Reimbursement Undertaking

LC VIEWS - Single Window Q&A No. 17 - Dec 8, 2007

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Question:
In order to avoid confirmation cost / charges, an un-confirmed LC being transmitted to an advising bank which is the nominated bank too, LC available by Negotiation by beneficiary's drafts at sight on nominated bank.
Under reimbursement clause, it demonstrates to claim reimbursement from XYZ bank (the Reimbursing bank) upon receipts / presentation of complaint documents.
The LC issuing bank has arranged and the nominated bank has received the Reimbursement undertaking confirmation from reimbursing bank subject to URR 525 accordingly.

Do You feel that a Reimbursement Undertaking from a third bank i.e. Reimbursing bank can be an alternative of Confirmation?
Are such arrangements enough to provide comfort / satisfaction to a beneficiary?
Please advise.
Regards
A. B.

Response from T.O. Lee:
I have one point to add.
If we look at the query carefully, the drafts are drawn on the nominated bank, that cannot negotiate, but can only discount, technically speaking, unless an amendment changes the drawee to the issuing bank.
If the nominated bank agrees to add confirmation, it still cannot negotiate because the drafts are drawn on the nominated bank.
In order to trigger on the protection under UCP 600 sub-article 8 (a) (ii) where a confirming bank must negotiate if the credit is available for negotiation, the drafts must be amended and drawn on the issuing bank.
Discounting is strictly speaking outside the UCP 600 as there is no definition for this term in UCP 600, although in the marketplace negotiating and discounting are used interchangeably.
Best regards,
T. O.

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