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REIMBURSEMENT CLAIM

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QUESTION

I am having two questions related to ISBP745 and URR725 which I hope you could spend some time to look at and explain them for me.

Question about ISBP745:

Our bank has a situation as follows:

L/C required:
Goods: ABC packed in plastic bag
Price: XXXUSD/bag
Quantity: XXX bags
Specifications: At least 90pct bags must weigh from 50kg per bag and above, remaining bags could weigh from 49 to 50kg per bag.

Weight List presented showing detail weight of each bag. Bank calculated and found out that only 80pct of bags weigh above 50kg. Now our colleagues are having 02 opinions about this document.

Opinion 1: By applying Para A22 and Para N6, bank only examines total value. As result, this document which shown correctly total quantity of bags doesn't have discrepancy. They also commented that issuing bank shouldn't have accepted such requirement related to percentage from applicant due to complexity of examination.

Opinion 2: Para A22 and Para N6 are only applicable if there are mathematical relations between data on document. Therefore, bank does not have to calculation AGAIN. In the case above, the calculation done by bank is similar to the way bank checks the amount covered by insurance documents by multiplying invoice value to 110pct. And because the data on the document obviously reflects a conflict with requirement of the credit, bank should apply the para N4 in ISBP and determine that there is a discrepancy.

So, which opinion is correct?

Question about URR725:

In paragraph c of Article 6, it stated that issuing bank should not required a certificate of compliance in reimbursement authorization. I wonder where this certificate might come from. If it comes from reimbursement bank, it will be easy to understand since the reimbursement process is independent from credit transaction. But if it comes from claiming bank, is there any risk for issuing bank when claiming bank could claim for money without certifying the compliance of presented documents? In fact, I have seen some Korean bank issuing UPAS L/C required the claiming bank certify the compliance of documents in claiming message sent to reimbursement bank.

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ANSWER

Hi,

1) Provided that such packing condition is indicated on the document (invoice and/or packing list), the document is acceptable. It is agreed that banks determine the compliance of the documents based on the stated total. I tend to support Opinion 1.

2) The issuing bank should not require a certificate of compliance with the LC terms and conditions in its reimbursement authorization because reimbursement authorization is separate from the LC to which it refers, and the reimbursing bank is not concerned with or bound by the LC terms and conditions, even if any reference whatsoever to it is included in the reimbursement authorization.

However, it should be agreed that the nominated negotiating bank is authorized to claim reimbursement from the reimbursing bank only on the basis that the negotiating bank has found the documents complying with the credit terms and conditions. If the negotiating bank claims reimbursement in spite of the discrepant documents and is reimbursed by the reimbursing bank and later the discrepant documents are refused by the issuing bank, it must repay the issuing bank the funds plus interest.

If the issuing bank wants to avoid this risk or this complicated issue, it may incorporate into the LC a reimbursement condition as follows: “Upon receipt of the documents complying with the credit terms and conditions, we will authorize the negotiating bank to claim reimbursement from the reimbursing bank”.

However, please note that the above condition is applicable to LC available by negotiation LCs and that it should not apply to LC available by payment.

Kind regards,
Mr. Old Man

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2 Comments

  1. anonymous

    November 26, 2013 at 10:11 pm

    Anonymous writes:I also agreed that banks only have to check total value but in this case which document will help the buyer ensure that the goods are delivered as they expected? I feel it is quite risky and unfair for the buyer when they must accept payment although the weight list clearly showed a difference between actual goods and what they required (I assume that these requirement were stated in Field 45A of the credit).Moreover, I would like to listen Mr.Old Man's opinion if this case has a slightly change as follows:Instead of requirement of percentage of the goods, the credit required all bag must weight equal or above 50kg/bag. Is there discrepancy if the weight list showed some bags having weight least than 50kg/bag? (There aren't any calculations here)

    Reply

  2. mroldmanvcb

    November 27, 2013 at 12:11 pm

    It is a discrepancy.

    Reply

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