Can you help with my confusion.
An LC was issued by and issuing bank and confirmation added by confirming bank as requested by issuing bank.
The LC also stated that confirmation can also be added by a second specified confirming bank in the beneficiary’s country if requested by the beneficiary.
The beneficiary requested the confirmation by second confirming bank as it was a bank well known to him and in his country and paid confirmation fees to both 1st and 2 nd confirming banks.
Then the exporter ships, presents and discounts the 180 days deferred payment LC with the second confirming bank without recourse and the documents are sent by second confirming bank direct to issuing bank and not through first confirming bank.
The problem is that the issuing bank did not honour on the maturity date.
The beneficiary has already been paid ‘without recourse’ so the second confirming bank has the problem.
My question is does the second confirming bank have a claim against the first confirming bank or is its claim solely against the issuing bank that authorised the second confirming bank to add its confirmation in the LC.
I am leaning towards the view that the second confirming banks claim is solely on the issuing bank but I am not confident of this position.
The beneficiary on the other hand would have in my view had the option of claiming against either of the first or second confirming bank but that is no longer an issue for the beneficiary as they already have the cash in hand from discounting (prepayment purchase) by second confirming bank.
Has the second confirming bank a right of claim against the first confirming bank?
Svetlana
[edited 10/12/2009 1:46:55 PM]
1st and 2nd Confirming Bank Confusion
1st and 2nd Confirming Bank Confusion
Svetlana
Notwithstanding sub-Article 8(a) stating ‘Provided that the stipulated documents are presented … to any other nominated bank’ I am forced to conclude from sub-Article 8(c), by reason of it stating ‘A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank’, that the second confirming bank does not have any rights against the first confirming bank. Also, the first confirming bank may well have expressly conditioned its confirmation on this.
Regards, Jeremy
Notwithstanding sub-Article 8(a) stating ‘Provided that the stipulated documents are presented … to any other nominated bank’ I am forced to conclude from sub-Article 8(c), by reason of it stating ‘A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank’, that the second confirming bank does not have any rights against the first confirming bank. Also, the first confirming bank may well have expressly conditioned its confirmation on this.
Regards, Jeremy
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HOANGTHIANHTHU_invalid
- Posts: 189
- Joined: Fri Apr 05, 2019 5:15 pm
1st and 2nd Confirming Bank Confusion
Hi Svetlana,
It depends on the availability of the credit and reimbursement instructions.
If the credit confirmed by the first confirming bank stipulates in itself or in the first confirming bank’s confirmation that the credit is available with a nominated bank other than the first confirming bank and that the documents are required to be sent to the first confirming bank for reimbursement, the second nominated confirming bank, which has incurred and then discounted its own deferred payment undertaking, should send the documents to the first confirming bank for reimbursement.
If the credit is available with the second confirming bank and the documents are required to be sent to the first confirming bank for reimbursement but the second confirming bank chooses to send the documents directly to the issuing bank bypassing the first confirming bank, the second confirming bank may lose its right to claim the reimbursement from the first confirming bank once the issuing bank fails to make reimbursement to it.
Regards,
N.H.Duc
[edited 10/13/2009 11:14:09 AM]
It depends on the availability of the credit and reimbursement instructions.
If the credit confirmed by the first confirming bank stipulates in itself or in the first confirming bank’s confirmation that the credit is available with a nominated bank other than the first confirming bank and that the documents are required to be sent to the first confirming bank for reimbursement, the second nominated confirming bank, which has incurred and then discounted its own deferred payment undertaking, should send the documents to the first confirming bank for reimbursement.
If the credit is available with the second confirming bank and the documents are required to be sent to the first confirming bank for reimbursement but the second confirming bank chooses to send the documents directly to the issuing bank bypassing the first confirming bank, the second confirming bank may lose its right to claim the reimbursement from the first confirming bank once the issuing bank fails to make reimbursement to it.
Regards,
N.H.Duc
[edited 10/13/2009 11:14:09 AM]
1st and 2nd Confirming Bank Confusion
I wonder now if there a contradiction between 8a and 8c.
Please dispel my doubts.
Daniel
Please dispel my doubts.
Daniel
1st and 2nd Confirming Bank Confusion
Thank you for this clarification.
I will review 8 a and 8 c and revert.
Svetlana
I will review 8 a and 8 c and revert.
Svetlana
1st and 2nd Confirming Bank Confusion
Dear all,
I don’t see conflict between 8 (a) and 8 (c) but it may well be that I do not understand the issue well enough to see any conflict.
Thank you for the valuable input.
Just to clarify one point.
The credit ( and as I understand the confirmation – as confirming bank raised nothing on this point in confirmation advice) stated docs to go straight from the second confirming bank to issuing bank but the credit specified in additional conditions that the second confirming bank should advise presentation and forwarding of docs to issuing bank by telex to first confirming bank but they neglected to do send the telex or any advice.
The problem is that once the expiry date passed without presentation or without the telex called for in the credit the first confirming bank considered the credit expired unutilised.
Svetlana
I don’t see conflict between 8 (a) and 8 (c) but it may well be that I do not understand the issue well enough to see any conflict.
Thank you for the valuable input.
Just to clarify one point.
The credit ( and as I understand the confirmation – as confirming bank raised nothing on this point in confirmation advice) stated docs to go straight from the second confirming bank to issuing bank but the credit specified in additional conditions that the second confirming bank should advise presentation and forwarding of docs to issuing bank by telex to first confirming bank but they neglected to do send the telex or any advice.
The problem is that once the expiry date passed without presentation or without the telex called for in the credit the first confirming bank considered the credit expired unutilised.
Svetlana
1st and 2nd Confirming Bank Confusion
Svetlana,
I think I got it wrong and there is no contradiction.
Anyway, these days, better be specific about what must be sent by who to whom.
Daniel
I think I got it wrong and there is no contradiction.
Anyway, these days, better be specific about what must be sent by who to whom.
Daniel
1st and 2nd Confirming Bank Confusion
This has been very helpful.
What is the situation if the LC expressly stated that all documents were to be sent to the Issuing Bank by the Second Confirming Bank and not through the First Confirming Bank.
The LC just stated as mentioned that the Second Confirming Bank was to claim by SWIFT from First Confirming bank by just sending message stating documents comply.
All banks were aware of this as LC when issued was routed through First Confirming Bank then Second Confirming Bank and then Beneficiary.
My follow on question is if the First Confirming Bank has paid on receipt of the authenticated SWIFT would it be entitled to see the original documents or copies of the documents if there is an allegation that the documents do not comply coming from the Issuing Bank.
I feel the First Confirming Bank should pay against the SWIFT message alone as per LC they confirmed but having paid should be entitled to verify compliance.
My thinking is based on logic from article 35 regarding lost documents where issuing bank must reimburse nominated bank even if documents are lost and never reach issuing bank but at seminars many experts say that after paying the issuing bank would be entitled to verify by way of copy documents that they actually complied when presented to Nominated Bank.
Thank you
Svetlana
What is the situation if the LC expressly stated that all documents were to be sent to the Issuing Bank by the Second Confirming Bank and not through the First Confirming Bank.
The LC just stated as mentioned that the Second Confirming Bank was to claim by SWIFT from First Confirming bank by just sending message stating documents comply.
All banks were aware of this as LC when issued was routed through First Confirming Bank then Second Confirming Bank and then Beneficiary.
My follow on question is if the First Confirming Bank has paid on receipt of the authenticated SWIFT would it be entitled to see the original documents or copies of the documents if there is an allegation that the documents do not comply coming from the Issuing Bank.
I feel the First Confirming Bank should pay against the SWIFT message alone as per LC they confirmed but having paid should be entitled to verify compliance.
My thinking is based on logic from article 35 regarding lost documents where issuing bank must reimburse nominated bank even if documents are lost and never reach issuing bank but at seminars many experts say that after paying the issuing bank would be entitled to verify by way of copy documents that they actually complied when presented to Nominated Bank.
Thank you
Svetlana
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HOANGTHIANHTHU_invalid
- Posts: 189
- Joined: Fri Apr 05, 2019 5:15 pm
1st and 2nd Confirming Bank Confusion
Hi,
If the second confirming bank is instructed to forward the documents to the issuing bank and claim reimbursement from the first confirming bank by sending a SWIFT message certifying the documents comply, then the first confirming bank is understood to act as a nominated reimbursing bank that has issued a reimbursement undertaking rather than a confirmation.
A reimbursement undertaking is as valid as a confirmation added to the LC. The reimbursing bank that has issued a reimbursement undertaking is obligated to honour a reimbursement claim (which is normally not accompanied by the documents required). The obligations of the reimbursing bank which is also the confirming bank in this case are not regulated by Article 8 UCP 600, but by Article 4 and 9 URR 725.
Regards,
N.H. Duc
If the second confirming bank is instructed to forward the documents to the issuing bank and claim reimbursement from the first confirming bank by sending a SWIFT message certifying the documents comply, then the first confirming bank is understood to act as a nominated reimbursing bank that has issued a reimbursement undertaking rather than a confirmation.
A reimbursement undertaking is as valid as a confirmation added to the LC. The reimbursing bank that has issued a reimbursement undertaking is obligated to honour a reimbursement claim (which is normally not accompanied by the documents required). The obligations of the reimbursing bank which is also the confirming bank in this case are not regulated by Article 8 UCP 600, but by Article 4 and 9 URR 725.
Regards,
N.H. Duc
1st and 2nd Confirming Bank Confusion
8(a) states an obligation to the beneficiary to honour that is different from, and generally broader than, the 8(c) obligation to reimburse.
These UCP600 obligations may be changed by language in a credit as issued or confirmed, and they may be narrowed by a failure to meet a requirement, as happened in this case where documents were not forwarded to the confirming bank).
Also, there may be rights of recovery outside the UCP. Conceivably, applicable law might let the second confirming bank enforce the first confirming bank's obligation to the beneficiary (or to recover from the applicant for any windfall resulting from the unreimbursed payment to the applicant's counterparty).
Regards, Jim
These UCP600 obligations may be changed by language in a credit as issued or confirmed, and they may be narrowed by a failure to meet a requirement, as happened in this case where documents were not forwarded to the confirming bank).
Also, there may be rights of recovery outside the UCP. Conceivably, applicable law might let the second confirming bank enforce the first confirming bank's obligation to the beneficiary (or to recover from the applicant for any windfall resulting from the unreimbursed payment to the applicant's counterparty).
Regards, Jim