PAYMENT OBLIGATION IS THE DECISIVE FACTOR“ given by http://www.tolee.com. Article 9 clearly states that „An irrevocable credit constitutes a definite undertaking of the Issuing Bank, provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank and that the terms and conditions of the credit are complied with“.
It also says:“A confirmation of an irrevocable credit by another bank (Confirming Bank) upon the authorisation…………,constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank, provided that the stipulated documents are presented to the Confirming Bank or to any other Nominated Bank and that the terms and conditions of the Credit are complied with“.
To apply the „Agency law“ to the documentary credit operations in the manner suggested above would most likely lead to incorrect results which would be clearly against UCP500.
Pavel Andrle
It also says:“A confirmation of an irrevocable credit by another bank (Confirming Bank) upon the authorisation…………,constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank, provided that the stipulated documents are presented to the Confirming Bank or to any other Nominated Bank and that the terms and conditions of the Credit are complied with“.
To apply the „Agency law“ to the documentary credit operations in the manner suggested above would most likely lead to incorrect results which would be clearly against UCP500.
Pavel Andrle
Refusal Notice
Dear Jeremy, Laurence and Pavel,
When three of you gentlemen discuss the issue “Whether or not a nominated bank is an agent of an issuing bank?” You appear to have different opinions. Laurence says yes and Jeremy and Pavel say no.
However, by purely saying the nominated bank is or is not an agent does not help much and may confuse others. From our views, we must give our opinions in a more precise manner and take an analytical approach by breaking down the capacity of the nominated bank in two phrases: (1) BEFORE the nominated bank accepts the nomination by the issuing bank (to accept drafts, to effect payment or to negotiate) and (2) AFTER accepting such nomination by PERFORMANCE (in acceptance, payment or negotiation), but not to the extent of confirming the DC. This is what Jeremy refers to as a "Non-confirming Nominated Bank".
(1) BEFORE ACCEPTANCE OF NOMINATION
By refusing the nomination, the nominated bank is obviously not a party in the DC and hence it is not an agent of the issuing bank, where nobody should disagree including Laurence.
(2) AFTER PERFORMANCE BY ACCEPTANCE, PAYMENT OR NEGOTIATION (SAVE DISCOUNTING)
Only from here that we may debate whether or not the nominated bank is an agent of the issuing bank. However, this appears more to be a legal issue.
Jeremy and Pavel, if the nominated bank has accepted the drafts, effected payment or negotiation ON BEHALF OF or UPON AUTHORIZATION of the issuing bank (not DISCOUNTING without authorization such as in the Santander case), we would like to hear from you then what is its new role?
From there we would go into a third issue.
(3) WHETHER THE NEGLIGENT ACT OF THE NOMINATED BANK AFTER PERFORMANCE WOULD BIND THE ISSUING BANK?
This is also a legal issue. The answer to this question depends on the answer to question (2). And there are two scenarios:
(a) The nominated bank is considered as an agent; and
(b) It is not an agent.
And of course, other frequent contributors like Hatem and AbdulBaker from KSA are welcome to give their opinions on these hot issues here.
http://www.tolee.com
[edited 12/31/01 4:00:35 PM]
When three of you gentlemen discuss the issue “Whether or not a nominated bank is an agent of an issuing bank?” You appear to have different opinions. Laurence says yes and Jeremy and Pavel say no.
However, by purely saying the nominated bank is or is not an agent does not help much and may confuse others. From our views, we must give our opinions in a more precise manner and take an analytical approach by breaking down the capacity of the nominated bank in two phrases: (1) BEFORE the nominated bank accepts the nomination by the issuing bank (to accept drafts, to effect payment or to negotiate) and (2) AFTER accepting such nomination by PERFORMANCE (in acceptance, payment or negotiation), but not to the extent of confirming the DC. This is what Jeremy refers to as a "Non-confirming Nominated Bank".
(1) BEFORE ACCEPTANCE OF NOMINATION
By refusing the nomination, the nominated bank is obviously not a party in the DC and hence it is not an agent of the issuing bank, where nobody should disagree including Laurence.
(2) AFTER PERFORMANCE BY ACCEPTANCE, PAYMENT OR NEGOTIATION (SAVE DISCOUNTING)
Only from here that we may debate whether or not the nominated bank is an agent of the issuing bank. However, this appears more to be a legal issue.
Jeremy and Pavel, if the nominated bank has accepted the drafts, effected payment or negotiation ON BEHALF OF or UPON AUTHORIZATION of the issuing bank (not DISCOUNTING without authorization such as in the Santander case), we would like to hear from you then what is its new role?
From there we would go into a third issue.
(3) WHETHER THE NEGLIGENT ACT OF THE NOMINATED BANK AFTER PERFORMANCE WOULD BIND THE ISSUING BANK?
This is also a legal issue. The answer to this question depends on the answer to question (2). And there are two scenarios:
(a) The nominated bank is considered as an agent; and
(b) It is not an agent.
And of course, other frequent contributors like Hatem and AbdulBaker from KSA are welcome to give their opinions on these hot issues here.
http://www.tolee.com
[edited 12/31/01 4:00:35 PM]
Refusal Notice
I do not believe that I expressed an opinion as to whether or not a non-confirming nominated bank (NCNB) was an agent of the issuing (or confirming) bank. Also, I should mention I do not have a comprehensive knowledge of the law of agency. My position is rather grounded in the realities of inter-bank business.
If I understand correctly (and I apologise if I have misunderstood) the argument being advanced is that a NCNB is an agent of the issuing bank, therefore the issuing bank is responsible to the beneficiary for the negligent acts of the NCNB by virtue of the law of agency (the ‘Agency Argument’).
In practice an issuing bank often does not chose the NCNB; this is commonly specified by the applicant at the behest of the beneficiary. In addition, in the case of a freely negotiable credit, the issuing bank will not even know who the NCNB will be. Also, in a number of countries there is only one, or a very limited range, of NCNBs available. Therefore the issuing bank is often not in a position to chose and/or vet the competence of the NCNB. Therefore, if the Agency Argument is correct, an issuing bank faces great danger in allowing the applicant to specify the NCNB or allowing the issue of freely negotiable credits or dealing with NCNBs in certain countries.
However, I recognise that a court of law may not have any sympathy with these practical difficulties. Overall, in order to draw any meaningful conclusions, I would need examples of relevant statute/case law to be given. I regret I do not have the time to research the subject, from an English law perspective, myself.
If I understand correctly (and I apologise if I have misunderstood) the argument being advanced is that a NCNB is an agent of the issuing bank, therefore the issuing bank is responsible to the beneficiary for the negligent acts of the NCNB by virtue of the law of agency (the ‘Agency Argument’).
In practice an issuing bank often does not chose the NCNB; this is commonly specified by the applicant at the behest of the beneficiary. In addition, in the case of a freely negotiable credit, the issuing bank will not even know who the NCNB will be. Also, in a number of countries there is only one, or a very limited range, of NCNBs available. Therefore the issuing bank is often not in a position to chose and/or vet the competence of the NCNB. Therefore, if the Agency Argument is correct, an issuing bank faces great danger in allowing the applicant to specify the NCNB or allowing the issue of freely negotiable credits or dealing with NCNBs in certain countries.
However, I recognise that a court of law may not have any sympathy with these practical difficulties. Overall, in order to draw any meaningful conclusions, I would need examples of relevant statute/case law to be given. I regret I do not have the time to research the subject, from an English law perspective, myself.
Refusal Notice
ONE-YEAR IN RETROSPECTION
After one year of disagreeing with Jeremy on various hot issues, now we have found out the reasons behind this. It is not because we live in different parts of the Universe, as Jeremy has thought. In fact it is because Jeremy is a DC technician working also as a manager in a British bank. As a banker, it is only natural that he would be more inclined to protect the interests of and the risks exposed by his bank. By protecting his bank, he is also at the same time protecting himself, although he may not be fully aware of this. He wishes to sleep well and eat well, as we all do.
We are DC consultant and expert and are hence more neutral and independent, which is what we are required by the rules of the Academy of Experts in England of which we are an Accredited Member. There is simply no choice here. Hence we have to look after the interests of the banks as well as that of the beneficiaries and the applicants.
Business–wise, they can be all our customers. If our opinions are favoring one party, we may lose the business from another party. Our training business comes mostly from banks and banking institutes whilst our consultancy business comes more from the beneficiaries and applicants. Of course a bank would also invite us as a court experts when it sues another bank or its client.
We of course understand all the problems and risks faced by the banks and the competitive environment, as well as threats to staff in down sizing due to merging and e-commerce that would require less headcounts. Although we highly sympathize with our banker friends, however, these are not good excuses for not taking their duty of care and due diligence towards their customers or clients, whatever you would like to call them.
Unless Jeremy retires we can anticipate continuous “agreement to disagree” in 2002. Hatem has left the banking business in Jordan and is now working in a training institute in Saudi Arabia. Hence he is more neutral and independent, although he has a strong banking background.
We would like to share words of wisdom originated from one of the Kung Fu novels:”If one day you become invincible, you would be very lonely then”. Loneliness is not a nice feeling at all. That is why in this novel, that invincible Kung Fu Master is also known as “Mr. Lonely and Looking for A Defeat”.
Frankly we do enjoy the entanglements with Jeremy. This is what discussion is for. The decision is for an individual viewer to make for himself.
Happy New Year to All of You.
http://www.tolee.com
[edited 1/12/02 4:29:17 PM]
After one year of disagreeing with Jeremy on various hot issues, now we have found out the reasons behind this. It is not because we live in different parts of the Universe, as Jeremy has thought. In fact it is because Jeremy is a DC technician working also as a manager in a British bank. As a banker, it is only natural that he would be more inclined to protect the interests of and the risks exposed by his bank. By protecting his bank, he is also at the same time protecting himself, although he may not be fully aware of this. He wishes to sleep well and eat well, as we all do.
We are DC consultant and expert and are hence more neutral and independent, which is what we are required by the rules of the Academy of Experts in England of which we are an Accredited Member. There is simply no choice here. Hence we have to look after the interests of the banks as well as that of the beneficiaries and the applicants.
Business–wise, they can be all our customers. If our opinions are favoring one party, we may lose the business from another party. Our training business comes mostly from banks and banking institutes whilst our consultancy business comes more from the beneficiaries and applicants. Of course a bank would also invite us as a court experts when it sues another bank or its client.
We of course understand all the problems and risks faced by the banks and the competitive environment, as well as threats to staff in down sizing due to merging and e-commerce that would require less headcounts. Although we highly sympathize with our banker friends, however, these are not good excuses for not taking their duty of care and due diligence towards their customers or clients, whatever you would like to call them.
Unless Jeremy retires we can anticipate continuous “agreement to disagree” in 2002. Hatem has left the banking business in Jordan and is now working in a training institute in Saudi Arabia. Hence he is more neutral and independent, although he has a strong banking background.
We would like to share words of wisdom originated from one of the Kung Fu novels:”If one day you become invincible, you would be very lonely then”. Loneliness is not a nice feeling at all. That is why in this novel, that invincible Kung Fu Master is also known as “Mr. Lonely and Looking for A Defeat”.
Frankly we do enjoy the entanglements with Jeremy. This is what discussion is for. The decision is for an individual viewer to make for himself.
Happy New Year to All of You.
http://www.tolee.com
[edited 1/12/02 4:29:17 PM]
Refusal Notice
Gentleman, thank you for your contributions. From the postings thus far there seems to be a consensus that there exists no agency if the nominated has not added its confirmation or where it has not consented to accept/pay/negotiate.
This brings us to the questions posted by T.O,
1. What is the role of the nominated bank that has accepted the drafts effected payment or negotiation ON BEHALF OF or UPON AUTHORIZATION of the issuing bank (not DISCOUNTING without authorization such as in the Santander case).
2. Whether the negligent act of the nominated bank after performance would bind the issuing bank? He also thinks that the answer to this question will lead us to decide whether the nominated bank is an agent or not.
I feel it is important to establish first whether UCP supports the concept of agency or not.
The test of an agency is the ability of the agent to bind the principal, as if the principal has himself performed the act. UCP Sub art 18 b clearly negates this principal, this is further confirmed in the publication UCP 400 & 500 compared (pg 47&48). Quote “Similarly the failure of the nominated bank (unless it is the confirming bank to act according to the conditions stipulated in UCP 500 Art 13 & 14 could not automatically bind, under the UCP Rules, the Issuing Bank or the Confirming Bank if any, to the presenter of discrepant documents if such documents were not examined and if notice of refusal was not given by the nominated bank to the presenter within the prescribed period.” Unquote.
By absolving the Issuing/Confirming Bank for the acts of the nominated bank it is clear that the UCP fails the test of agency, i.e. the ability of the agent to bind the principal. Having said that, I believe that the words “On behalf of ” in T.O. first question are superfluous. You can only act on behalf of someone if there is an existence of agency.
I personally feel that, when a nominated bank conveys its willingness to the beneficiary to accept/pay/negotiate with or without the authorization of the Issuing Bank its undertaking to the beneficiary is independent of its recourse to the Issuing Bank, which may depend on whether it has acted with or without the authorization of the Issuing Bank. Similarly the Issuing banks’ undertaking to the beneficiary is also independent of its undertaking to the nominated bank. (I have deliberately not dwelled on the question of the nominated banks’ recourse).
This brings us back to the question of the nominated banks liability for failure to act in accordance with the provisions of UCP. I agree with Jeremy that the nominated bank is liable for damages (to the extent of value of document), by failing to act promptly and jeopardizing the beneficiary’s right viz. viz. the issuing bank to repair and represent the documents to the Issuing Bank.
All the best & a prosperous New Year to all of you.
best regards Khalid
This brings us to the questions posted by T.O,
1. What is the role of the nominated bank that has accepted the drafts effected payment or negotiation ON BEHALF OF or UPON AUTHORIZATION of the issuing bank (not DISCOUNTING without authorization such as in the Santander case).
2. Whether the negligent act of the nominated bank after performance would bind the issuing bank? He also thinks that the answer to this question will lead us to decide whether the nominated bank is an agent or not.
I feel it is important to establish first whether UCP supports the concept of agency or not.
The test of an agency is the ability of the agent to bind the principal, as if the principal has himself performed the act. UCP Sub art 18 b clearly negates this principal, this is further confirmed in the publication UCP 400 & 500 compared (pg 47&48). Quote “Similarly the failure of the nominated bank (unless it is the confirming bank to act according to the conditions stipulated in UCP 500 Art 13 & 14 could not automatically bind, under the UCP Rules, the Issuing Bank or the Confirming Bank if any, to the presenter of discrepant documents if such documents were not examined and if notice of refusal was not given by the nominated bank to the presenter within the prescribed period.” Unquote.
By absolving the Issuing/Confirming Bank for the acts of the nominated bank it is clear that the UCP fails the test of agency, i.e. the ability of the agent to bind the principal. Having said that, I believe that the words “On behalf of ” in T.O. first question are superfluous. You can only act on behalf of someone if there is an existence of agency.
I personally feel that, when a nominated bank conveys its willingness to the beneficiary to accept/pay/negotiate with or without the authorization of the Issuing Bank its undertaking to the beneficiary is independent of its recourse to the Issuing Bank, which may depend on whether it has acted with or without the authorization of the Issuing Bank. Similarly the Issuing banks’ undertaking to the beneficiary is also independent of its undertaking to the nominated bank. (I have deliberately not dwelled on the question of the nominated banks’ recourse).
This brings us back to the question of the nominated banks liability for failure to act in accordance with the provisions of UCP. I agree with Jeremy that the nominated bank is liable for damages (to the extent of value of document), by failing to act promptly and jeopardizing the beneficiary’s right viz. viz. the issuing bank to repair and represent the documents to the Issuing Bank.
All the best & a prosperous New Year to all of you.
best regards Khalid
-
larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Refusal Notice
Article 10 d states "By nominating another bank, or by allowing for negotiation by any bank, or by authorising or requesting another bank to addits confirmation, the Issuing Bank authorises such bank to pay, accept Draft(s) or negotiate as the case may be, against documents which appear on their face to be in compliance with the terms and conditions of the Credit and undertakes to reimburse such bank in accordance with the provisions of these Articles."
This shows that any bank, acting as a nominated bank, does so upon the express authority of the issuing bank, subject to UCP, even where negotiation is open. This establishes a relationship between these two banks.
Coming from a commercial, rather than banking background, I have looked upon this relationship as an agency agreement, because if it looks like an agency agreement, acts like it and walks and talks like it, the chances are it probably is an agency agreement. As already mentioned, the ultimate arbiter in determining this is most likely to be the courts. I consider that most courts would take a prosaic position on seeing the establishment of this relationship as that of an agency agreement.
Laurence
This shows that any bank, acting as a nominated bank, does so upon the express authority of the issuing bank, subject to UCP, even where negotiation is open. This establishes a relationship between these two banks.
Coming from a commercial, rather than banking background, I have looked upon this relationship as an agency agreement, because if it looks like an agency agreement, acts like it and walks and talks like it, the chances are it probably is an agency agreement. As already mentioned, the ultimate arbiter in determining this is most likely to be the courts. I consider that most courts would take a prosaic position on seeing the establishment of this relationship as that of an agency agreement.
Laurence