we have been requested by an issuing bank to advise their D/C to beneficiaries by adding our confirmation and have acted accordingly. On utilisation, discrepant documents have been presented by beneficiaries and as agreed we have sent same to issuing bank on approval basis. Discrepancies have been accepted and issuing bank has released their undertaking to pay at maturity as per credit terms and conditions.
Is in such a case the D/C still to be considered as confirmed by us or not ?
Thanks in advance for your comments
Roland
confirmation of D/C
confirmation of D/C
A confirmation of an irrevocable credit constitutes a definite undertaking on the part of the Confirming Bank, in addition to that of the Issuing Bank, provided that the documents presented comply with the terms and conditions of the credit.
In this case, you have told us that the documents do not comply with the credit - the additional undertaking of the confirming bank thereby lapses for this presentation under the credit so long as the confirming bank gives notice of rejection of the documents as per article 14 UCP 500 (see also R427).
It seems at this stage you agreed with the beneficiary to send the documents to the Issuing bank on approval basis and the Issuing bank sought and received a waiver of discrepancies from the applicant (is this correct?).
With the receipt of this waiver, the issuing bank is honouring its undertaking to the beneficiary.
The confirming banks undertaking is independent and separate to that of the issuing bank. The issuing banks actions do not "reactivate" the confirmation for this presentation. The confirmation is dependent upon complying documents not upon the actions of the issuing bank.
The DC would still be confirmed for subsequent presentations, if any, under the credit(depending on the wording of the confirmation).
In this case, you have told us that the documents do not comply with the credit - the additional undertaking of the confirming bank thereby lapses for this presentation under the credit so long as the confirming bank gives notice of rejection of the documents as per article 14 UCP 500 (see also R427).
It seems at this stage you agreed with the beneficiary to send the documents to the Issuing bank on approval basis and the Issuing bank sought and received a waiver of discrepancies from the applicant (is this correct?).
With the receipt of this waiver, the issuing bank is honouring its undertaking to the beneficiary.
The confirming banks undertaking is independent and separate to that of the issuing bank. The issuing banks actions do not "reactivate" the confirmation for this presentation. The confirmation is dependent upon complying documents not upon the actions of the issuing bank.
The DC would still be confirmed for subsequent presentations, if any, under the credit(depending on the wording of the confirmation).
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
confirmation of D/C
I totally agree with Leo; however, some banks play it safe and advise their customers/ beneficiaries that their agreement to present the documents to the issuing bank for approval should not be construed as an extention of their confirmation to the discrepant documents i.e. in case the issuing bank waives the discrepancies.
regards
[edited 10/31/02 10:34:10 PM]
regards
[edited 10/31/02 10:34:10 PM]
confirmation of D/C
With the greatest respect, I am not convinced the position is as clear cut as outlined above; also I cannot see that Opinion R427 covers the query. Opinion R14 and Case Number 4 (ICC pub’n 535; although I can understand why one would not consider the ‘cases’ as enjoying the same status as the ‘opinions’) seem to suggest the position is the opposite to that postulated above. For this reason, when discrepant documents are presented we adopt a procedure not dissimilar to that described by Abdulkader. Perhaps the answer to Doc 470/984, when approved in Rome this week, will provide up-to-date guidance on the subject. The draft answer certainly appears to continue in the line taken by R.14 etc. Perhaps T.O. will 'dial in' from cyberspace to let us know the final outcome on this query to the ICC.
[edited 11/1/02 11:32:17 AM]
[edited 11/1/02 11:32:17 AM]
confirmation of D/C
Jeremy,
With the greatest respect also, I believe that in this case the situation is clear cut.
To paraphrase Article 14 b -
Banks must determine on the basis of the documents alone whether or not they appear on their face to comply with the credit. If the documents don’t comply, the bank may refuse to take up the documents.
In this case, the documents did not comply. The confirming bank refused to take up the documents and advised the beneficiary accordingly. The confirming banks undertaking thereby lapsed for the presentation
The approach that you have put forward, however, would seem to me to indicate that the confirming banks undertaking is dependent on something other than their examination of the documents and that they are, in effect, precluded from refusing the documents up until the point that the issuing bank decides to refuse them also. The undertaking of the confirming bank seems bound to that of the issuing bank.
Is this the view that you are putting forward or have I misunderstood your posting?
With the greatest respect also, I believe that in this case the situation is clear cut.
To paraphrase Article 14 b -
Banks must determine on the basis of the documents alone whether or not they appear on their face to comply with the credit. If the documents don’t comply, the bank may refuse to take up the documents.
In this case, the documents did not comply. The confirming bank refused to take up the documents and advised the beneficiary accordingly. The confirming banks undertaking thereby lapsed for the presentation
The approach that you have put forward, however, would seem to me to indicate that the confirming banks undertaking is dependent on something other than their examination of the documents and that they are, in effect, precluded from refusing the documents up until the point that the issuing bank decides to refuse them also. The undertaking of the confirming bank seems bound to that of the issuing bank.
Is this the view that you are putting forward or have I misunderstood your posting?
confirmation of D/C
Leo,
Dealing with Opinion R427 first. The reason I cannot see its relevance is that it seems simply to cover whether a confirming bank has rejected documents in accordance with Article 14. Hence the opening sentence: ‘What constitutes a clear indication of refusal under a notice of dishonour from the confirming bank, so as to comply with the conditions of Article 14?’. I cannot see the Opinion addresses in any way the possible ‘re-instatement’ of the confirming bank’s liability post-refusal of the documents.
Secondly, I am not advocating a particular position that I personally support. I am merely trying to make sense of the opinions of others and the possible adverse impact they may have on my bank if correct. I do not propose to type out the conclusion of R14 as you can consult it yourself and see the reasoning employed –by the ICC Banking Commission- to suggest that a confirming bank’s confirmation would extend to discrepant documents where they were submitted to the issuing bank for ‘approval’.
My personal ‘take’ on the matter is:
1. Where an issuing bank has refused, but subsequently takes up, discrepant documents it is bound AUTOMATICALLY by the terms of the undertaking contained in the credit. In other words, the refusal is withdrawn by take up.
2. Unless a confirming bank has indicated to the contrary, it is arguable that either:
A) the confirming has also impliedly agreed that its undertaking, contained in the confirmation, will extend to discrepant documents which are taken up under the credit, or:
B) merely by virtue of the operation of credits, the confirming bank is also automatically bound by its undertaking with respect to documents taken up under the credit.
I freely admit that this line of reasoning may be incorrect and would be more than pleased if it were (and therefore I am not looking to enter into a debate on the subject). Suffice it to say, in the absence of an unequivocal statement from the English courts/the ICC that this line of reasoning or –more particularly- that of R14 etc is incorrect, my bank shall continue to take the ‘prudent’ approach. Perhaps the final answer to Doc 470/984 will contain this?
Respect, Jeremy
[edited 11/4/02 10:47:54 AM]
Dealing with Opinion R427 first. The reason I cannot see its relevance is that it seems simply to cover whether a confirming bank has rejected documents in accordance with Article 14. Hence the opening sentence: ‘What constitutes a clear indication of refusal under a notice of dishonour from the confirming bank, so as to comply with the conditions of Article 14?’. I cannot see the Opinion addresses in any way the possible ‘re-instatement’ of the confirming bank’s liability post-refusal of the documents.
Secondly, I am not advocating a particular position that I personally support. I am merely trying to make sense of the opinions of others and the possible adverse impact they may have on my bank if correct. I do not propose to type out the conclusion of R14 as you can consult it yourself and see the reasoning employed –by the ICC Banking Commission- to suggest that a confirming bank’s confirmation would extend to discrepant documents where they were submitted to the issuing bank for ‘approval’.
My personal ‘take’ on the matter is:
1. Where an issuing bank has refused, but subsequently takes up, discrepant documents it is bound AUTOMATICALLY by the terms of the undertaking contained in the credit. In other words, the refusal is withdrawn by take up.
2. Unless a confirming bank has indicated to the contrary, it is arguable that either:
A) the confirming has also impliedly agreed that its undertaking, contained in the confirmation, will extend to discrepant documents which are taken up under the credit, or:
B) merely by virtue of the operation of credits, the confirming bank is also automatically bound by its undertaking with respect to documents taken up under the credit.
I freely admit that this line of reasoning may be incorrect and would be more than pleased if it were (and therefore I am not looking to enter into a debate on the subject). Suffice it to say, in the absence of an unequivocal statement from the English courts/the ICC that this line of reasoning or –more particularly- that of R14 etc is incorrect, my bank shall continue to take the ‘prudent’ approach. Perhaps the final answer to Doc 470/984 will contain this?
Respect, Jeremy
[edited 11/4/02 10:47:54 AM]
confirmation of D/C
Thank you for giving me your take on the matter Jeremy.
DC-PRO will be including all the new Opinions decided upon at last weeks Banking Commission as soon as they have been edited by the Policy manager and Technical Adviser of the ICC Banking Commission.
I look forward in particular to reading the Opinion related to this issue.
FYI I quoted opinion R427 in my initial posting to illustrate the proper rejection of discrepancies by the confirming bank (because it is central to the liability of the confirming bank in this case) rather than offering it as a solution to the query.
DC-PRO will be including all the new Opinions decided upon at last weeks Banking Commission as soon as they have been edited by the Policy manager and Technical Adviser of the ICC Banking Commission.
I look forward in particular to reading the Opinion related to this issue.
FYI I quoted opinion R427 in my initial posting to illustrate the proper rejection of discrepancies by the confirming bank (because it is central to the liability of the confirming bank in this case) rather than offering it as a solution to the query.
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
confirmation of D/C
The confirming bank's action in rejecting documents is followed by agreement with the bene, to forward them to the issuing bank on approval. The issuing bank's acceptance of a waiver is not binding on the confirming bank, as it has no authority from the confirming bank to make it so.
In this case, the choice lies with the confirming bank whether or not to act in confirmation, as it has already rejected the presentation.
It is not clear here whether the bene disputes the discrepancy raised by the confirming bank and has asked for a "second opinion" of the issuing bank. The bene is entitled to notice of such rejection and return of documents at his option.
Laurence
In this case, the choice lies with the confirming bank whether or not to act in confirmation, as it has already rejected the presentation.
It is not clear here whether the bene disputes the discrepancy raised by the confirming bank and has asked for a "second opinion" of the issuing bank. The bene is entitled to notice of such rejection and return of documents at his option.
Laurence
confirmation of D/C
As already explained, the position is not as clear cut as that; R14 makes this abundantly clear. Also, it is not a question of the issuing bank binding the confirming bank, but the confirming bank binding itself by its own actions. I now withdraw from further discussion.
[edited 11/5/02 9:37:36 AM]
[edited 11/5/02 9:37:36 AM]
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PGauntlett
- Posts: 153
- Joined: Fri Apr 05, 2019 5:25 pm
confirmation of D/C
I've always abided by the comments stated in Case 178 of More Case Studies on DC's. I realise that these case studies do not have the weight of opinions but, at the time of publication, they were regarded as official ICC views. From memory, the comments in 178 reflected the legal stance.
Therefore, unless my bank informs the beneficiary that our confirmation has fallen away (which we would do in only extreme circumstances), we consider ourselves as fully obligated if the issuing bank accepts docs.
Phil Gauntlett
Therefore, unless my bank informs the beneficiary that our confirmation has fallen away (which we would do in only extreme circumstances), we consider ourselves as fully obligated if the issuing bank accepts docs.
Phil Gauntlett