Where a credit is available by negotiation with Bank “A” and is confirmed by bank “B” adding a rider “our confirmation is valid only if the documents are presented at our counters for negotiation”. Would the beneficiary still be able to invoke the confirmers’ obligation if the initial presentation (lets assume) on the expiry date of the credit is made to either Bank “A” or the issuer, and upon their refusal to take up the documents is presented to the confirmer after the expiry.
Regards
Khalid
Confirming Bank Obligation
Confirming Bank Obligation
Khalid,
Firstly I would observe that a confirmation is only ‘a definite undertaking’ in relation to ‘documents … presented to the Confirming Bank or any other Nominated Bank’. Therefore, I cannot see how -under the UCP- a confirmation could be considered to extend to documents to presented to the issuing bank prior to expiry unless those documents were also presented to the confirming bank prior to expiry as well.
As for excluding liability for documents presented to another nominated bank prior to expiry, but not presented to the confirming bank prior to expiry, I do not know of any reason in principle why this is not be possible and would anticipate that provided the confirming bank made it clear that its confirmation applied only to documents presented to it prior to expiry this would be legally effective.
You might wish to add ‘prior to expiry’ / ‘on or before the expiry date’ (or similar) to put the matter beyond dispute.
Jeremy
Firstly I would observe that a confirmation is only ‘a definite undertaking’ in relation to ‘documents … presented to the Confirming Bank or any other Nominated Bank’. Therefore, I cannot see how -under the UCP- a confirmation could be considered to extend to documents to presented to the issuing bank prior to expiry unless those documents were also presented to the confirming bank prior to expiry as well.
As for excluding liability for documents presented to another nominated bank prior to expiry, but not presented to the confirming bank prior to expiry, I do not know of any reason in principle why this is not be possible and would anticipate that provided the confirming bank made it clear that its confirmation applied only to documents presented to it prior to expiry this would be legally effective.
You might wish to add ‘prior to expiry’ / ‘on or before the expiry date’ (or similar) to put the matter beyond dispute.
Jeremy
Confirming Bank Obligation
Sometimes UCP 500 is not the problem; local law is. A number of years ago (I am guessing around thirteen or so), a small bank in California with outstanding issued letters of credit went bankrupt. The U.S. Government swooped in to settle things, but letters of credit payments were far down on their agenda. Documents sat for weeks. A particular beneficiary was able to retrieve his documents and brought them to the confirming bank (also in the United States). This was long after expiry, so the confirming bank refused. The beneficiary sued the confirming bank for wrongful dishonor claiming that the documents had been presented to the issuing bank prior to expiry, therefore, he was entitled to payment. The court looked at the confirming bank cover letter to the beneficiary which stated their confirmation obligation. The court ruled in favor of the beneficiary, noting that the cover letter did not restrict the presentation to the confirming bank, only that presentation had to be made by expiry, which it was (to the issuing bank). Well, that ruling scared us enough that we rewrote our confirmations to state that our obligation is valid only if documents are presented to us on or before expiry. If any of the "old-timers" (and I say that with love and respect) can remember the name of the case or can correct my details if necessary, please let me know.
Lisa
Lisa
Confirming Bank Obligation
Lisa,
I am not aware of the case you refer to but I had exactly a similar situation in mind when I posted my query. I would say it is not the local law but UCP also comes into play here. Art 10 b (i) provides that presentation of documents must be made to the Issuing Bank or the Confirming Bank, if any, or any Nominated Bank. This to my mind suggests that the bene by presenting the documents to either of these banks on or before the expiry date of the credit is entitled to receive payment. There is nothing in the UCP to suggest that the first presentation must be made to the confirming bank. Assuming he chooses to make a presentation to the issuing bank & that bank subsequently fails before payment the bene would be well within his right to represent the documents to the confirming bank even after expiry of the credit unless as you suggest the confirmation letter restricts the presentation at its counter before expiry.
Regards, Khalid
I am not aware of the case you refer to but I had exactly a similar situation in mind when I posted my query. I would say it is not the local law but UCP also comes into play here. Art 10 b (i) provides that presentation of documents must be made to the Issuing Bank or the Confirming Bank, if any, or any Nominated Bank. This to my mind suggests that the bene by presenting the documents to either of these banks on or before the expiry date of the credit is entitled to receive payment. There is nothing in the UCP to suggest that the first presentation must be made to the confirming bank. Assuming he chooses to make a presentation to the issuing bank & that bank subsequently fails before payment the bene would be well within his right to represent the documents to the confirming bank even after expiry of the credit unless as you suggest the confirmation letter restricts the presentation at its counter before expiry.
Regards, Khalid
Confirming Bank Obligation
I would simply reiterate that, as worded, there are absolutely no grounds for considering that under UCP500 a confirmation can extend to complying documents presented to the issuing bank, but not the confirming bank, prior to expiry. I can only say Khalid that I do not see how sub-Art 10(b)(i) could have the implications you suggest given the clear wording of sub-Art 9(b).
I wonder, Lisa, if the case you refer to was decided under UCP400? This is because in sub-Art 10b of UCP400 there was no mention of to whom documents had to be presented in order for a confirmation to be binding. It simply said ‘a definite undertaking … provided that the stipulated documents are presented and the terms and conditions of the credit are complied with:
i. …’.
Whatever, clearly specifying that documents must be presented to the confirming bank prior to expiry by definition has the automatic effect of covering presentations to the issuing bank, as well as any other nominated bank, that are not re-presented to the confirming bank prior to expiry.
[edited 8/25/2006 9:44:50 AM]
I wonder, Lisa, if the case you refer to was decided under UCP400? This is because in sub-Art 10b of UCP400 there was no mention of to whom documents had to be presented in order for a confirmation to be binding. It simply said ‘a definite undertaking … provided that the stipulated documents are presented and the terms and conditions of the credit are complied with:
i. …’.
Whatever, clearly specifying that documents must be presented to the confirming bank prior to expiry by definition has the automatic effect of covering presentations to the issuing bank, as well as any other nominated bank, that are not re-presented to the confirming bank prior to expiry.
[edited 8/25/2006 9:44:50 AM]
Confirming Bank Obligation
The case is Northern Trust Co. v. Community Bank, 873 F. 2d 227 (9th Cir. 1989). The case was tried in the federal courts in California. The confirming bank was held liable on its confirmation for documents presented to an insolvent issuing bank. The result troubled, among others, Boris Kozolchyk, who had some drafting responsibility for the then next revision of the UCP.
The incorporated practice rules in an LC set the meaning of a confirmation contained in an LC, but those practice rules have set different presumed meanings of a confirmation. UCP400, 500, 600 and ISP Rule 2.01d all differ on this topic.
If the confirming bank wants clarity on this point under a UCP500 LC, its confirmation should, as Jeremy recommends, expressly require presentation to it before expiry. If the beneficiary wants the confirmation to provide an "addition", rather than a substitution, of obligors, then the beneficiary should resist that requirement and ask that the confirmation be clarified in the other direction.
Regards, Jim Barnes
The incorporated practice rules in an LC set the meaning of a confirmation contained in an LC, but those practice rules have set different presumed meanings of a confirmation. UCP400, 500, 600 and ISP Rule 2.01d all differ on this topic.
If the confirming bank wants clarity on this point under a UCP500 LC, its confirmation should, as Jeremy recommends, expressly require presentation to it before expiry. If the beneficiary wants the confirmation to provide an "addition", rather than a substitution, of obligors, then the beneficiary should resist that requirement and ask that the confirmation be clarified in the other direction.
Regards, Jim Barnes
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PradeepT_old
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Confirming Bank Obligation
Dear Khalid,
I infer that the Confirming bank’s undertaking in such case is independent of that of the Issuing Bank and not “in addition” thereto. This would also construe to imply that in the event, documents are presented to Issuing Bank (before its expiry) which fails to “honour”, Confirming Bank shall have no liability, whatsoever. Although this would seem to be in sharp contrast of Article 9.b of UCP 500, the restrictive clause in the confirming bank’s undertaking shall be an overriding and limiting factor that obligates the confirming bank to honour its commitment only if the complying documents were presented to it in accordance with the said clause.
Regards,
Pradeep Taneja,
Bahrain
I infer that the Confirming bank’s undertaking in such case is independent of that of the Issuing Bank and not “in addition” thereto. This would also construe to imply that in the event, documents are presented to Issuing Bank (before its expiry) which fails to “honour”, Confirming Bank shall have no liability, whatsoever. Although this would seem to be in sharp contrast of Article 9.b of UCP 500, the restrictive clause in the confirming bank’s undertaking shall be an overriding and limiting factor that obligates the confirming bank to honour its commitment only if the complying documents were presented to it in accordance with the said clause.
Regards,
Pradeep Taneja,
Bahrain
Confirming Bank Obligation
Thanks Jim. This confirms my assumption the case was not decided under UCP500.
Confirming Bank Obligation
Jeremy, in your initial response you state and I quote “that a confirmation is only ‘a definite undertaking’ in relation to ‘documents … presented to the Confirming Bank or any other Nominated Bank’. Although I thought the presentation extended to the issuer also but for the moment I would agree to your contention. Let us assume that the presentation is made to the nominated bank on the expiry date that negotiates & forwards it to the issuing bank. If the issuing bank dishonors the presentation the bene notwithstanding that the credit has expired would still have recourse against the confirmer.
In my opinion the bene has complied with the credit terms by making a presentation at the nominated place, please refer UCP art 42 (a). All the confirmer has to do is make a decision based on the documents.
Pradeep, you rightly point out that a confirmer’s obligation is independent of the issuer, but there is nothing to prevent the bene from making the initial call on the issuing bank. Furthermore, you suggest that the restrictive clause in the confirming bank’s undertaking overrides the credit term (allowing for presentation at the nominated banks counter). I would take it as an attempt to amend the credit and would bring UCP sub art 9 d (i) arguing that a credit cannot be amended without the consent of all the parties and the bene has a right refuse this attempt of amending the credit.
regards Khalid
In my opinion the bene has complied with the credit terms by making a presentation at the nominated place, please refer UCP art 42 (a). All the confirmer has to do is make a decision based on the documents.
Pradeep, you rightly point out that a confirmer’s obligation is independent of the issuer, but there is nothing to prevent the bene from making the initial call on the issuing bank. Furthermore, you suggest that the restrictive clause in the confirming bank’s undertaking overrides the credit term (allowing for presentation at the nominated banks counter). I would take it as an attempt to amend the credit and would bring UCP sub art 9 d (i) arguing that a credit cannot be amended without the consent of all the parties and the bene has a right refuse this attempt of amending the credit.
regards Khalid
Confirming Bank Obligation
Khalid,
I quite agree that if the beneficiary were to present complying documents to ‘any other nominated bank’ prior to expiry this would automatically bind the confirming bank. This is why I am all in favour of restricting a confirmation to documents presented to the confirming bank prior to expiry.
However I would disagree that restricting the confirmation would be an amendment to the credit terms as, at the time the restricted confirmation was added, the terms of the credit would not have been communicated to the beneficiary. In addition, if the beneficiary rejects the restricted confirmation that’s fine; it just means they have a totally unconfirmed credit.
Regards, Jeremy
I quite agree that if the beneficiary were to present complying documents to ‘any other nominated bank’ prior to expiry this would automatically bind the confirming bank. This is why I am all in favour of restricting a confirmation to documents presented to the confirming bank prior to expiry.
However I would disagree that restricting the confirmation would be an amendment to the credit terms as, at the time the restricted confirmation was added, the terms of the credit would not have been communicated to the beneficiary. In addition, if the beneficiary rejects the restricted confirmation that’s fine; it just means they have a totally unconfirmed credit.
Regards, Jeremy