The Hidden Risks of Varying a Confirmation's Terms

Under UCP 600 Art. 7c: “An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. … An issuing bank’s undertaking to reimburse a nominated bank is independent of the issuing bank’s undertaking to the beneficiary.”

Because a nominated bank’s right to reimbursement is independent of the beneficiary’s right to honour from the issuing bank, a nominated bank potentially has greater rights against the issuing bank than the beneficiary or an assignee of credit proceeds, whose rights against the issuing bank are subject to any defenses available to the issuing bank against the beneficiary (such as forgery, material fraud, or setoff).  To put it differently, a nominated bank that is authorized to add its confirmation to a credit potentially has greater rights against the issuing bank than the beneficiary or an assignee of credit proceeds, including a “silent” confirmer.

To acquire these potentially greater rights, it is critical for a nominated bank that it honour or negotiate a “complying presentation,” which is a term defined in UCP 600 Art. 2: “Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.”