Independent Undertakings under Sub-Article 7(c) UCP 600

Intro

One area that often causes confusion in practice is the relationship between the issuing bank’s reimbursement obligation to a nominated bank and its payment obligation to the beneficiary. Sub-article 7(c) of UCP 600 deals with this precise point. A reader recently asked for clarification, and here’s how I explained it.

QUESTION

Dear Mr. Old Man,

Please clarify sub-article 7(c) with regard to the independence between the issuing bank’s reimbursement undertaking to the nominated bank and the issuing bank’s undertaking to the beneficiary.

Hope to hear from you soon.

Thanks in advance.

With regards,

Jack

______

ANSWER

Hi,

Thank you for your question. Here is my response:

Sub-article 7(c) UCP 600 states in full as follows:

An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank’s undertaking to reimburse a nominated bank is independent of the issuing bank’s undertaking to the beneficiary.

It should be understood that the issuing bank’s reimbursement undertaking to the nominated bank and its payment undertaking to the beneficiary are two separate obligations:

• Issuing bank ↔ Nominated bank: If the nominated bank has acted on its nomination (i.e., honoured or negotiated a complying presentation), it is entitled to reimbursement from the issuing bank. If the issuing bank fails to reimburse, the nominated bank can take legal action directly against the issuing bank — not against the beneficiary.
• Issuing bank ↔ Beneficiary: If the beneficiary has made a complying presentation — whether directly to the issuing bank or through a nominated bank that has not honoured or negotiated the documents — the issuing bank remains obligated to pay. If the issuing bank fails to pay, the beneficiary can take legal action directly against the issuing bank — not against the nominated bank.

The key point is that these undertakings are independent of each other. For example, even if the issuing bank disputes its obligation to the beneficiary, it cannot use that as a reason to refuse reimbursement to a nominated bank that has already honoured. Likewise, its obligation to the nominated bank cannot be used to deny payment to the beneficiary.

To conclude: the issuing bank’s reimbursement undertaking to the nominated bank and its payment undertaking to the beneficiary are completely independent.

Best regards,

Mr. Old Man