QUESTION
Dear Mr. Old Man,
I just saw your blog and found it great.
However I was trying to find a answer to a question I am having. I am from sellers side.
We have a buyer who has opened LC to us from his bank In Indonesia.
Our Bank is in Sri Lanka
Buyers bank is local Indonesian bank and perhaps doesn’t have test key arrangements with our bank in Sri Lanka so buyers bank is using below bank in Singapore as intermediary bank:
CITISGSGHUB
CITIBANK, N.A
SINGAPORE HUB BRANCH.
Same bank is also drawee as per LC and also same bank is mentioned in 53A in LC as reimbursing bank.
Clause 46A of LC also says, that all documents to be sent by courier to issuing bank in Indonesia. Below are some extracts from LC for your understanding.
:41D: Available With … By …
ANY BANK IN SRI LANKA
BY NEGOTIATION
:42C: Drafts at …
BENEFICIARY DRAFTS
120 DAYS AFTER SIGHT
:42A: Drawee
CITISGSGHUB
:47A: Additional Conditions
3) ACCEPTANCE COMMISSION AND DISCOUNT CHARGES ARE FOR ACCOUNT OF APPLICANT AND ARE TO BE PAID AT MATURITY
:53A: Reimbursing Bank
CITISGSGHUB
:78 : Instructions to the Paying/Accepting/Negotiating Bank
+NEGOTIATING BANK IS AUTHORIZED TO CLAIM REIMBURSEMENT FROM CITIBANK, N.A, SINGAPORE (CITISGSGHUB) WHO HOLDS SPECIAL REIMBURSEMENT AUTHORITY AFTER WE RECEIVE COMPLIANT DOCUMENTS, UPON WHICH WE WILL AUTHORIZE REIMBURSING BANK TO HONOUR YOUR CLAIM. ALL CLAIMS MUST BE ACCOMPANIED BY YOUR TESTED CERTIFICATION THAT ALL TERMS ARE IN STRICT CONFORMITY WITH THE TERMS AND CONDITIONS OF THE CREDIT UNDER TESTED ADVICE TO THE ISSUING BANK.
+WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF THE DRAFT(S) DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS CREDIT THAT THE SAME WILL BE DULY HONORED ON DUE PRESENTATION AS PER CREDIT TERMS
My questions are:
- Can we ask customer to change drawee to issuing bank? Why they have mentioned drawee as Citibank?
- Would drafts be drawn to Citibank or issuing bank in Indonesia? Since documents are to be sent to issuing bank in LC so should we prepare drafts in name of issuing bank or Citibank?
- Would issuing bank send a copy of original documents to Citibank before Citibank makes payment to us? Or do we also need to send any copy of draft of copy of documents to Citibank before they make payment to us?
- Issuing bank says in clause 78 date beneficiary bank should claim reimbursing from Citibank, I want to know if presentation is complying, can Citibank hold or delay or refuse payment to us for any reason? Or they are bound to pay us under all circumstances? Under what circumstances Citibank bank or reimbursing bank can refuse payment to us despite complying presentation?
- If Citibank refuses payment to us then would applicant bank would be bound to pay us?
Regards
Asim
—————
ANSWER
Hi,
1) It depends on the bank-to-bank arrangement between the issuing bank and the reimbursing bank that the reimbursing bank is requested to accept and pay a time draft, hence, the reimbursing bank becomes the drawee. Please refer to the definition of “reimbursement authorization” in articles 2 URR 725, which says “Reimbursement authorization” means an instruction or authorization, independent of the credit, issued by an issuing bank to a reimbursing bank to reimburse a claiming bank or, if so requested by the issuing bank, to accept and pay a time draft drawn on the reimbursing bank.
The L/C in question states that negotiating bank is authorized to claim reimbursement from Citibank Singapore who holds SPECIAL REIMBURSEMENT AUTHORITY. I think in accordance with sub-article 6 (d) and (e), this reimbursement authorization must include among other information a request that the reimbursing bank is to accept and pay the time draft which is to be drawn on the reimbursing bank.
So, there’s no need to ask for an amendment. However, you can do so, but please note that any amendment must be agreed by the issuing bank, the confirming bank (if any) and the beneficiary.
2) As said, it depends. In practice I would come across many L/Cs with the same instructions as in your L/C, i.e., the nominated bank is instructed to send the documents to the issuing bank and claim reimbursement from the reimbursing bank who will honour your claim when authorized by the issuing bank.
Draft should be drawn on the reimbursing bank to comply with the L/C requirement.
3) According to the issuing bank’s instructions, upon receipt of complying documents the issuing bank will authorize the reimbursing bank to honour your claim. So, there’s no need for you to send Citibank a copy of the draft.
4) According to article 4 URR 725, a reimbursing bank is not obligated to honour a reimbursement claim except as provided by the terms of its reimbursement undertaking. It is normal that the reimbursing bank will honour in accordance with the reimbursement authorization. If the beneficiary worries that the reimbursing bank will not honour the claim, he may insist via the issuing bank that the reimbursing bank is requested to issued a reimbursement undertaking to the claiming bank.
5) If the reimbursing bank does not honour the negotiating bank’s claim for any reason the negotiating bank can claim reimbursement from the issuing bank and the issuing bank must pay.
Kind regards,
Mr. Old Man
