Hi
We are in receipt of an export letter of credit expiring in the beneficiaries country. The L/C has been confirmed by benificiary's bankers.
Payment instructions on the L/C by the issueing bank: "upon receipt of documents by us in strict compliance we shall remit cover as required at maturity"
In your opinion at whose counters will this L/C be payable?
Clarity of whose counters L/C is payable
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KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
Clarity of whose counters L/C is payable
Dear Neil,
I guess you would need to see the full LC to provide a definite answer to that one.
I think however that you should distinguish between the reimbursement instruction in the LC (“we remit cover”) and the availability of the LC (available with whom – where).
Example:
It would not be uncommon (perhaps even the opposite) to have LCs available by negotiation where the issuing bank will remit cover after receipt of the documents. The LC would then state to expire e.g. in the country of the negotiating bank. As per UCP 600 article 6 the beneficiary would in such case have the choice to present the documents either to the negotiating bank (in his country) or to the issuing bank (in his country).
A complying presentation to the negotiating bank would obligate the issuing bank. If the negotiating bank is also a confirming bank that bank would be obligated to negotiate without recourse.
So to answer your question: From the information given it seems that the LC is available with the confirming bank – and it would be natural to present the documents to him.
I hope this helps you.
Best regards
Kim
I guess you would need to see the full LC to provide a definite answer to that one.
I think however that you should distinguish between the reimbursement instruction in the LC (“we remit cover”) and the availability of the LC (available with whom – where).
Example:
It would not be uncommon (perhaps even the opposite) to have LCs available by negotiation where the issuing bank will remit cover after receipt of the documents. The LC would then state to expire e.g. in the country of the negotiating bank. As per UCP 600 article 6 the beneficiary would in such case have the choice to present the documents either to the negotiating bank (in his country) or to the issuing bank (in his country).
A complying presentation to the negotiating bank would obligate the issuing bank. If the negotiating bank is also a confirming bank that bank would be obligated to negotiate without recourse.
So to answer your question: From the information given it seems that the LC is available with the confirming bank – and it would be natural to present the documents to him.
I hope this helps you.
Best regards
Kim
Clarity of whose counters L/C is payable
Hi Neil,
The L/C is available with the nominated bank but that bank is not obliged to add it's confirmation if it is unhappy with the terms, including the reimbursement clause.
However, as Christian has pointed out UCP Art 6 states that L/Cs are always "also available with the issuing bank", giving the beneficiary the option to present to either the nominated or issuing banks.
I will have to make some assumptions from your message:-
- You are the beneficiary's bankers and hence the confirmng bank.
- This is a usance L/C (and maturity date will probably be more than 2 weeks after acceptance by the confirming bank).
- The 'Payment instruction' is in fact the reimbursement instruction.
Also, if the reimbursement instruction had stated simply "We shall remit cover as required at maturity" I am guessing you would not have raised this query.
If my assumptions are correct, there is no difference whether "Upon receipt of documents by us in strict compliance" is added or not. The reality is that if the issuing bank find discrepancies they will not reimburse you at maturity in either case.
If it is a sight L/C or has a very short tenor then I would not add confirmation until the L/C was amended allowing for TT reimbursement.
That's my opinion for what it's worth (which in my opinion is quite a lot!).
Regards
David
The L/C is available with the nominated bank but that bank is not obliged to add it's confirmation if it is unhappy with the terms, including the reimbursement clause.
However, as Christian has pointed out UCP Art 6 states that L/Cs are always "also available with the issuing bank", giving the beneficiary the option to present to either the nominated or issuing banks.
I will have to make some assumptions from your message:-
- You are the beneficiary's bankers and hence the confirmng bank.
- This is a usance L/C (and maturity date will probably be more than 2 weeks after acceptance by the confirming bank).
- The 'Payment instruction' is in fact the reimbursement instruction.
Also, if the reimbursement instruction had stated simply "We shall remit cover as required at maturity" I am guessing you would not have raised this query.
If my assumptions are correct, there is no difference whether "Upon receipt of documents by us in strict compliance" is added or not. The reality is that if the issuing bank find discrepancies they will not reimburse you at maturity in either case.
If it is a sight L/C or has a very short tenor then I would not add confirmation until the L/C was amended allowing for TT reimbursement.
That's my opinion for what it's worth (which in my opinion is quite a lot!).
Regards
David
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AsifMahmoodButt
- Posts: 89
- Joined: Fri Apr 05, 2019 5:21 pm
Clarity of whose counters L/C is payable
Hi,
There are a lot of Banks that insist on a TT Reimbursement clause before they can add Confirmation to a LC. Confirmation is an additional undertaking to the beneficary covering bank and country risk. I assume Confirming banks would like to get paid first and then resolve disputes with the IB on issues like discrepancies . This dispute, if raised would anyway take place within the permissible time defined in UCP.
Why then this practise for TT Reimbursement?
Jason
There are a lot of Banks that insist on a TT Reimbursement clause before they can add Confirmation to a LC. Confirmation is an additional undertaking to the beneficary covering bank and country risk. I assume Confirming banks would like to get paid first and then resolve disputes with the IB on issues like discrepancies . This dispute, if raised would anyway take place within the permissible time defined in UCP.
Why then this practise for TT Reimbursement?
Jason
Clarity of whose counters L/C is payable
Hi Jason,
You are right, a confirming bank is giving it's seperate undertaking and this is usually at the request of the issuing bank. Therefore, why would the issuing bank not allow TT reimbursement?
On a sight L/C, after finding documents in order, a confirming bank will give it's undertaking to the beneficiary to pay on the date it expects to receive reimbursement from the issuing bank. How can it do this if it doesn't know when it expects to be reimbursed - i.e. if it has to send documents to the issuing bank first?
The issue is not to make sure payment is received before paying the beneficiary but rather to know which date to pay them.
If an L/C allows TT reimbursement xx days after recepit by the issuing bank of the confirming banks claim, then the confirming bank must pay the beneficiary on that date irrespective of whether they have received reimbursement. If reimbursement is not forthcoming then the confirming bank should claim interest form the issuing bank.
If, on the other hand, the confirming bank claims and receives reimbursement, and the issuing bank subsequently finds valid discrepancies in the documents, then the issuing bank is entitled to claim return of funds and interest from the confirming bank.
This is what the beneficiary expects.
Rgds
David
You are right, a confirming bank is giving it's seperate undertaking and this is usually at the request of the issuing bank. Therefore, why would the issuing bank not allow TT reimbursement?
On a sight L/C, after finding documents in order, a confirming bank will give it's undertaking to the beneficiary to pay on the date it expects to receive reimbursement from the issuing bank. How can it do this if it doesn't know when it expects to be reimbursed - i.e. if it has to send documents to the issuing bank first?
The issue is not to make sure payment is received before paying the beneficiary but rather to know which date to pay them.
If an L/C allows TT reimbursement xx days after recepit by the issuing bank of the confirming banks claim, then the confirming bank must pay the beneficiary on that date irrespective of whether they have received reimbursement. If reimbursement is not forthcoming then the confirming bank should claim interest form the issuing bank.
If, on the other hand, the confirming bank claims and receives reimbursement, and the issuing bank subsequently finds valid discrepancies in the documents, then the issuing bank is entitled to claim return of funds and interest from the confirming bank.
This is what the beneficiary expects.
Rgds
David
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AsifMahmoodButt
- Posts: 89
- Joined: Fri Apr 05, 2019 5:21 pm
Clarity of whose counters L/C is payable
Hi David
I agree to your views but what I am looking for here is a solution for cases which do not have a TT Reimbursement clause. There are a lot of LCs to which Confirmation can be added but somehow not done( business lost ).
Regards
Jason
I agree to your views but what I am looking for here is a solution for cases which do not have a TT Reimbursement clause. There are a lot of LCs to which Confirmation can be added but somehow not done( business lost ).
Regards
Jason
Clarity of whose counters L/C is payable
May I draw your attention on approved opinion 470/TA.569 (especially analysis & conclusion 2)
Daniel
Daniel
Clarity of whose counters L/C is payable
Dear Neil,
In the end is aproblem of bank policy. If you consider that a tt reimbursement will decrease your risk (as confirming bank) you may ask for proper amendment of l/c.
Regards,
Bogdan
In the end is aproblem of bank policy. If you consider that a tt reimbursement will decrease your risk (as confirming bank) you may ask for proper amendment of l/c.
Regards,
Bogdan