[Jia Hao, CDCS -
Financial Product Manager, International Business Department, Bank of
China's Yangzhou Branch, China]
|
|
[Abdulkader
Bazara - Product Manager, Trade
Finance, Samba Financial Group, Saudi Arabia]
|
Line 16:
Suggest the definition
worded as “Applicant
means the party at whose request and/or on whose instructions the credit is
issued.”
REASONS:
1.
The current draft definition
seems to be a recurrence paradox as the word
“applicant”
is used to define “applicant”. Moreover readers may read nothing from this
definition.
2.
Whether only the
party named as “applicant” can be considered as the applicant? What if the
party(the applicant) is named in the credit as “accountee, orderer, ordering
customer, accredited party or accreditor” ?
|
|
Line 16:
I don’t think we need to make a change. The definition
of “Issuing Bank” provides the party on whose behalf the credit is issued.
A bank can issue a credit on his on behalf. I would not call a bank an
applicant to itself.
|
|
Line 18-19:
Suggest reserving
“relevant” before the word “act” for the purpose of emphasizing the
act is relating to the letter of credit operations. This is also consistent
with the definition of “banking day” in ISP98 on which the Official
Commentary explains that “The ‘business’ or ‘banking’ at issue is not the
ability to receive deposits or perform retail functions, but its normal
international operations, including standby letter of credit operations.”
With such emphasis it can be easily understood that a day on which a bank is
regularly open to receive deposits or perform retail functions, but not open
to perform its letter of credit operations, is not a banking day under this
definition.
|
|
Line 18-19: Relevant my be used to reemphasis
ONLY but the expression “an act SUBJECT TO THIS RULE” gives me the
impression that it is specific enough to connote a specialized area of the
bank.
|
|
Line 32-38:
Suggest the following amended definition of “honor”:
“Honor
means:
I．if
the credit is available by sight payment, to pay at sight;
II．if
the credit is available by deferred payment, to incur a deferred payment
undertaking and pay at maturity，or
to pay at maturity by the issuing bank or confirming bank when the nominated
bank having incurred its deferred payment undertaking does not pay at
maturity; or
III．if
the credit is available by acceptance , to accept and pay at maturity a bill
of exchange ("draft") drawn by the beneficiary or to pay at maturity by the
issuing bank or confirming bank when the nominated bank having accepted
drafts drawn on it does not pay at maturity.
IV．if
the credit is available by negotiation, when the nominated bank does not
negotiate, to pay at sight, or to incur a deferred payment undertaking and
pay at maturity, or to accept and pay at maturity a bill of exchange
("draft") drawn by the beneficiary.”
REASONS:
To be
consistent with the issuing bank and the confirming bank's obligation
described in previous drafts Article 5 and Article 6. Otherwise, the payment
action taken by the issuing bank and the confirming bank in Article 5 (iii)
(iv) (v) and Article 6 (iii) (iv) (v) cannot be called "honor", as they are
not covered by the definition of "honor".
In
more details, The current draft’s definition does not cover the following
situations:
1)
where the issuing bank or confirming bank will honour by paying at maturity
if the credit is available by deferred payment with the nominated bank and
the nominated bank having incurred its deferred payment undertaking does not
pay at maturity (note: the issuing bank or confirming bank pay at maturity
but does not incur a deferred payment undertaking);
2)
where the issuing bank or confirming bank will honour by paying at maturity
if the credit is available by acceptance with the nominated drawee bank and
the nominated drawee bank having accepted drafts drawn on it does not pay
them at maturity (note: the issuing bank or confirming bank pays at maturity
but has not accepted before);
3)
where the issuing bank or confirming bank will honour by paying at sight if
the sight credit is available with negotiation by the nominated bank and the
nominated bank does not negotiate at sight, or by incurring a deferred
payment undertaking and paying at maturity if the usance credit without
requiring drafts is available with negotiation by the nominated bank and the
nominated bank does not negotiate, or by accepting and paying at maturity a
bill of exchange ("draft") drawn by the beneficiary if the usance credit
requiring drafts is available with negotiation by the nominated bank and the
nominated bank does not negotiate.
|
|
Line 32 – 38: I believe over stretching it
would lead to confusion. Article 7 & 8 provides the gist of the suggestion
given.
|
|
Line 43-45:
Suggest the following amended definition of “negotiation”:
ALTERNATIVE 1:
“Negotiation means the purchase by the nominated bank
of drafts (drawn on a bank other than the nominated bank) and/or documents,
by advancing funds to the beneficiary, if the Credit is available by
negotiation.”
ALTERNATIVE 2:
“Negotiation means the purchase by the nominated bank
of drafts (drawn on a bank other than the nominated bank) and/or documents,
by advancing funds to the beneficiary ,or incurring an advance payment
undertaking and advancing funds to the beneficiary，if
the Credit is available by negotiation.”
REASONS:
1. According to the current draft definition, “agreeing to
advance funds” constitutes negotiation, then “the nominated negotiating
bank’s expressly agreeing to be liable to negotiate or honor”
（which
is referred to in the Article Nomination）may
be deemed as a kind of negotiation. It is somewhat odd. Additionally, I do
not think it is necessary and right to define negotiation as a promise
basing on the following lines of reasoning, although it seems to follow the
definition of "consideration" in Contract Law under Common Law:
Firstly, What if delete such concept of "promise"? Who needs this concept?
Beneficiaries? I don't think so. If obtaining the nominated bank's promise
may facilliate trade, the real purpose of the beneficiary is to want the
promise performed, namely, to get payment at the maturity of the promise but
before the issuing bank discharges its obligation. As such, the real
"negotiation" which the beneficiary wants is the combination of the promise
and the following performance of the promise.
Secondly, when there is a "promise" concept in the "negotiation" definition,
a tricky problem will appear: if a promise can constitute a negotiation,
then is the later payment to perform the promise also a negotiation? It
should be noted that only when the payment is done, the bank may be a
qualified negotiating bank excepting from fraud exception defense. In
another word, only a promise can not make the nominated bank immune from
fraud exception defense. Because if defining "negotiation" as a promise to
pay will make as a qualified negotiating bank the nominated bank which has
made a promise to pay, one problem arises: if fraud is discovered and an
injunction is granted to prevent the issuing bank from payment after such
promise but before the performance of such promise, is there an exception
for the negotiating bank allowing it entitled to payment from the issuing
bank as a bona fide holder under LC Law? In my opinion there is not, because
on the one hand the nominated bank has not already effected payment, the law
should fairly enjoin the payment at due date so as to avoid losses due to
fraud, and on the other hand the nominated bank’s promise can not get better
position than the issuing bank's (that is, the L/C)which can not be
performed due to the injunction. It will conflict the well established rule
that there is an exception for a qualified negotiating bank in case of
fraud.
Thirdly, another complexity here is: when the nominated bank issues the
back-to-back LC which may be deemed as its irrevocable definite payment
promise, there are no documents presented, not to mention compliant
documents presented. But under UCP the issuing bank's authorization is to
negotiate against compliant documents. Therefore a mere promise without the
following payment performing such promise against compliant documents should
not be defined as "negotiation". So we may say the nominated bank which
issues a back-to-back LC even though it does not pay the credit is held to
have given value under the master LC, but as long as it has not paid the
credit, it is not entitled to reimbursement and exception from fraud
exception defense.
It follows that it may be a good suggestion to define "negotiation" as only
the nominated bank’s action of advancing funds regardless whether before
advancing funds there was a promise from the nominated bank. That is what
the definition alternative 1 means.
If attempt to reserve the concept of “undertaking/promise”, the
undertaking/promise should be combined with the consequent payment before
the issuing bank honors. In this way, the beneficiary may obtain the
nominated bank's assurance to advance funds. And the fraud exception rule
can be applied until the actual payment occurred. This may be a good
mechanism to satisfy the beneficiary, banks and applicant. That is what the
definition alternative 2 means.
2. If the qualifier “if the credit is available by negotiation” is not
added, then all acts of “purchase” under credit available with sight
payment, deferred payment or acceptance will be deemed as “negotiation”.
|
|
Line 43-45 : I’m from the advocates who wants
to see the term NEGOTIATION removed from UCP but unfortunately my dream
doesn’t seem to come true. However, I can’t see it necessary that we add the
expression “if the Credit is available by negotiation”. From article 8a(v)
and article 12(a) it is clear that a bank can’t negotiate unless the LC is
available for negotiation. Thus the definition of NEGOTIATION seems to
suffice.
Comment on “agree to Advance” :
It is
important to know when a negotiation takes place. Is it on or after
presentation of compliant documents or it could take place before documents
is presented. If we agree that it is on or after the presentation of
compliant documents then if a bank agrees to advance a beneficiary at a
later time but before the due date of payment, I don’t see why we should not
call such agreement as a negotiation. From business and economic reason a
beneficiary may not want to incur advance payment commission for the period
that he / she does not need the funds but may be willing to pay a commitment
fee to get the advance at such later date when the beneficiary is actually
in need of payment. A bank that agrees to do so (pay an advance at future
date) has to book a contingent liability in his books to effect the advance
payment at such later date.
|
|
Line 53:
Suggest the following amended definition of “presenter”:
“Presenter
means a party that makes a presentation.
”
REASONS:
As the current draft definition defines the presenter as “a
beneficiary, bank or other entity”, the drafter seems not to qualify the
presenter as “beneficiary, nominated bank and their agents”. So if the
drafters do not want to qualify the presenter in its definition, the word
“party” is better to be used i/o “a beneficiary, bank or other entity”.
However, the qualification of the presenter as “beneficiary, nominated bank
and their agents” must be removed to the previous draft Art 5 and 6(“issuing
bank undertaking” and “confirming bank undertaking”).
|
|
Line 53: I prefer the definition provide in
ISP 98. It seems to me to be accurate in expressing the presenter.
|
