Dear all,
I would venture to ask you whether you have come across a query as 470/T.A 608rev1, No 9, Banking Commission Opinion Fall 2006, the issue was whether a nominated acted correctly not accepting the draft titled "Bill of Exchange" instead of "Pay against this draft". The conclusion made clear that the draft should be issued in a manner acceptable to the local law at the place of payment, acceptance or negotiation. We are some people in our bank who are a bit concerned over this. In general - legal matters should be kept outside of LCs, otherwise it will be very difficult to open LCs negotiable by nominated banks.
(the Geneva convention for one thing is requiring in the text "Pay against this Bill of Exchange..." and
I think the U.K convention is similar) My question to you:
Has this conclusion caused you headache lately?
Most interest in your viewpoints.
Best regards
Marianne Wabnik/SEB
Drafts, Bills of Exchange under LCs - local law?
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MargaretaSkoglund
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Drafts, Bills of Exchange under LCs - local law?
Marianne,
No headache so far, but I agree a draft should be issued according to the appropriate local law. I mean if a beneficiary in Geneva presents the documents and a draft, I expect the draft to be issued according to the Swiss law (manually signed for instance even if UCP accepts other ways for signing a document).
Just for the fun, a sentence of a lawyer about bills of exchange quoted from the book by Raymond Jack "Documentary Credits" : " I do wish people wouldn't use these things, they cause nothing but trouble
Daniel
No headache so far, but I agree a draft should be issued according to the appropriate local law. I mean if a beneficiary in Geneva presents the documents and a draft, I expect the draft to be issued according to the Swiss law (manually signed for instance even if UCP accepts other ways for signing a document).
Just for the fun, a sentence of a lawyer about bills of exchange quoted from the book by Raymond Jack "Documentary Credits" : " I do wish people wouldn't use these things, they cause nothing but trouble
Daniel
Drafts, Bills of Exchange under LCs - local law?
Marianne,
I believe the question of bills of exchange is surrounded by much confusion. You only have to see DOCDEX DECISION 260 (and my posting @ http://focus.dcprofessional.com/DCPRO_F ... d=800#4945) to see that.
See also CREDIT INDUSTRIEL ET COMMERCIAL v CHINA MERCHANTS BANK at:
http://www.bailii.org/cgi-bin/markup.cg ... od=boolean
where the judge appeared -to me- to hold that drafts were not ‘documents’ specified under the credit and incline to the view that the documents could not have been refused even if no drafts at all had been presented even though specified in the credit.
Having said all that, I would anticipate (1) that most banks have required drafts (except those drawn @ sight on themselves) to meet the requirements of local bills of exchange law for decades and (2) that therefore this opinion does no more than reflect widespread practice.
Regards, Jeremy
[edited 2/8/2007 1:39:14 PM]
I believe the question of bills of exchange is surrounded by much confusion. You only have to see DOCDEX DECISION 260 (and my posting @ http://focus.dcprofessional.com/DCPRO_F ... d=800#4945) to see that.
See also CREDIT INDUSTRIEL ET COMMERCIAL v CHINA MERCHANTS BANK at:
http://www.bailii.org/cgi-bin/markup.cg ... od=boolean
where the judge appeared -to me- to hold that drafts were not ‘documents’ specified under the credit and incline to the view that the documents could not have been refused even if no drafts at all had been presented even though specified in the credit.
Having said all that, I would anticipate (1) that most banks have required drafts (except those drawn @ sight on themselves) to meet the requirements of local bills of exchange law for decades and (2) that therefore this opinion does no more than reflect widespread practice.
Regards, Jeremy
[edited 2/8/2007 1:39:14 PM]
Drafts, Bills of Exchange under LCs - local law?
Marriane,
Mostly,payment undertakings of the banks are based on dc rather than drafts. therefore you may say that the implications of the draft aren't subject to UCP but to something outside UCP rules (like national laws,for example).
therefore,when national law ask for something out of the ordinary (int'l banking practice) i think an issuing bank should clearly indicate in the dc how the draft must be issued, the informations it must evidence on.
Bogdan
Mostly,payment undertakings of the banks are based on dc rather than drafts. therefore you may say that the implications of the draft aren't subject to UCP but to something outside UCP rules (like national laws,for example).
therefore,when national law ask for something out of the ordinary (int'l banking practice) i think an issuing bank should clearly indicate in the dc how the draft must be issued, the informations it must evidence on.
Bogdan
Drafts, Bills of Exchange under LCs - local law?
TA 608rev1, No. 9, says: "The draft should be issued in a manner that is acceptable to the local law applicable to the place of payment, acceptance or negotiation. This is a matter for local law, not the UCP."
I would be OK with this opinion if it said that a nominated negotiating bank is free to insist on presentation of a draft in whatever form it wants, because it is not obligated to negotiate a complying presentation. (On this basis, not ISBP para. 51, I agree that a nominated negotiating bank may insist that a draft be endorsed as well as drawn by the beneficiary.)
I have a problem with the opinion treating the question as a local law matter. The question is not whether the "draft" presented is legal or illegal under any law. The question is what document satisfies the requirement for presentation of a "draft" as that word appears in the credit. SWIFT, UCP, and ISBP address the parties, amount, and tenor of a draft but do not define "draft" and do not refer to negotiable instruments law for a definition. Unless there is unwritten standard international banking practice, the question of what qualifies as a "draft" is left to be decided under the "anything goes" default rule in UCP500 Article 21. Article 21 does not indicate that a "draft" must qualify as such under the negotiable instruments law of one or more countries.
I think many are uneasy about treating drafts as Article 21 documents. I also think that there is probably enough consensus to say what forms of demand for payment do and do not qualify under LCs that call for a draft. Perhaps the next substantive ISBP could address this topic. In this regard, more often than not, negotiability does not matter. (A sight draft drawn by a beneficiary on an issuing or confirming bank does not need to be negotiable. Negotiability does matter to a non-obligated bank that wants a right of recourse against the drawer and endorser of a draft drawn on another. Negotiability matters also to any person who wants to discount or rediscount an accepted time draft.)
Our Uniform Commercial Code is specific on the point that "draft" has a broader meaning under LC law and practice than under negotiable instruments law. (Incidentally, our negotiable instruments law wouldn't care about the "against the bill of exchange" language but would insist that the instrument be made payable to "the order of" the payee.) ISP98 Rule 4.16c is also specific on this point.
Regards, Jim Barnes
I would be OK with this opinion if it said that a nominated negotiating bank is free to insist on presentation of a draft in whatever form it wants, because it is not obligated to negotiate a complying presentation. (On this basis, not ISBP para. 51, I agree that a nominated negotiating bank may insist that a draft be endorsed as well as drawn by the beneficiary.)
I have a problem with the opinion treating the question as a local law matter. The question is not whether the "draft" presented is legal or illegal under any law. The question is what document satisfies the requirement for presentation of a "draft" as that word appears in the credit. SWIFT, UCP, and ISBP address the parties, amount, and tenor of a draft but do not define "draft" and do not refer to negotiable instruments law for a definition. Unless there is unwritten standard international banking practice, the question of what qualifies as a "draft" is left to be decided under the "anything goes" default rule in UCP500 Article 21. Article 21 does not indicate that a "draft" must qualify as such under the negotiable instruments law of one or more countries.
I think many are uneasy about treating drafts as Article 21 documents. I also think that there is probably enough consensus to say what forms of demand for payment do and do not qualify under LCs that call for a draft. Perhaps the next substantive ISBP could address this topic. In this regard, more often than not, negotiability does not matter. (A sight draft drawn by a beneficiary on an issuing or confirming bank does not need to be negotiable. Negotiability does matter to a non-obligated bank that wants a right of recourse against the drawer and endorser of a draft drawn on another. Negotiability matters also to any person who wants to discount or rediscount an accepted time draft.)
Our Uniform Commercial Code is specific on the point that "draft" has a broader meaning under LC law and practice than under negotiable instruments law. (Incidentally, our negotiable instruments law wouldn't care about the "against the bill of exchange" language but would insist that the instrument be made payable to "the order of" the payee.) ISP98 Rule 4.16c is also specific on this point.
Regards, Jim Barnes
Drafts, Bills of Exchange under LCs - local law?
1. I think 500's art.21 applies only to informations other than those universally accepted with regard to the form and wording of drafts.
some informations are mandatory:
name of the document (draft/bill of exchange),unconditional instruction to pay(sight/maturity), drawee,place of payment,order notation,place and date of issue,currency and amount,
signature and name of issuer, endorsement.
usually drafts also indicate the l/c no they are drawn under and the invoice no they are related to.but unless issuing bank ask for this informations, a draft not indicating them cannot be rejected.
2.regarding marianne's question art.2 of ucp500 clearly states "bills of exchange(draft(s))". so no bank can reject a draft for being titled bill of exchange instead of draft or vice-versa.
some informations are mandatory:
name of the document (draft/bill of exchange),unconditional instruction to pay(sight/maturity), drawee,place of payment,order notation,place and date of issue,currency and amount,
signature and name of issuer, endorsement.
usually drafts also indicate the l/c no they are drawn under and the invoice no they are related to.but unless issuing bank ask for this informations, a draft not indicating them cannot be rejected.
2.regarding marianne's question art.2 of ucp500 clearly states "bills of exchange(draft(s))". so no bank can reject a draft for being titled bill of exchange instead of draft or vice-versa.