Clause a
Text:
“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.”
Explanation:
This clause means that if a bank is nominated to honour or negotiate a letter of credit (L/C) but is not a confirming bank, it is not automatically obliged to honour or negotiate unless it has agreed to do so and has informed the beneficiary. A confirming bank is one that adds its confirmation to the credit, thereby confirming bank is bound to honor or negotiate the documents if the terms of the L/C are met.
Example:
A beneficiary receives an L/C from Bank A, which nominates Bank B to honour or negotiate (this happens when LC is restricted to bank B). However, Bank B has not added its confirmation to the L/C. In this case, Bank B is not obligated to pay the beneficiary unless it has expressly agreed to do so and communicated this to the beneficiary.
Clause b
Text:
“By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank.”
Explanation:
When an issuing bank nominates another bank to accept a draft or take on a deferred payment undertaking, it is giving that nominated bank the authority to prepay or purchase the accepted draft or the deferred payment undertaking. This means the nominated bank can advance funds based on the draft or deferred payment undertaking.
Example:
Bank A issues an L/C and nominates Bank B to accept drafts (this happens when LC is restricted to bank B). In time of advising the LC Bank B communicates the beneficiary that they will prepay against presentation of complied documents. The beneficiary then presents a draft along with other documents as per LC, Bank B can then decide to prepay the draft amount to the beneficiary or purchase the draft, providing immediate funds to the beneficiary.
Clause c
Text:
“Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.”
Explanation:
If a nominated bank that is not a confirming bank receives, examines, and forwards documents under the L/C, it is not liable to honour or negotiate the credit. Simply handling the documents does not mean the nominated bank has undertaken the responsibility to pay the beneficiary.
Example:
Bank A issues an L/C and nominates Bank B. The beneficiary submits documents to Bank B, which then examines and forwards them to Bank A. Since Bank B is not a confirming bank, it is not obligated to pay the beneficiary; it is merely acting as an intermediary in the document handling process.