DOUBLE CONFIRMATION

QUERY FROM Khalid Ifthikar – United Arab Emirates

Even though UCP 600 does not mention or prohibit, can an Issuing bank request Bank A to add confirmation and request Bank A to advise the LC to Bank B for re-confirmation of Bank A risk.
If this is clearly worded in the LC, should Bank B treat the issuing bank as primary obligor or Bank A as primary obligor.

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COMMENTS

N.H. Duc – Viet Nam

Hi,

This is strange but quite possible.

By adding confirmation to the L/C, Bank B becomes another nominated (confirming) bank that is obligated to honour or negotiate a complying presentation made by the beneficiary and forward the documents to the (first nominated) confirming bank, i.e. Bank A, for reimbursement. Bank A is obligated to reimburse Bank B in accordance with UCP 600 Article (c).

In view of the above logic and reasoning, Bank A should be treated as primary obligor towards Bank B. However, if Bank A, for some reason, fails to reimburse Bank B, Bank B is still entitled to reimbursement from the issuing bank.

Last but not least, double confirmation means double fees charged to the beneficiary. I wonder why the beneficiary insists on such a strange type of confirmation. His bank’s confirmation alone can help guarantee the payment.

Best regards,
N.H.Duc
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JSMITH – United Kingdom

To avoid the need for the documents to go via Bank A (documents will take longer to get to the issuing bank and will incur additional document examination commission if they do) the issuing bank should ask
Bank A to give Bank B a reimbursement undertaking instead.

Assuming Bank B is only willing to add its confirmation because it has Bank A’s confirmation / reimbursement undertaking, it should record the exposure against Bank A.

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Glenn Ransier – United States

I have accommodated this in certain circumstances. Generally, the two confirmers agree to fees or some fee sharing arrangement and typically only one confirmer will examine the documents. Have also had those where a percentage of the LC value was confirmed by me and the rest confirmed by another. Jeremy is correct in that an RU and a single confirmer is a better facilitator. However, the RU is not always understood.

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