Article 12, UCP 600 - a critical analysis

Ever since UCP 600 was published, Article 12 (Nomination) each of the three sub-articles provided room for confusion about their intent and purpose. This article examines the issues related to Article 12 as a whole, taking up one sub-article at a time.

Sub-article 12(a)

Sub-article 12(a) states:

“Unless the nominated bank is the confirming bank, an authorisation to honour or negotiate does not impose any obligation on the nominated bank to honour or negotiate, except where expressly agreed to by the nominated bank and communicated to the beneficiary.”

This sub-article addresses two distinct effects of nomination. The first is a nominated bank’s obligation, if any, to honour or negotiate upon being nominated. The second is an apparent exception to the foregoing. The first part of the sentence stipulates that, unless the nominated bank confirms the credit, its nomination by the issuing bank casts no obligation on the bank thus nominated to honour or to negotiate. This is perfectly correct, and is also in accordance with Article 8. This is not a rule, but more in the nature of a clarification; however, its existence helps. The problem is with the second part of this same sentence or sub-article. The expression “except where expressly agreed to…” appears to provide for an exception to what goes before it. One would, thus, be led to believe that the obligation to honour or negotiate is indeed cast on the nominated (non-confirming) bank, provided that bank ‘expressly agrees’ (to negotiate or honour) and communicates the same agreement or willingness to the beneficiary.

As we know, this sub-article intends no such thing, rather ....(contd...)

[The complete article is available in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]

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[i] Nominated bank and UCP 600, DCInsight, Volume 17, No. 1, Jan-March 2011.

[ii] “Issues in UCP 600: another look at five banking days and negotiation” by King-Tuk Fung, DCInsight, Vol. 16, Issue 1, October-December 2009.

[iii] That confirmation may be on the forwarding schedule itself or through later communication.

[iv] Negotiation and the law of contracts, DCInsight, Vol. 16, No. 2, April-June 2010, and Re-defining Negotiation, LC Monitor-Trade Services Update, Volume 11, Issue 4, July–August 2009.