ICC Digital Library Forum

Dear Sirs,
We'd like to describe several situations concerning L/C confirmation and reimbursement undertaking which we face some difficulties to take the decision, therefore your opinion would be highly appreciated.
SITUATION 1
Bank 'A' (issuing bank) applies to Bank 'B' asking for adding the confirmation to a Letter of Credit.
Bank 'B' agrees to confirm the Letter of Credit.
In reimbursement instructions Bank 'A' indicates the bank which confirmed the Letter of Credit as a reimbursing bank.
In this connection, we wonder if It means that the bank which added confirmation to the Letter of Credit assumed reimbursement undertaking, i.e. whether the reimbursing-confirming bank may refuse of payment of the reimbursement claim transmitted by SWIFT ( due to the funds insufficiency on the issuing bank's account) and effect payment as the confirming bank only against presentation of documents in full compliance with L/C's terms, provided that the demand of documents dispatch to their address is envisaged with the L/C's terms.
SITUATION 2
Bank 'A' issued a Letter of Credit indicating itself as the reimbursing bank, and applied to Bank 'B' with the request to confirm the Letter of Credit.
The nominated bank requested the issuing bank (Bank 'A') to amend the terms of the Letter of Credit and indicate the confirming bank as the reimbursing bank.
The issuing bank amended the L/C's terms and authorized the confirming bank to act as the reimbursing one according to ICC URR 525 (except Article 9). When transmitting this amendment to the confirming bank the issuing bank also noted that they had entered into no reimbursement undertaking.
In this connection, we wonder whether the denying of reimbursement undertaking form the confirming bank may be considered by the nominated bank as the confirming bank's refusal to add the confirmation.
Yours faithfully,

Dear Dorofeev,

Before we comment on your concerns about reimbursements, let us look at the inspirations from the related DC Rules step by step.

WHAT CAUSES YOUR CONCERNS ABOUT REIMBURSEMENTS

1 Please note that UCP 500 and URR 525 are two different and independent Rules from the ICC Banking Commission.

2 A confirming bank will pay only against PRESENTATION for acceptance, sight/deferred payment or negotiation according to UCP 500 Article 9 (b). Article 19 regarding bank-to-bank reimbursements binds the issuing bank only, but not the confirming bank.

3 Without incorporation of Article 9 of URR 525, a reimbursing bank has no payment obligation against reimbursement claims according to Article 4 of URR 525.

4 The combined effect of point 1-3 above means that unless PRESENTATION (not reimbursement claims from a nominated bank) is made directly to the confirming bank (without engagement by Article 9 of URR 525) the confirming bank has no obligation to entertain reimbursement claims.

5 This is what causes your concerns in the two scenarios about reimbursements.

A SIMPLE, NO-FRILLS SOLUTION

6 To avoid troubles, the beneficiary should request the applicant to instruct the issuing bank to nominate the confirming bank as a nominated bank for acceptance, payment or negotiation. If the DC is transferable and with open negotiation the issuing bank also names the confirming bank as the transferring bank. However, open negotiation is not recommended to avoid opening the Pandora Box.

7 This is a simple, no frills solution to your reimbursement problems.

8 Spending time to manoeuvre over the complications that are created by the two scenarios is a waste of time. We have a famous saying in risk management “Do it right the first time”.

9 As a consultant, we are not interested to go into your complicated scenarios but can give you the solution, a simple and pragmatic approach to get out of these trouble waters.

10 Prevention is better than cure.

www.tolee.com

[edited 10/13/02 7:07:40 PM]