Issuing Bank Didn't Gave RA To Reimbursing Bank

[Md.zakir Hossen]

A Confirmed Credit which have re-imbursement Authority in the credit but the Issuing Bank did not inform the re-imbursement Authority to the re-imbursement Bank. Document submitted by the Negotiation Bank and Issuing Bank found the documents complying with Credit and release the docs.

After 20 days from the date of receiving the complying docs Negotiating Bank (also confirming Bank) claim interest from the Issuing Bank for not making payment. Care there is no mail confirmation that Negotiating Bank claim re-imbursement from the re-imbursement Bank.Please note that sufficeint amount is available in the re-imbursement Bank.

My Questions:

01. Is Issuing Bank make mistake not informing the re-imbursement Authority for the Credit Amount?
02. Can the Confirming Bank claim interest for not re-imbursement?(Evidence shows that confirming Bank did not claim re-imbursement.

[shahriar]

dear zakir bhai,

first thing is that a negotiable lc is not suppose to have a RA clause

2. how did the nominated bank knew that there was no RA without claiming?

3. the issuing bank made a fatal mistake but not issuing the RA

4. yes, the nominated bank can claim interest but only from the day on which they have actually claimed reimbursement but remain unpaid.

shahriar

[nesarul]

Dear Zakir Bhai,
To me, although the query is not clear, I furnished herewith similar type of ICC official opinion i.e R-524 for consideration:

Official Opinion R524 / TA45 - Unpublished Opinion 1995-2004
From UCP500 - sub-Article 10(d); URR 525 Article 17
QUERY
We are currently trying to resolve a dispute with another bank with regard to reimbursements on L/Cs, and we refer to your URR 525 and UCP 500.
Basically, the situation is as follows: the L/C issuing bank has authorized the reimbursement bank to pay the funds to the claiming bank. However, the reimbursement bank has failed to make payment due to loss of the tested telex message. The claiming bank forgot to trace until two months later and subsequently charged the reimbursement bank all late interest for the two-month period.
Therefore, we would like to ask what rules apply regarding the correct interest rate to use, the correct and fair tenor to apply and the proper date to begin calculating late interest. Can the claiming bank be held responsible for failing to trace for a long period? If there are no rules or guidelines, is it up to negotiation between the banks to resolve the dispute?
ANALYSIS/CONCLUSION
We presume that the credit (and reimbursement authorization) stated that reimbursement was subject to URR 525. Article 17 of these rules specifies that all claims for interest are between the claiming bank and the issuing bank, unless the losses resulted from the non-performance under a reimbursement undertaking.
The principle of sub-Article 10(d) of UCP 500 is that in nominating another bank to negotiate, pay or accept, the issuing bank undertakes to reimburse such bank in accordance with the provisions of UCP 500, provided documents are presented in conformity with the credit terms and conditions.
The applicable rate of interest and period, if any, is for agreement between the claiming and issuing banks, but would normally be for the period from when value was expected (or due) until the date of reimbursement, at a rate commensurate with that quoted for the currency concerned.
Given the fact that the claiming bank failed to monitor its receipt of funds from the reimbursing bank and the reimbursing bank presumably failed to give notice of non-payment due to the absence of an authorization, the issue of interest would be one for negotiation between the banks concerned.
Thanks
nesar

[shahriar]

nice quote dear nesar

shahirar

[Md.zakir Hossen]

Thanks shariar and nesarul
this is a real case
First thing is that we people donot know whether re-imbursement is necessary or not in the Nego. basis credit.and some cases not possible to implement what I know.However, I agree with your opinion no.03.But I also in puzzle How could nominated Bank understand that RA is not issued.One thing here that nominated and Re-imbursement Bank is same Bank in different Country.But I am sure that nominated Bank does not claim re-imbursement.For that reason I want to know Whether the nominated Bank is eligible for interest if RA is available before his claim.Can I sought evidence.

[nesarul]

Dear Zakir Bhai,
Nicely spot on. Its the forwarding schedule which provide you how nominated bank ask to settle the claim, I have not come through single cases where forwarding schedule enclosed without payment instruction.
Situation 1:
If forwarding sahedule mentioned that NB cailmed, then you understand.................................
Situation 2:
If forwarding schedule instruct IB to credited NB's nostro account, then the Issuing bank can go for two course of action:
action 1:
IB can settle the bill as per instruction of the forwarding schedule. or
action 2:
IB can still issue an RA with an intimation to the nominated bank to claim from reimbursement bank.
Thanks
nesar

[shahriar]

i agree with nesar. forwarding schedule gives a significant clue about payment. but even then the situation mentioned by zakir may arise. for eaxample i have seen a forwarding schedule which says that the nominated bank will claim payment after 3 days not to mention that the lc has suitable terms and conditions. now it is possible that the nominated bank never claimed the payment

shahriar