Introduction

A nominated bank plays a crucial role in the performance of the issuing bank's promise to 4.01 the beneficiary to honour the credit, as it is typically the bank with which a letter of credit is available.

The provisions of the Uniform Customs & Practice for Documentary Credits (‘UCP 600') address many but not all of these rights and liabilities. For example, what happens if a nom­inated bank declines to act on the nomination? In this situation, what, if any, obligation does it owe towards the issuing bank or the beneficiary? Would common law rules, such as the rules of agency, apply to govern the relationship between the nominated bank and the issuing bank? This chapter will examine these questions against the backdrop of the decision by the Singapore Court of Appeal in Grains and Industrial Products Trading Pte Ltd v Bank of India and another,^[315] in which the facts bring these issues into sharp focus. Following this introduction, section II explains the findings in the Grains case, where it was decided that even where a nominated bank declines to act on its nomination, it nevertheless owes duties to the issuing bank, and further, its actions or inaction could trigger the issuing bank's obligations towards the beneficiary under the credit. Section III discusses the prac­tical implications of these findings from the perspective of the three principal players in a letter of credit, namely, the issuing bank, the nominated bank, and the beneficiary. Section IV critically explores the conceptual implications of attributing an agency relationship to the nominated bank in its dealing with the issuing bank.

II.