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friends,

another question for the day. we often issues Letter of credit available by payment. in the reimbursement clause, we usually put the following clause -

the nominated bank must present a certificate of compliance to the reimbursing bank. Nominated bank must also notify the issuing bank three days before the reimbursement claim.

now my question is, to notify the issuing bank, the nominated bank must first decide whether the presentation is complying or not. when it decides that the presentation is complying, it may honor. now when a bank needs to notify the issuing bank, that means that the payment process is deferred by three days. does it go with the spirit of sight letter of credit?


regards

mitra

dear mitra,

article 15 of UCP 600
a. When an issuing bank determines that a presentation is complying, it must honour.

c. When a nominated bank determines that a presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank

there is a significant differences between a and c. clause A says issuing bank must honor as soon as it determines the presentation as complying. while clause C says nominated bank determines the complying presentation and honor. that is for nominated bank there is no bindings when is going to honor.

allowing reimbursement in the does not mean that the issuing bank will agree with the nominated bank. in fact the issuing bank is yet to determine the compliance. therefore 3 days notification period does not hamper the sight lc spirit as far as nominated bank is concerned.

further,
commentary of UCP600 says, "The word “when” does not mean immediately, but indicates that the process of honour or negotiation must begin.

the process is of course not defined in UCP. it may vary from bank to bank.

if i am not making a mistake, there is an ICC opinion on this issue. can some one help me?

regd

shahriar

Dear jmitra
Pls note art 19 of URR 525:
Issuing Banks shall not require a Claiming Bank to supply a certificate of compliance with the terms and conditions of Credit to the Reimbursing Bank.
.
These issues always happen when a credit terms override the the Publications in place and furthermore to quote Mr. Gary Collyer : It should be noted by banks that if they are considering the exclusion of a rule, it is often not as simple as merely making a statement in the credit that article X or sub-article X is deleted or is not to apply. Very often there needs to be something put into the credit to cover the void that the exclusion leaves. Similarly, where a modification is made, the issuing bank must ensure that the revised wording in the credit is sufficiently descriptive so that there may be no ambiguity as to how it may be interpreted or applied.