ICC Digital Library Forum

LC was issued in April available with advising bank and by deferred payment requesting confirmation. Advising bank informed issuing bank that beneficiary has been advised of LC, but it will revert regarding confirmation. Two weeks later, advising bank still hadn’t provide feedback regarding confirmation, but it forwarded documents to the issuing bank accompanied by its cover letter on which was no indication that it had acted upon its nomination. Issuing bank checked documents, found them complying and confirmed maturity date which is in June. Two days later, presenting/advising/nominated bank advised by swift issuing bank that it had added its confirmation to LC in question and had discounted documents for full amount without indication under which article it had acted (art. 12.b or art. 39 of UCP600). Issuing bank hadn’t reply and payment was made on determined maturity date as per presenting/confirming bank instructions.
As per art. 12b, nominated bank is authorized to prepay or purchase a deferred payment undertaking incurred by that nominated bank. There is no time limit or time frame in which discounting is to be done stated in any of the articles.
There is also no time limit or time frame in which nominated bank is obligated to add its confirmation; it is merely stated that if it chooses not to add its confirmation it must inform the issuing bank about it without delay.
Can issuing bank oppose to nominated bank adding its confirmation after receiving issuing bank’s acknowledgement of complying documents since it was obligated to inform issuing bank without delay if it would not be adding its confirmation?
Can issuing bank oppose to nominated bank discounting of documents as it has discounted them only after issuing bank’s acknowledgement of complying documents?
Is there a time frame in which nominated bank can add its confirmation? Would it be in order if nominated bank waits until issuing bank confirms complying documents to add its confirmation or should it advise the issuing bank about adding their confirmation or refusing to do so at the same time as informing issuing bank that it has advised LC to the beneficiary or in any case, not later than presentation of documents at issuing bank’s counters by stating so on their cover letter?
Is there a time frame in which nominated bank can discount documents? Should any discounting of documents be effected before presentation and ascertained on presenting bank’s cover letter or is it alright if it’s affected at any time before or on maturity date?
Can nominated bank actions be considered a good banking practice? If not, what is the right course of action in these circumstances?

UCP Art. 2 states:

'Confirmation means a definite undertaking of the confirming bank to honour or negotiate a complying presentation.' So, the time frame for adding confirmation cannot be after presentation of documents.

Also Art. 7 c stipulates :

An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank.'
Therefore, since the nominated bank has not acted on its nomination, the issuing bank has no obligation to reimburse the nominated bank if it incurs a def payment undertaking. So, to benefit from art 7c protection, the nominated bank should obtain a clear authorization from the issuing bank to incur such undertaking.
Regards
Antoine

The issuer is bound to pay at maturity to the presenting bank even if it is just the beneficiary's agent for collection, so the question seems academic unless there is an intervening fraud defense, in which case this is a relevant question but not necessarily the only question a court might consider in deciding whether the presenting bank must be paid despite beneficiary fraud.

12b is not relevant unless the credit nominated the presenting bank to incur its own deferred payment undertaking rather than to negotiate. A bank authorized to negotiate is authorized to agree with the beneficiary to advance funds any time before the maturity date.

7c is relevant but allows for forwarding documents before advancing funds (or honoring by incurring its own dpu and then paying it at maturity), provided only that the advance is made before maturity.

I am assuming that the credit does not modify or exclude any UCP provision affecting the nominated bank’s rights.

Regards, Jim Barnes

The issuing bank is of course bound to pay the beneficiary through the collecting bank, but the collecting bank has no right to act on its own behalf or take any legal action against the issuing bank, in case of payment default, without the prior approval of the beneficiary.
Regards
Antoine

A presenting bank's rights of reimbursement under 7c depend on the text of that sub-article. That said, a presenting bank may also have or acquire rights from the beneficiary. It may have its own rights as the party transferring possession of documents if the issuer retains them without paying. These kinds of questions are affected by the substantive and procedural law of the particular forum hearing the presenting bank's claims. Mercifully, unless enjoined, issuers do not and need not worry about paying the presenting bank after receipt of complying documents.

Regards, Jim Barnes