Letter of Credit Forum

Nomination means that the issuing bank request the help from a secondary bank which in turn does not enter into an obligation to honour or negotiate (unless it expressly agrees to doing so). The task undertaken by the nominated bank typically are the acceptance of drafts or incurring a deferred payment undertaking.

Regarding its substance Article 12 a and c UCP 600 are idential with Article 10 c UCP 500. Article 12 c UCP 600 clarifies that a nominated bank is not liable for payment or honour even if it received and examined the documents.

Article 12 b provides that by designating a bank as nominated bank the issuing bank implicitly authorizes the nominated bank to prepay drafts accepted:
"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."

The authors believe that this authorisation to prepay is void as a violation of the instructions received from the issuing bank.
However, instead of relying on legal opinions, it is recommended that the issuing bank explicitly exclude the application of Article 12 b UCP 600.