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The act of presenting complying documents under a documentary credit is one that is expected to ultimately result in a financial settlement.

Banks have a duty to act in a manner as defined in UCP 600 and in accordance with its nominated or chosen role.

Provided a complying presentation has been made, or if an issuing bank has elected to respond positively to a discrepancy waiver from the applicant, settlement is to be made to the presenter without delay.

In accordance with the content of article 15 and as a result of a complying presentation, a beneficiary can expect to receive settlement from one of three sources:

• From the issuing bank;
• From a nominated bank that has agreed to act on its nomination to honour or negotiate; or
• From a confirming bank that honours or negotiates in accordance with its advice of confirmation.

None of these obligations fall into place if the documents are non-compliant. This applies to the actions of any of the banks regardless of whether or not another bank considers the documents to be compliant.

Honour

UCP 600 sub-article 6 (b) requires that each documentary credit indicate its form of availability: sight payment; deferred payment; acceptance; or, negotiation.

Responsibility in respect of a complying presentation:

Sight Payment

• Issuing bank - must honour and effect payment or reimbursement without recourse.
• Nominated bank - no obligation to honour. In the event it agrees to act on its nomination, honours by effecting payment. Generally considered to be without recourse unless there is a separate recourse agreement agreed with the beneficiary.
• Confirming bank - must honour and effect payment or reimbursement without recourse.

Deferred Payment:

• Issuing bank - must honour by incurring a deferred payment undertaking and subsequently paying at maturity, without recourse.
• Nominated bank - no obligation to incur a deferred payment undertaking. In the event it agrees to act on its nomination, it honours by incurring a deferred payment undertaking and subsequently paying at maturity, without recourse.
• Confirming bank - must honour by incurring a deferred payment undertaking and subsequently paying at maturity, without recourse.

Acceptance:

• Issuing bank - must honour by accepting a draft drawn on it and subsequently paying at maturity, without recourse.
• Nominated bank - no obligation to accept a draft drawn on it. In the event it agrees to act on its nomination, it honours by accepting a draft drawn on it and subsequently paying at maturity, without recourse.
• Confirming bank - must honour by accepting a draft drawn on it and subsequently paying at maturity, without recourse.

Negotiation

Responsibility in respect of a complying presentation:

• Issuing bank: This type of availability is not applicable to an issuing bank.
• Nominated bank: No obligation to negotiate. In the event it agrees to act on its nomination,will advance or agree to advance funds to the beneficiary either with or without recourse.
• Confirming bank: Must negotiate by advancing or agreeing to advance funds to the beneficiary, without recourse.

Reimbursement and draft conditions:

• For usance transactions, the documentary credit should contain an authorisation for a nominated bank or confirming bank to debit the account of the issuing bank or to claim reimbursement from a reimbursing bank. Alternatively, the issuing bank will reimburse in accordance with instructions provided by the nominated bank or confirming bank.
• For sight transactions, the documentary credit should indicate that the issuing bank will reimburse the nominated bank (or pay the beneficiary) upon the issuing bank's receipt of complying documents.
• Draft is not necessary, but if called for should be drawn on the issuing bank (or reimbursing bank, if the reimbursing bank is providing financing).

With recourse / without recourse

Settlement may be made with or without recourse. Recourse allows a nominated bank to reclaim any settled funds in the event it does not receive reimbursement under the documentary credit.

With recourse:

• A nominated bank that negotiates is able to retain recourse to the beneficiary if the issuing bank fails to provide reimbursement. When a nominated bank honours (pays, accepts a draft or incurs a deferredpayment undertaking) it is without recourse.

Without recourse:

• An issuing bank honours and a confirming bank honours or negotiates without recourse.
• Settlement without recourse means that a bank has no redress to the beneficiary to recover any paid funds or to rescind any undertaking that may have been given or acceptance of a draft.
• The only exception would be in the event of proven fraud. Even this would be subject to a nominated or confirming bank not negotiating, honouring or financing prior to any knowledge of fraud.
• Failure of an applicant to fund an issuing bank, or of an issuing bank to reimburse a confirming bank, does not provide grounds for recourse from the beneficiary.

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