URR 725 Article 7: Expiry of a Reimbursement Authorization
Article 7(a): “Except to the extent expressly agreed to by the reimbursing bank, the reimbursement authorization should not be subject to an expiry date or latest date for presentation of a claim, except as indicated in Article 9.”
Explanation: This clause emphasizes that, unless the reimbursing bank explicitly agrees, a reimbursement authorization should generally not have an expiry date or a deadline for the presentation of a claim. This means that the authorization remains valid until it is utilized or canceled. However, there is an exception in Article 9 of URR 725, which outlines specific scenarios where a date might be applicable.
Example: Consider a scenario where Bank A issues a reimbursement authorization to Bank B for a letter of credit (LC). According to Article 7(a), unless Bank B specifically agrees to a set expiry date for the authorization, it should remain open-ended. This ensures that beneficiaries can present their claims even if the original LC has expired, as long as the reimbursement authorization has not been explicitly terminated.
Article 7(b): “A reimbursing bank will assume no responsibility for the expiry date of a credit and, if such date is provided in the reimbursement authorization, it will be disregarded.”
Explanation: This clause clarifies that the reimbursing bank is not responsible for tracking or enforcing the expiry date of the underlying credit. If the reimbursement authorization includes an expiry date, the reimbursing bank will disregard it. The responsibility for the expiry of the credit lies solely with the issuing bank.
Example: If Bank A, the issuing bank, includes an expiry date in the reimbursement authorization sent to Bank B, the reimbursing bank, Bank B is not obligated to monitor this date. Even if the expiry date is mentioned, Bank B will disregard it, and the authorization will continue to be valid until it is either utilized or canceled.
Article 7(c): “The issuing bank must cancel its reimbursement authorization for any unutilized portion of the credit to which it refers, informing the reimbursing bank without delay.”
Explanation: This clause mandates that the issuing bank must cancel the reimbursement authorization once any portion of the credit remains unutilized. The issuing bank is required to notify the reimbursing bank immediately after canceling the authorization, ensuring that there is no confusion or ambiguity about the validity of the authorization.
Example: Suppose an LC issued by Bank A has a value of $100,000, but only $80,000 has been utilized. The remaining $20,000 is unutilized. According to Article 7(c), Bank A must cancel the reimbursement authorization for the unutilized $20,000 and inform Bank B, the reimbursing bank, about the cancellation without delay.