CLAIMING REIMBURSEMENT WITHOUT NEGOTIATION

QUESTION FROM DIEM

Dear Mr. OLD MAN,

Today, I have a trouble with the right to claim reimbursement from reimbursing bank of nominated bank. So, I need your help for this case, if you don't mind.

As Art13 UCP600: "If the credit states that reimbursement is to be obtained by a nominated bank (claiming bank) claiming on the party (reimbursing bank), the credit must state if the reimbursement is subject to the URR…."

And on ICC opinion-Volume V (Gary Collyer)-2009 also state that: "A nominated bank has the right to claim reimbursement provided that it has acted on its nomination and negotiated (in case LC available with any bank by negotiation), or has been authorised by the issuing bank, in a separate message i.e., as the result of discrepant documents being approved, to claim reimbursement."

My question is: If a bank just act as presenting bank (not act as nominated bank, not actually negotiated or honoured), does it have the right to claim reimbursement form reimbursing bank?

If presenting bank claimed reimbursement, was there something wrong? "cause, I don't find any thing in UCP and ISBP saying about this.

Because, most bank in Vietnam, when received an Export LC show that:

+ Available with any bank by negotiation/ accept/ defer payment

+ Reimbursing bank:XYZ bank

Exporter presents the document, the Bank receive and after checking, result is complying document, the bank send the document to issuing bank and at the same time claim reimbursement on reimbursing bank.

I'm looking forward to hearing from you.

Tks and B'regards,

———————–

ANSSWER

Dear Diem,

It is an interesting question indeed.

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.

Best regards,
Mr. Old Man