DEAR SIR,

I HAVE GONE THROUGH THE RESPECTIVE WEB ACCORDING TO THE DIRECTION AND READ VERY CAREFULLY ARTICLE 12 (B), 7 (C), 8 (C) OF UCP 600 AND ARTICLE 10 (B) AND (C) OF UCP-500 ALONG WITH THE POSITION PAPER FOLLOWED BY HISTORICAL COUR CASE BANQO SANDANTER AND BANQU PARIBUS REGARDING ABOVE.

NOW I REALIZED THAT THIS IS THE ONE OF THE MAJOR SHIFT THAT UCP 600 HAS TAKEN PLACE AS COMPARE TO UCP 500. HOWEVER, I AM LITTLE BIT CONFUSED. MY UNDERSTANDING IS THAT HE CAN NEGOTIATE WITHOUT RECOURSE BASIS.

PLS CALRIFY THE ISSUE?

THANK YOU FOR GUIDENCE ME IN RIGHT WAY.

 Dear Nesarul Hoque,

Thanks - I follow you now - still it is very complex - and lots of it lies outside the rules as such - and will to a large degree depend on local on.

Anyway - you must distinguish between Negotiation and deferred payments.

For negotiation - they have made a new wording - but only trying to clarify the present practice and the intention behind UCP 500 (as well as the position paper you mention).

The principle is - that a bank that negotiates (i.e. advance or agreeing to advance funds) is protected by the UCP 600 - in case they are not reimbursed by the issuing bank. This would (at the outset) also apply in case of beneficiary fraud.

Whether or not you wish to negotiate without recourse - on an unconfirmed LC - is your evaluation - as it has always been. This of course includes a risk - and you must relate to that.

For this I see no difference between UCP 500 and UCP 600.

For deferred payments - under the UCP 500 it was heavily discussed whether or not a nominated bank that paid the beneficiary before maturity was protected by the rules. The Banco Santander case said "no". My personal view is that this was a wrong call - but at least it has meant that the articles that you mention are included into the UCP 600 - saying exactly that such prepayment is part of the "nomination" given by the issuing bank - and a nominated bank that makes such acts are protected accordingly.

The tricky part is that these articles (to my knowledge) have not been tested in a courtroom - so it is still not 100% clear how a judge wouldinterpret such.

I feel confident that - at least - the intention is to protect nominated bank when documents comply.

I hope this helps you.

Best regards

Kim Christensen

Thank you for your clarification. As you properly said: "The tricky part is that these articles (to my knowledge) have not been tested in a courtroom - so it is still not 100% clear how a judge would interpret such". However, it seems to me that there is a contradiction between the position paper 2 (referring to UCP 500) and its intention regarding UCP 500.

From position paper 2 we come to know that:

Giving value of the draft which has been categorized into two parts such as:

1. giving immediate payment
    

2. undertaking an obligation to make payment (other than deferred payment undertaking and acceptance draft)

I want to emphasise on the point "other than deferred payment undertaking and acceptance draft". The above line seems to me to contradict the intention of UCP 500; allowed negotiation by deferred payment or by acceptance.

Please guide me in a right way on the above issue.

Thanks

Dear Nesarul Hoque,

The point is that the UCP makes a clear distinction between deferred payment (now part of the concept of Honour) and Negotiation.

When you say "negotiation by deferred payment or by acceptance" - this is in fact "wrong" in terms of UCP language - as you only "negotiate" when the LC is available for negotiation (and the issuing bank does not negotiate - it honours!)

The quotes you mention below are based on that distinction: if you are a nominated bank:

• when the LC is available for negotiation you negotiate
   

• when the LC is available by sight payment you pay at sight
   

• when the LC is available by deferred payment you incur a deferred payment undertaking and pay at maturity if the credit
   

• when the LC is available by acceptance you accept a bill of exchange  ("draft") drawn by the beneficiary and pay at maturity

and if you have acted upon your nomination - which would include prepayment etc - then you are protected by the UCP.

Regards

Kim Christensen