CLAIMING REIMBURSEMENT WITHOUT HONOUR OR NEGOTIATION

QUESTION

Hi,
.
We have some doubts, so I would appreciate your comments.

L/C – available with nominated bank and payment instructions authorise nominated bank to reimburse themselves in case of compliant documents, but nominated bank didn't act under their nomination.

Are they nevertheless allowed to reimburse themselves or should they ask for authorisation to reimburse when sending documents to issuing bank?

Thanks
Snježana
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ANSWER

Dear Snježana,
.
Last year I ever answered a question similar to yours. I quote here for your reference:
.
QUOTE
It is true that a nominated bank has the right to claim reimbursement if it has acted on its nomination, i.e., honour or negotiate.

A nominated bank that has not honoured the documents presented under a payment L/C, a deferred payment L/C or an acceptance L/C should not claim reimbursement from the reimbursing bank without the issuing bank’s authorization.

Similarly, a nominated bank that has not negotiated the documents presented under a negotiation L/C should not claim reimbursement from the reimbursing bank without the issuing bank’s authorization.
However, in real world it is recognized that where an L/C available by negotiation includes an instruction to claim reimbursement from a reimbursing bank, the nominated bank would send the documents to the issuing bank and at the same time claim reimbursement from the reimbursing bank notwithstanding that it has not negotiated the documents. The nominated bank claiming reimbursement from the reimbursing bank without the issuing bank’s authorization and then effecting the settlement to the beneficiary upon receipt of the funds may bear risk of having to refund in the event the issuing bank rejects the documents due to valid discrepancies.

The nominated bank that has not acted on its nomintion should send the documents to the issuing bank and simultaneously ask for the issuing bank’s authorization to claim reimbursement from the reimbursing bank. It should claim reimbursement from the reimbursing bank upon receipt of the issuing bank’s authorization or where the issuing bank fails to refuse the documents within five banking days from the day of receipt of the documents.

If the nominated bank that has not negotiated but claimed reimbursement and received the reimbursement from the reimbursing bank, it should effect the settlement to the beneficiary on a with recourse basis or effect the settlement after five banking days from the day of receipt by the issuing bank of the documents that the issuing bank fails to refuse.

It is encouraged (through ICC Opinion R666/TA569) that a negotiation L/C should not include any reference to claiming reimbursement from a reimbursing bank or any reference to the debiting of the issuing bank’s account held with the nominated bank. This structure is a payment L/C.

An L/C that is available by negotiation should specify the following or similar wording in Field 78 Instructions to negotiating bank):

“Documents are to be sent to (name and address of the issuing bank). Upon receipt of the documents complying with the credit terms and conditions, we (the issuing bank) will reimburse in accordance with your instructions”.

As you see, theory is far from practice.
UNQUOTE

Hope it is of your help.

Best regards,
N.H.Duc