INTRODUCTION
The terms honour and pre-payment were
introduced to documentary credit operations for the very first time through UCP
600. The intended meaning of “pre-pay” appearing in article 12(b) has defied
interpretation since its introduction and caused quite some confusion. A recent
query on “pre-pay” and related issues came to the fore in the form of the
following query on another forum. The query, presented in two parts, was as
follows:
“Situation One
LC available with the confirming bank by acceptance; draft to be drawn
on the confirming bank. Tenor of the draft: 120 days from the date of bill of
lading. Additional condition: Despite the tenor of the draft being 120 days
from the date of B/L, the confirming bank may discount the bill upon receipt of
complying presentation at its counter and pay the beneficiary at sight.
Discounting charge and confirming fee are on applicant's account.
Upon receipt of documents, confirming bank decided that the documents
constituted a complying presentation. It discounted the bill as per credit
stipulation and forwarded the documents to the issuing bank.
Issues:
1. Is the discounting function of
the confirming bank equivalent to "honour" as defined in the UCP?
2. If not, what other function
remains pending at the counter of the confirming bank in order to term the
transaction for having met the definition of "honour" (Article 2 of
UCP 600)? (contd...)
12.Dec.2012
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