Confirming Bank Undertaking

4 replies [Last post]
questin
Offline
Joined: 10/14/2008
Printer-friendly versionSend by emailPDF version

As per UCP 600, the confirming bank has to honor the bill upon complying presentation.

Does it mean that confirming bank has to pay immediately after the presentation or upon non receipt of funds from issuing bank only.

But there is no clue in UCP 600 for paying only when the issuing bank fails to pay.

Abrar
Offline
Joined: 03/12/2009
Confirming bank's undertaking

The whole point and role of a confirming bank from the beneficiary's point of view is to eradicate the risk of non-payment by the issuing bank. If a confirming bank agrees to confirm an LC, it enters into a contractual obligation to pay the beneficiary independently of the issuing bank, against presentation of conforming documents. It cannot wait for funds to be received from the issuing bank, as this is likely to be a violation of the contractual agreement, and would make the confirmation agreement worthless.

The confirming bank's obligation to the beneficiary is clearly set out in Art. 8 of UCP600, and the reason why no mention is made of the process of reimbursement from the issuing bank to the confirming bank, is because this does not affect the payment obligation under the confirming bank's undertaking.

Similarly, Art. 7 concerns the issuing bank's undertaking to pay the beneficiary/nominated bank. It does not concern itself with how the issuing bank is to obtain reimbursement from the applicant. This is outside the scope of the LC and also UCP600.

What is interesting however (well, to me anyway) is that Art 7 makes no mention of the issuing bank's obligation to a confirming bank, only to a nominated bank. Bearing in mind that although extremely unlikely, a nominated bank may not necessarily be a confirming bank, or vice versa, the respective explicit rights and obligations vis a vis the issuing bank and a confirming bank is peculiarly absent form the UCP. Thus it could be argued that such rights of recourse by a confirming bank on an issuing bank should be specifically addressed by separate side-agreements, between the two parties .            

palakol
Offline
Joined: 05/06/2008
Importance of LC restriction to Confirming bank

Now we see the importance of having the LC restricted to confirming bank. Thereby making the confirming bank  a nominated bank. Although not necessary but for the confirming bank's protection confirming bank must insist restriction to his counter.

Another thing, the confirming bank can examine the document whether it is complied with the LC or not.

questin
Offline
Joined: 10/14/2008
Confirming bank's undertaking

Thanks Abrar

I want to know what is the bank's practice in this reg?

do they make payment immediately upon complying presentation or are they waiting for funds from iss bank for some reasonable time?

 

Abrar
Offline
Joined: 03/12/2009
Confirmation

If available at sight, and if the issuing bank authorises the confirming bank to claim by SWIFT/TT, it is likely to require a claim notice of an X number of days. Accordingly, the confirming bank will clause its own payment undertaking along similar lines, i.e that it undertakes to pay on receipt of conforming documents, value X days from receipt of finding documents in order. Obviously, the confirming bank expects to submit a claim and receive payment no later than it itself is obliged to pay the beneficiary. However, even in the event that the issuing/reimbursing bank failed to pay on the expected due date, the confirming bank would still have to pay the beneficiary, regardless. 

//
//