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Draft vs IRU

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Mon, 07/26/2010 - 06:21
ghubshawi
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Joined: 11/17/2007
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Dear All,

As an issuing bank we have issued a transferable usance LC for 360 days available by acceptance, the LC is indicated XXX Bank as a reimursing bank. Once the LC was advised to the confirming bank, the confirming bank requested XXX Bank to provide him with an Irrevocable Reimburement Undertaking (IRU).

In this case, should the first beneficiary still has to draw his draft on the issuing bank?

Thanks,

Ghubshawi

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Mon, 07/26/2010 - 08:10
#1
Abrar
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Joined: 03/12/2009
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Draft vs IRU

This depends on whether the "confirming" bank has actually issued a confirmation advice to the beneficiary. If it has, the beneficiary has primary recourse to the confirming bank.

An IRU issued by the reimbursing bank would usually be given against direct authority from the issuing bank, and be subject to the URR (refer to Art 2g) . Any undertaking outside this authority would be a private contract between the confirming bank and the reimbursing bank, and not subject to either UCP or URR.

If the confirming bank unilaterally approaches the reimbursing bank to obtain a IRU, as a pre-condition to it adding confirmation, I suggest that the confirming bank would be acting outside the scope of UCP, viz. sub-art 8 d.

Regardless of whether the nominated bank adds its confirmation, provided the LC is available by drafts drawn on the nominated bank, the issuing bank would be bound to honour such drafts, even if it is not drawn on the issuing bank. Sub-art. 7 (a)  (iv) of UCP600 refers.

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