ICC Digital Library Forum

Even though UCP 600 does not mention or prohibit, can an Issuing bank request Bank A to add confirmation and request Bank A to advise the LC to Bank B for re-confirmation of Bank A risk.

If this is clearly worded in the LC, should Bank B treat the issuing bank as primary obligor or Bank A as primary obligor

- Khalid Ifthikar

Hi,

This is strange but quite possible.

By adding confirmation to the L/C, Bank B becomes another nominated (confirming) bank that is obligated to honour or negotiate a complying presentation made by the beneficiary and forward the documents to the (first nominated) confirming bank, i.e. Bank A, for reimbursement. Bank A is obligated to reimburse Bank B in accordance with UCP 600 Article (c).

In view of the above logic and reasoning, Bank A should be treated as primary obligor towards Bank B. However, if Bank A, for some reason, fails to reimburse Bank B, Bank B is still entitled to reimbursement from the issuing bank.

Last but not least, double confirmation means double fees charged to the beneficiary. I wonder why the beneficiary insists on such a strange type of confirmation. His bank’s confirmation alone can help guarantee the payment.

Best regards,
N.H.Duc

To avoid the need for the documents to go via Bank A (documents will take longer to get to the issuing bank and will incur additional document examination commission if they do) the issuing bank should ask Bank A to give Bank B a reimbursement undertaking instead.

Assuming Bank B is only willing to add its confirmation because it has Bank A’s confirmation / reimbursement undertaking, it should record the exposure against Bank A.

I have accommodated this in certain circumstances. Generally, the two confirmers agree to fees or some fee sharing arrangement and typically only one confirmer will examine the documents. Have also had those where a percentage of the LC value was confirmed by me and the rest confirmed by another. Jeremy is correct in that an RU and a single confirmer is a better facilitator. However, the RU is not always understood.

Thanks to everyone on the response, however to take this still ahead in the discussion

The IRU might not work always unless the first confirming bank and reimbursing bank are the same

In situations where for e.g Bank X in Yemen issues the LC and Bank Y (Head Office) in Jordan is the first confirming bank, and Bank Z second confirming bank is in UAE and Bank R reimbursing bank is in USA - Issuing bank might request Bank Y to add the confirmation and Bank Z to re-confirm

I also understand that these kind of transaction are common in Latin America and Europe even though UCP 600 does not cover re-confirmation. Can members suggest how we start looking at these situations being covered in UCP 600.

The main issue is the primary obligor being the issuing bank, Bank Z cannot consider Bank Y as the primary obligor even though they rely on Bank Y for the payment

Await all your feedback.
Many thanks

I do not believe that having two confirmers is a very common situation and due to this, it is not mentioned in UCP.
With an RU in place, the bank that confirms the LC can switch the primary credit risk from the issuer to the bank that issued the RU to it. Since the issuer has asked Bank A to confirm and Bank B to issue its own reimbursement undertaking to the Bank A, as confirmer, (LC should name Bank B as the reimb. bank) the confirmer should consider primary payment recourse on Bank B and secondary recourse on the LC issuer.
When two banks are asked "by the issuer" to confirm a credit then agreements need to be reached in advance of the banks confirming the LC.
Hope this helps.

I see no problem for the second confirming bank to book the engagement under the first confirming bank. The difference in confirming i/o issuing a IRU might be that the engaging bank likes/must know the underlying transaction.

Interesting discussion and as already stated it requires clear coordination in advance between the Issuing Bank, Bank A and Bank B.
One of the likely questions and points for dispute if there is not absolute clarity in advance:
What is Bank B actually confirming and which bank is their risk counter-party?
For example, it could be argued that Bank B is confirming the original credit (and their risk counter-party is the Issuing Bank) or it could be argued that Bank B is confirming Bank A's confirmation and that Bank A is their risk counter-party.
I've seen several of these and we have encouraged the use of Reimbursement Undertakings as has already been suggested in this discussion.
Clarity is critical.