As a Non-Confirming Nominated Bank under a D/P credit, we wish to discount DPUs given by the Issuing Bank after its acceptance of the documents. Do we need to hold a recourse against the benef for the commercial/fraud risks?
Your comments please.
Regards - Antoine
Discount of DPU and Recourse
Discount of DPU and Recourse
Antoine,
I find it odd that as Non-Confirming Nominated Bank under a D/P credit one would not be intending to pre-pay / purchase one’s own DPU rather than the Issuing Bank’s.
My impression is that UCP600 has absolutely nothing to say about a bank -whether nominated or not- pre-paying / purchasing the issuing bank’s credit obligation (whether given in the form of an accepted bill, DPU or whatever). Therefore, I would regard it as prudent to have some form of agreement in place with the beneficiary covering non-payment by the issuing bank given one might well not be able to claim any rights under the UCP.
Regards, Jeremy
I find it odd that as Non-Confirming Nominated Bank under a D/P credit one would not be intending to pre-pay / purchase one’s own DPU rather than the Issuing Bank’s.
My impression is that UCP600 has absolutely nothing to say about a bank -whether nominated or not- pre-paying / purchasing the issuing bank’s credit obligation (whether given in the form of an accepted bill, DPU or whatever). Therefore, I would regard it as prudent to have some form of agreement in place with the beneficiary covering non-payment by the issuing bank given one might well not be able to claim any rights under the UCP.
Regards, Jeremy
Discount of DPU and Recourse
Suppose we are willing to act on our nomination, accept to incur our own DPU and committ ourselves to the beneficiary for pre-paying/purchasing after getting issuing bank's acceptance of documents, would we still need to hold a recourse with regards to commercial/fraud risks if we decide to accept IB insolvency/country risks.
thks
Antoine
thks
Antoine
Discount of DPU and Recourse
Antoine,
I agree with Jeremy (probably just in a part , if I don't misunderstand Jeremy's post)
My view is that a non-conforming nominated bank which hasn't acted under its nomination i.e. hasn't incurred a deferred payment undertaking against presentation of a complying presentation gets no protection from the UCP for a prepay/purchase in case of non-payment by the issuing bank unless that bank has already been particularly authorised by the issuing bank to do so.
My response to your second question , yes ,your prepay/purchase would be under the protection of UCP by virtue of sub art 12 b
Actually, it is really difficult to say anything that if you would be strictly protected by that article in case of a court case relating fraud.
Regards,
Yahya
[edited 10/17/2007 1:37:06 PM]
[edited 10/17/2007 2:28:23 PM]
I agree with Jeremy (probably just in a part , if I don't misunderstand Jeremy's post)
My view is that a non-conforming nominated bank which hasn't acted under its nomination i.e. hasn't incurred a deferred payment undertaking against presentation of a complying presentation gets no protection from the UCP for a prepay/purchase in case of non-payment by the issuing bank unless that bank has already been particularly authorised by the issuing bank to do so.
My response to your second question , yes ,your prepay/purchase would be under the protection of UCP by virtue of sub art 12 b
Actually, it is really difficult to say anything that if you would be strictly protected by that article in case of a court case relating fraud.
Regards,
Yahya
[edited 10/17/2007 1:37:06 PM]
[edited 10/17/2007 2:28:23 PM]
Discount of DPU and Recourse
Antoine,
My opinion is that 12(b) does not place any restriction on the time when a nominated bank may pre-pay / purchase its DPU. Therefore, I would consider a nominated bank as covered by 12(b) if it pre-paid / purchased its DPU after it had notification that the documents had been ‘honoured’ by the issuing bank.
Incidentally, I do not see how the issuing bank’s notification that it has ‘honoured’ documents is a protection against the applicant / issuing bank later raising the matter of fraud.
Regards, Jeremy
My opinion is that 12(b) does not place any restriction on the time when a nominated bank may pre-pay / purchase its DPU. Therefore, I would consider a nominated bank as covered by 12(b) if it pre-paid / purchased its DPU after it had notification that the documents had been ‘honoured’ by the issuing bank.
Incidentally, I do not see how the issuing bank’s notification that it has ‘honoured’ documents is a protection against the applicant / issuing bank later raising the matter of fraud.
Regards, Jeremy
Discount of DPU and Recourse
So, in clear words, the Non-Confirming NB that wishes to prepay/purchase its own DPU still encounters, in addition of the IB/Country risks, the risk of the IB being prevented by a court order to effect payment at maturity for reason of fraud/commercial dispute.
tks in advance
Antoine
tks in advance
Antoine
Discount of DPU and Recourse
Antoine,
In clear words, whether one is a confirming bank or a non-confirming nominated bank (it makes no difference) and irrespective of the availability of the Credit (i.e. sight payment, negotiation, acceptance or DP) there is always a risk of the IB being ordered by a court not to effect reimbursement. In other words, the risk is not any greater simply because a credit is available by DP or one has not confirmed it.
Regards, Jeremy
[edited 10/18/2007 11:00:37 AM]
In clear words, whether one is a confirming bank or a non-confirming nominated bank (it makes no difference) and irrespective of the availability of the Credit (i.e. sight payment, negotiation, acceptance or DP) there is always a risk of the IB being ordered by a court not to effect reimbursement. In other words, the risk is not any greater simply because a credit is available by DP or one has not confirmed it.
Regards, Jeremy
[edited 10/18/2007 11:00:37 AM]
-
KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
Discount of DPU and Recourse
Dear Jeremy,
From an abstract point of view I agree with you. I think however that the concern many bankers may have with this (myself excluded of course) – is the period of time vis-à-vis the whereabouts of the goods;
Often court involvement is done after the buyer (LC applicant) have obtained possession of the goods;
In a “sight situation” – the buyer would in most cases not have access to the goods – until having paid under the LC.
This is different in the “deferred payment situation”; where the goods more often than not are released to the buyer before the due date of the deferred payment undertaking.
Last year I had such case – where the applicant tried to persuade a judge to issued an injunction preventing me from paying the issuing bank at due date. The background was that the buyer had received the bill of lading under the LC – obtained release of the goods – and when opening the boxes noted that the goods was not the agreed color. (Luckily the judge refused to issue the injunction
Hence you can argue that this risk of court involvement is higher in the deferred payment scenario than in the “sight payment” scenario.
Best regards
Kim
From an abstract point of view I agree with you. I think however that the concern many bankers may have with this (myself excluded of course) – is the period of time vis-à-vis the whereabouts of the goods;
Often court involvement is done after the buyer (LC applicant) have obtained possession of the goods;
In a “sight situation” – the buyer would in most cases not have access to the goods – until having paid under the LC.
This is different in the “deferred payment situation”; where the goods more often than not are released to the buyer before the due date of the deferred payment undertaking.
Last year I had such case – where the applicant tried to persuade a judge to issued an injunction preventing me from paying the issuing bank at due date. The background was that the buyer had received the bill of lading under the LC – obtained release of the goods – and when opening the boxes noted that the goods was not the agreed color. (Luckily the judge refused to issue the injunction
Hence you can argue that this risk of court involvement is higher in the deferred payment scenario than in the “sight payment” scenario.
Best regards
Kim
Discount of DPU and Recourse
Jeremy,
I have always thought that in all legal cases (France, GB, Switzerland), lawyers agreed that the IBs should have reimbursed NBs if they had authorized the "pre payment". It is now reflected in the UCP (especially 12b). In your latest posting you nevertheless still talk about a risk of not being so.
Could you elaborate (English point of view)?
Thanks
Daniel
I have always thought that in all legal cases (France, GB, Switzerland), lawyers agreed that the IBs should have reimbursed NBs if they had authorized the "pre payment". It is now reflected in the UCP (especially 12b). In your latest posting you nevertheless still talk about a risk of not being so.
Could you elaborate (English point of view)?
Thanks
Daniel
Discount of DPU and Recourse
Kim,
I certainly accept that the scope for an applicant to obtain an injunction against the IB post-honour by the nominated bank (as opposed to pre-honour) is greater where settlement is not ‘at sight’. So I would not disagree with the central thrust of your remarks.
Daniel,
My earlier postings are intended to relate solely to the granting of an injunction and have nothing to do with subsequent legal argument that might result in its lifting.
My impression is that the understanding of documentary credits by judges is often non-existent. Therefore, the opinions of lawyers that you refer to may well not be familiar to a judge when requested to grant an injunction -usually ‘ex parte’- and thus s/he may grant it notwithstanding these afore-mentioned opinions. Of course subsequent legal argument in court -perhaps months if not years later- may result in the lifting of the injunction.
Based on my own recent experience relating to an Italian court injunction against the issuing bank of a credit available with my employers by acceptance, where my bank had accepted and discounted a draft in relation to a complying presentation, I think it would be naïve to assume that even in the EU courts will either at the outset, or quickly thereafter, adopt what in the credit world would be regarded as the ‘correct’ position. In other words, theory and reality can quite often be far apart.
Regards, Jeremy
[edited 10/18/2007 2:49:56 PM]
I certainly accept that the scope for an applicant to obtain an injunction against the IB post-honour by the nominated bank (as opposed to pre-honour) is greater where settlement is not ‘at sight’. So I would not disagree with the central thrust of your remarks.
Daniel,
My earlier postings are intended to relate solely to the granting of an injunction and have nothing to do with subsequent legal argument that might result in its lifting.
My impression is that the understanding of documentary credits by judges is often non-existent. Therefore, the opinions of lawyers that you refer to may well not be familiar to a judge when requested to grant an injunction -usually ‘ex parte’- and thus s/he may grant it notwithstanding these afore-mentioned opinions. Of course subsequent legal argument in court -perhaps months if not years later- may result in the lifting of the injunction.
Based on my own recent experience relating to an Italian court injunction against the issuing bank of a credit available with my employers by acceptance, where my bank had accepted and discounted a draft in relation to a complying presentation, I think it would be naïve to assume that even in the EU courts will either at the outset, or quickly thereafter, adopt what in the credit world would be regarded as the ‘correct’ position. In other words, theory and reality can quite often be far apart.
Regards, Jeremy
[edited 10/18/2007 2:49:56 PM]