1) “Bank I” issues a credit favour of “Exporter E” available by negotiation with ADVISING/NOMINATED “Bank N”.

2) Confirmation instructions: WITHOUT

3) “Bank N” when advising the credit, communicated to the beneficiary that it shall negotiate against complying documents (in line with the provisions of article 12 a. of UCP 600).

4) The beneficiary “Exporter E” presented documents in full compliance to the credit and seeked negotiation from “Bank N”.

5) “Bank N” accepted to negotiate only on "WITH RECOURSE BASIS" claiming it is not a confirming bank and may not negotiate without recourse.

QUESTION: is Bank N correct in its above statement? Is this act conforming to the definition of NEGOTIATION as provided by the UCP600 article 2?

Thanks for using the single window.

Here is my personal answer:

UCP 600 sub-article 8(a)(ii) states that when a confirming bank negotiates it must be without recourse.

Nowhere in the UCP 600 is it stated that a non-confirming bank is prohibited from negotiating without recourse. In my opinion sub-article 12(a) underlines that a non-confirming bank is only obligated as far as it agrees with the beneficiary. This may well (in my view) include negotiating without recourse.

It is my impression that this differs between regions and countries. Where I come from it is quite common to negotiate without recourse - of course depending of evaluation of commercial and political risk.

Best regards

Kim Christensen

2. Would have been ethical for bank N to draw beneficiary’s attention from the start that negotiation will be effected on with recourse basis.

3. The act of negotiation is taking place outside the LC and represents any kind of agreement/contract concluded between the negotiating bank and the beneficiary.

The terms of negotiation other than those subject to UCP600 are subject to such contract/agreement.

Thanks for your kind answer.

I am afraid that the query was not intended to study any particular business relationship between the beneficiary and the nominated bank.

The question is:

A nominated bank acting on its nomination (i.e. accepts the authorization provided to it by the issuing bank - as per the provisions of article 12 a&b of the UCP 600 – to negotiate and expressly communicates its agreement to negotiate to the beneficiary when advising the credit)can it negotiate "with recourse", i.e. pre-pay or purchase its own accepted draft or deferred payment undertaking with recourse to the drawer?

Reiterating my thanks, and looking forward to your valuable answer for a matter- I think is of a concern to the business community.

Sincerely yours

Raed Habashy

Art.8a of UCP600 states "...the confirming bank must: (...) negotiate, without recourse, if the credit is available by negotiation with the confirming bank.".

Art.12a of UCP600 states "Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary.

Analyzing above mentioned you may observe the following:

1. Art.8 makes a clear reference to wording "without recourse". No such reference is made in relation to nominated/negotiating bank or definition of negotiation.

2. Art.12a wording "expressly agreed" make reference to the agreement/contract may be concluded between the negotiating bank and the beneficiary concerning terms of negotiation.

A negotiating bank has the liberty to choose if will negotiate with or without recourse. Its decision is based on a sum of risks involved (including bank risk, customer risk, country risk, etc). Negotiating with recourse doesn't mean that negotiating bank is acting contrary to UCP600. By agreeing to negotiate, a nominated bank advance or agree to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank. In case of acting so and if funds aren't received from issuing bank on value date claimed by negotiating bank (due to various reasons such as issuing bank incapacity, strike, war, national restrictive laws, etc.) negotiating bank may - based on the terms of agreement concluded between it and the beneficiary - debit the account of the beneficiary with amount paid less some interest and commission / charges (depending on terms of agreement).

Best regards,

Bogdan