Adding confirmation after issuing bank's acceptance of docum

[GSham]

LC issued via MT700 indicates "may add" in field 49. No confirmation is added until discrepant documents presented thereunder have been accepted by the issuing bank. At this point, the advising bank (which is also the presenting bank of the documents) adds confirmation to the LC and negotiates the documents without recourse, under advice to the issuing bank. Do you think that a confirmation as such is valid, or would you be of the view that it is too late to add confirmation after documents have been presented and accepted by the issuing bank?

Regards
Gabriel

[NigelHolt]

I do not even see the point of a nominated bank adding its confirmation in such circumstances as irrespective of whether or not it has added its confirmation it can negotiate without recourse, incur a DPU or accept a bill (as appropriate).

[GSham]

There is a difference: By adding confirmation, the bank becomes a confirming bank. By negotiation without confirmation, the bank is merely a nominated bank acting on the nomination.

[AsifMahmoodButt]

Gabriel,
Do you think that these positions (being the confirming bank or a mere nominated bank) would have different impact on the nominated bank's rights if the issuing bank were to collapse.
Regards
Khalid

[GSham]

Khalid,
Between a confirming bank and nominated negotiating bank, it makes no difference if the issuing bank collapses. However, whether the LC is confirmed or not means different things to the beneficiary -- a confirming bank is obliged to negotiate "without recourse"; a negotiating bank of an unconfirmed LC would typically negotiate "with limited recourse", post-acceptance by issuing bank.

Regards,
Gabriel

[NigelHolt]

Gabriel,

It makes no difference either to the beneficiary whether or not a nominated bank adds its confirmation to a credit after discrepancies have been waived as a non-confirming nominated bank is entitled to negotiate (where the credit is so available) without recourse. In other words, negotiation without recourse and confirmation do not have to go hand in hand and to think otherwise is completely wrong. Hence my original posting which I continue to stand by.

Regards, Jeremy

[edited 8/15/2011 9:50:28 AM]

[AsifMahmoodButt]

I totally agree with Jeremy. I don’t see why the beneficiary should worry whether the nominated bank has confirmed the credit or not as long as the negotiation is without resource.
Regards Khalid

[DLloyd1]

I will reply as a regular beneficiary of LCs.

In reply to Jeremy - the rules governing a confirmation are clearly laid out in UCP and I know exactly where I stand if I have the LC confirmed. If the LC is not confirmed, there is no bank that will negotiate without recourse without having a seperate "Without Recourse Negotiation Agreement". The rules and law around that agreement will need to be debated and argued between our lawyers and the bank's lawyers and at the end of the day we would have an agreement that would be a compromise. A confirmation is quicker and simpler, and therefore better!

Let's say the LC is opened on April 1st, but shipment is not due until June 1st, and the value of the LC is $30mm. As beneficiary, I do not want to pay 2 months' unnecessary confirmation fees, running into tens, if not hundreds of thousands of dollars. Therefore, I do not request confirmation until I am about to load my vessel.

I want confirmation because I want to eliminate the issuing bank risk and/or the country risk of that bank.

Also, it is a regular occurrence that the confirming bank is unable to confirm immediately due to bank credit lines being full, and they may look to free up some line or sell off the risk. This means that the confirmation will be delayed and I, as beneficiary, will not ship my goods until the confirmation is in place.

[NigelHolt]

Gabriel’s query related to adding confirmation after documents had been presented to the nominated bank; (I infer) examined and refused by the nominated bank; sent to the issuing bank; examined and (I infer) refused by the issuing bank; and a waiver granted by the applicant, whereas your posting deals with conventional pre-presentation confirmation. Suffice it to say I can certainly understand your approach.

I must admit I am not familiar with a "Without Recourse Negotiation Agreement" and wonder if it is perhaps some sort of ‘silent confirmation’. Whatever it is, I certainly do not see the need for such an agreement where the scenario described by Gabriel occurs if the beneficiary wants negotiation without recourse and the nominated bank is willing to. All the nominated bank then has to say is that it has negotiated -in the words of UCP600- ‘without recourse’ and no more (given UCP600 says no more on the subject) without bringing in the question of confirmation.

Regards, Jeremy

[edited 8/15/2011 4:27:56 PM]

[GSham]

The "without recourse" agreement (or "limited recourse" agreement) would contain claw-back provisions, such that the negotiating bank has recourse to the beneficiary in certain events, such as when there is a court injunction preventing payment.

Regards, Gabriel