Laurence,
I do not disagree with your first two para’s above.
As to your last para, I again repeat that avalising or discounting may not be available as these are at the relevant bank’s discretion. Nor may they be wanted by the beneficiary, particualrly as the credit is confirmed (i.e. I do not see why the beneficiary should not wait until maturity for settlement from the nominated bank) However, as it seems to me that these issues are not germane to Dimitri’s query I suggest we leave it at that.
Turning to the issue actually raised by Dimitri, unless otherwise stated by the (first) confirming bank, it has -on the face of it- incurred an obligation in accordance with sub-Article 9b. One way it occurs to me that this obligation may be invoked by the ‘end’ nominated bank (whether confirming or not) -in the absence of the (first) confirming bank not having examined the documents- is the presentation of evidence that the issuing bank took up the documents, such as a message acknowledging receipt of the documents and their compliance.
Jeremy
[edited 8/13/02 9:47:34 AM]
Two confirmations under the same DC
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Two confirmations under the same DC
Jeremy,
I don't believe that the 2nd confirming bank or the beneficiary wants to depend on the issuing bank to trigger the payment. Otherwise neither the beneficiary nor the 2nd confirming bank would need such type of confirmation from the 1st confirming bank.
Here I don’t believe that the beneficiary wants two banks to add confirmation to the credit. In such cases, it is the 2nd confirming bank that normally requires the protection of another bank acceptable to it before it adds its confirmation to the credit i.e. in case it is not comfortable with the risk on the issuing bank, be it credit or sovereign risk.
Therefore, the 1st confirming bank here is playing two roles:
a) As a reimbursing bank, it will pay upon receipt of authenticated message from the 2nd confirming bank stating that documents presented, found in order and sent to the issuing bank.
b) As a confirming bank pay against complying documents in case the documents, for any reason, has been presented to it.
I’m not ruling out that the beneficiary could directly approach the 1st confirming bank for payment but this would be a remote possibility in this case.
regards
I don't believe that the 2nd confirming bank or the beneficiary wants to depend on the issuing bank to trigger the payment. Otherwise neither the beneficiary nor the 2nd confirming bank would need such type of confirmation from the 1st confirming bank.
Here I don’t believe that the beneficiary wants two banks to add confirmation to the credit. In such cases, it is the 2nd confirming bank that normally requires the protection of another bank acceptable to it before it adds its confirmation to the credit i.e. in case it is not comfortable with the risk on the issuing bank, be it credit or sovereign risk.
Therefore, the 1st confirming bank here is playing two roles:
a) As a reimbursing bank, it will pay upon receipt of authenticated message from the 2nd confirming bank stating that documents presented, found in order and sent to the issuing bank.
b) As a confirming bank pay against complying documents in case the documents, for any reason, has been presented to it.
I’m not ruling out that the beneficiary could directly approach the 1st confirming bank for payment but this would be a remote possibility in this case.
regards
Two confirmations under the same DC
Abdulkader,
I agree entirely with what you say regarding the likely expectations and roles in practice of the various parties.
All my posting have simply been an attempt to identify:
>What are the legal obligations of the (possibly first) confirming bank. These I believe are governed by sub-Art 9b unless otherwise stated in the credit.
>How these legal obligations may be invoked in law if -for instance- this bank does not wish to effect settlement for whatever reason. Here I am not convinced a mere assertion as to documents compliance by the ‘end’ (possibly second confirming) nominated bank would be sufficient unless the credit indicated otherwise (which I recognise it may well do, if only impliedly).
Overall, I appreciate this may all seem rather theoretical, but given the nature of Dimitri’s query this seems to me to be inevitable.
Regards, Jeremy
[edited 8/13/02 4:50:36 PM]
[edited 8/13/02 4:51:33 PM]
I agree entirely with what you say regarding the likely expectations and roles in practice of the various parties.
All my posting have simply been an attempt to identify:
>What are the legal obligations of the (possibly first) confirming bank. These I believe are governed by sub-Art 9b unless otherwise stated in the credit.
>How these legal obligations may be invoked in law if -for instance- this bank does not wish to effect settlement for whatever reason. Here I am not convinced a mere assertion as to documents compliance by the ‘end’ (possibly second confirming) nominated bank would be sufficient unless the credit indicated otherwise (which I recognise it may well do, if only impliedly).
Overall, I appreciate this may all seem rather theoretical, but given the nature of Dimitri’s query this seems to me to be inevitable.
Regards, Jeremy
[edited 8/13/02 4:50:36 PM]
[edited 8/13/02 4:51:33 PM]
Two confirmations under the same DC
PRESENTATION SHOULD BE MADE TO THE SECOND CONFIRMING BANK FIRST
We agree with Laurence that the beneficiary should not present documents directly to the first confirming bank. Otherwise why waste money and efforts to create a second confirming bank, if documents are not to be presented to it?
TO AVOID CONFUSIONS, BETTER DEAL WITH TWO ISSUES ONE AT A TIME
We would like to recommend Jeremy and Laurence that, in their exchange of views, they should separate the two issues, (i) payment obligation of the first and second confirming bank against presentation of compliant documents and (ii) reimbursement obligations to the second confirming bank. If these two issues are entangled, then it is difficult to get any clear picture on the obligation of the first confirming bank towards the second confirming bank, particularly on reimbursements, to reach a mutually acceptable opinion. We have seen your arguments going "back and forth" maybe for this reason.
SEPARATE DUTIES UNDER UCP 500 AND URR 525
The first issue (payment obligation) is governed by UCP 500 Sub-Article 9 (a) and (b) and the second issue (reimbursements) by URR 525.
To go deeper into the problem, when the second confirming bank pays the beneficiary but the issuing bank goes bankrupt, then has the first confirming bank an obligation to pay or "reimburse" the second confirming Bank? According to UCP 500 Sub-Article 9 (b) (iii)(b) & (iv)?
However, URR 525 only governs the issuing bank and not the confirming bank, as we do not find any Article there dealing with the reimbursement obligation of a confirming bank. When you talk about the reimbursement obligation of the first confirming bank to the second confirming bank, then please specify which Article you are referring to, the UCP or the URR or both?
ONLY ISSUING BANK CAN NOMINATE A CONFIRMING BANK, WHETHER FIRST OR SECOND
Another point to note is that the second confirming bank should be nominated by the issuing bank and not by the first confirming bank.
We hope this helps to achieve a "mutually agreed" opinion rather than "agree to disagree" opinion.
www.tolee.com
[edited 8/14/02 5:37:51 PM]
We agree with Laurence that the beneficiary should not present documents directly to the first confirming bank. Otherwise why waste money and efforts to create a second confirming bank, if documents are not to be presented to it?
TO AVOID CONFUSIONS, BETTER DEAL WITH TWO ISSUES ONE AT A TIME
We would like to recommend Jeremy and Laurence that, in their exchange of views, they should separate the two issues, (i) payment obligation of the first and second confirming bank against presentation of compliant documents and (ii) reimbursement obligations to the second confirming bank. If these two issues are entangled, then it is difficult to get any clear picture on the obligation of the first confirming bank towards the second confirming bank, particularly on reimbursements, to reach a mutually acceptable opinion. We have seen your arguments going "back and forth" maybe for this reason.
SEPARATE DUTIES UNDER UCP 500 AND URR 525
The first issue (payment obligation) is governed by UCP 500 Sub-Article 9 (a) and (b) and the second issue (reimbursements) by URR 525.
To go deeper into the problem, when the second confirming bank pays the beneficiary but the issuing bank goes bankrupt, then has the first confirming bank an obligation to pay or "reimburse" the second confirming Bank? According to UCP 500 Sub-Article 9 (b) (iii)(b) & (iv)?
However, URR 525 only governs the issuing bank and not the confirming bank, as we do not find any Article there dealing with the reimbursement obligation of a confirming bank. When you talk about the reimbursement obligation of the first confirming bank to the second confirming bank, then please specify which Article you are referring to, the UCP or the URR or both?
ONLY ISSUING BANK CAN NOMINATE A CONFIRMING BANK, WHETHER FIRST OR SECOND
Another point to note is that the second confirming bank should be nominated by the issuing bank and not by the first confirming bank.
We hope this helps to achieve a "mutually agreed" opinion rather than "agree to disagree" opinion.
www.tolee.com
[edited 8/14/02 5:37:51 PM]
Two confirmations under the same DC
T.O.,
Thank you for trying to stop us from going round in circles. My reactions to what you say are:
1. I can only see that the (first) confirming bank’s obligations would be governed by the URR where ‘they are incorporated into the text of the Reimbursement Authorisation’ (Article 1) and the (first) confirming bank has given a Reimbursment Undertaking per Article 9.
2. My understanding is neither of the elements in 1. above apply to the situation outlined by Dimitri. Therefore, as between issuing bank and (first) confirming bank, and (first) confirming bank and end-nominated bank, that would seem to leave the relevant articles of UCP only (e.g. 9 & 10, to the extent (if any) they are expressly or impliedly modified by the terms of the credit contracts), to govern the legal obligations between them.
Incidentally, are you out there Dimitri and listening in, or do you wish you’d never asked in the first place!?
Jeremy
Thank you for trying to stop us from going round in circles. My reactions to what you say are:
1. I can only see that the (first) confirming bank’s obligations would be governed by the URR where ‘they are incorporated into the text of the Reimbursement Authorisation’ (Article 1) and the (first) confirming bank has given a Reimbursment Undertaking per Article 9.
2. My understanding is neither of the elements in 1. above apply to the situation outlined by Dimitri. Therefore, as between issuing bank and (first) confirming bank, and (first) confirming bank and end-nominated bank, that would seem to leave the relevant articles of UCP only (e.g. 9 & 10, to the extent (if any) they are expressly or impliedly modified by the terms of the credit contracts), to govern the legal obligations between them.
Incidentally, are you out there Dimitri and listening in, or do you wish you’d never asked in the first place!?
Jeremy
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Two confirmations under the same DC
If we assume that the Reimbursement Authorization in the LC doesn’t refer to URR 525, the Reimbursement Authorization would then be subject to article 19 of UCP 500 only.
By adding its confirmation to a letter of credit that provides Reimbursement Authorization to the nominated bank (2nd confirming bank), the 1st confirming bank is by default accepting, along with the issuing bank, to comply with article 19 (UCP 500).
In addition, since it has been nominated by the LC issuing bank as a Reimbursing Bank and has accepted the condition in the letter of credit which allows the 2nd confirming bank to forward documents directly to the issuing bank, we can conclude that the 1st confirming bank has literally provided the 2nd confirming bank an irrevocable undertaking to pay in case the LC condition has been complied with i.e. upon receipt, from the 2nd confirming bank, an authenticated message claiming payment and stating complying documents have been sent directly to the issuing bank.
Regards
[edited 8/14/02 4:47:44 PM]
By adding its confirmation to a letter of credit that provides Reimbursement Authorization to the nominated bank (2nd confirming bank), the 1st confirming bank is by default accepting, along with the issuing bank, to comply with article 19 (UCP 500).
In addition, since it has been nominated by the LC issuing bank as a Reimbursing Bank and has accepted the condition in the letter of credit which allows the 2nd confirming bank to forward documents directly to the issuing bank, we can conclude that the 1st confirming bank has literally provided the 2nd confirming bank an irrevocable undertaking to pay in case the LC condition has been complied with i.e. upon receipt, from the 2nd confirming bank, an authenticated message claiming payment and stating complying documents have been sent directly to the issuing bank.
Regards
[edited 8/14/02 4:47:44 PM]
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DimitriScoufaridis
- Posts: 85
- Joined: Fri Apr 05, 2019 5:17 pm
Two confirmations under the same DC
Yesterday, I had a good telephonic conversation with my fellow banker Abdulkader on this and I share his views. In order to eliminate any assumptions made so far I would like to clarify the following facts:
1. It is the issuing bank that nominates both confirming banks.
2. The issuing bank’s reimbursement authorization is not made subject to URR 525.
3. There are three countries involved, i.e. the country of the issuing bank, the country of the first confirming bank and the country of the second confirming bank which is the beneficiary’s country.
4. The beneficiary requires his bank to add its confirmation. However, his bank definitely does not want to take the sovereign risk of the country of the issuing bank and perhaps the issuing bank’s risk as well. To overcome this problem, the first confirming bank comes into the picture since it is willing to take both risks (sovereign & counter-party). It is clear that both banks are needed and the beneficiary seems to be willing to take the double confirmation charge as he has no other option to secure his payment.
5. Documents are examined by the second confirming bank and are sent directly to the issuing bank.
6. Reimbursement claim is made by the second confirming bank on the first confirming. The first confirming bank debits the issuing bank’s account maintained with it and pays the second confirming bank.
Jeremy has touched on the legal obligations of the first confirming bank (this is the main point we want to reach) and referred to Art. 9(b) which states that “…provided that the stipulated documents are presented to the Confirming Bank or to any other Nominated Bank”. Two questions:
1. What kind of an impact does the “or” have on our case?
2. Is the definition / function of confirmation, a definite payment undertaking + document examination or could it be “tailormade” to a definite payment undertaking only?
Dimitri
1. It is the issuing bank that nominates both confirming banks.
2. The issuing bank’s reimbursement authorization is not made subject to URR 525.
3. There are three countries involved, i.e. the country of the issuing bank, the country of the first confirming bank and the country of the second confirming bank which is the beneficiary’s country.
4. The beneficiary requires his bank to add its confirmation. However, his bank definitely does not want to take the sovereign risk of the country of the issuing bank and perhaps the issuing bank’s risk as well. To overcome this problem, the first confirming bank comes into the picture since it is willing to take both risks (sovereign & counter-party). It is clear that both banks are needed and the beneficiary seems to be willing to take the double confirmation charge as he has no other option to secure his payment.
5. Documents are examined by the second confirming bank and are sent directly to the issuing bank.
6. Reimbursement claim is made by the second confirming bank on the first confirming. The first confirming bank debits the issuing bank’s account maintained with it and pays the second confirming bank.
Jeremy has touched on the legal obligations of the first confirming bank (this is the main point we want to reach) and referred to Art. 9(b) which states that “…provided that the stipulated documents are presented to the Confirming Bank or to any other Nominated Bank”. Two questions:
1. What kind of an impact does the “or” have on our case?
2. Is the definition / function of confirmation, a definite payment undertaking + document examination or could it be “tailormade” to a definite payment undertaking only?
Dimitri
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Two confirmations under the same DC
Dimitri,
it is apparent from Article 9 b that the UCP does not envisage a second confirming bank as it only refers to "the Confirming Bank", but neither does it preclude its use. Since this Article also states that the Confirming Bank also takes on the onus to pay including the case where documents may be presented to a (different) Nominated Bank, this supports the separation of payment obligation from examination of documents.
Laurence
it is apparent from Article 9 b that the UCP does not envisage a second confirming bank as it only refers to "the Confirming Bank", but neither does it preclude its use. Since this Article also states that the Confirming Bank also takes on the onus to pay including the case where documents may be presented to a (different) Nominated Bank, this supports the separation of payment obligation from examination of documents.
Laurence
Two confirmations under the same DC
Gentlemen,
I could see that a court presented with the scenario outlined by Dimitri might hold that the (first) confirming bank’s obligation was to honour a reimbursement claim made in accordance with the provisions notified to the end-nominated bank. However, I would not regard this as being certain as -unless otherwise expressly stated by the (first) confirming bank -the (first) confirming bank’s obligations are governed by sub-Article 9b as it has ‘confirmed’ the credit. Overall I do not pretend I know the answer for certain and this is why my b
ank avoids being in this kind of situation.
As to Dimitri’s latest questions, my answers are (without liability/responsibility):
1. The impact of ‘or’ is that documents do not have to be presented to the ‘first’ confirming bank in order for it to have an obligation.
2. Why bother? The correct route is to use URR. Nonetheless, there is not anything to stop a bank giving a non-URR reimbursement undertaking, but why ‘muddy the waters’ by using the term ‘confirmation’, given its sub-Art 9b meaning?
Overall, I do not see that I can contribute anything further and therefore propose to withdraw from further discussions.
Regards, Jeremy
P.S. I’d like to say hello to all the members of the BBA IOCG Doc Cr sub-Com who may look in from time to time. Hope you enjoyed your meeting yesterday and that you’re keeping busy.
[edited 8/15/02 2:52:16 PM]
I could see that a court presented with the scenario outlined by Dimitri might hold that the (first) confirming bank’s obligation was to honour a reimbursement claim made in accordance with the provisions notified to the end-nominated bank. However, I would not regard this as being certain as -unless otherwise expressly stated by the (first) confirming bank -the (first) confirming bank’s obligations are governed by sub-Article 9b as it has ‘confirmed’ the credit. Overall I do not pretend I know the answer for certain and this is why my b
ank avoids being in this kind of situation.
As to Dimitri’s latest questions, my answers are (without liability/responsibility):
1. The impact of ‘or’ is that documents do not have to be presented to the ‘first’ confirming bank in order for it to have an obligation.
2. Why bother? The correct route is to use URR. Nonetheless, there is not anything to stop a bank giving a non-URR reimbursement undertaking, but why ‘muddy the waters’ by using the term ‘confirmation’, given its sub-Art 9b meaning?
Overall, I do not see that I can contribute anything further and therefore propose to withdraw from further discussions.
Regards, Jeremy
P.S. I’d like to say hello to all the members of the BBA IOCG Doc Cr sub-Com who may look in from time to time. Hope you enjoyed your meeting yesterday and that you’re keeping busy.
[edited 8/15/02 2:52:16 PM]