Letter of Credit Forum

Issuing or confirming bank often use and authorize secondary banks
to perform certain task when processing a letter of credit (typically examination of the documents or payment). Issuing and confirming banks are obligated to reimburse a secondary bank for any costs associated  with fulfilment of these tasks; furthermore, as a consequence of the obligation to reimburse issuing and confirming bank are obligated to accept documents if the secondary bank has already
performed the obligations due under the credit.

Issuing and confirming bank do not need to reimburse the secondary bank themselves but may use or authorize a third bank to reimburse the secondary bank. The reimbursing bank is not involved in the
processing of the credit.

Direct Reimbursement without use of a reimbursing bank Article 7 c UCP 600 provides that an issuing bank is obligated to reimburse a nominated bank . This provision was hitherto  detailed in Article 14 a UCP 500. Article 14 a UCP 600 clarifies that the obligation to reimburse a secondary bank is independent of  any obligation towards the beneficiary.

Article 7 c UCP 600 obligates the issuing bank to reimburse even if the secondary bank prepaid the credit. As mentioned last week, we believe the UCP provision permitting pre-payment is void since it violates the instructions received from the issuing bank. Equally, we believe that the obligation of the confirming bank
to reimburse a secondary bank which has prepaid, is void.

To avoid ambiguities the issuing should exclude Article 10 c UCP 600/ Article 8 c UCP 600 unless the applicant expressly permits prepayment.