Article 8. Amendment or Cancellation of Reimbursement Authorization
Clause a: “The issuing bank may issue a reimbursement amendment or cancel a reimbursement authorization at any time upon sending notice to that effect to the reimbursing bank.”
Explanation:
This clause allows the issuing bank to amend or cancel the reimbursement authorization at any time. However, the issuing bank must notify the reimbursing bank before making any such changes. The reimbursing bank relies on this authorization to process reimbursement claims, so timely communication is essential to prevent any misunderstandings or disputes.
Example:
Imagine Bank A issues a letter of credit (LC) in favor of a beneficiary, with Bank B acting as the reimbursing bank. If Bank A decides to change the reimbursement terms, it must inform Bank B immediately. If Bank A wishes to cancel the reimbursement authorization due to changes in the agreement with the beneficiary, it must notify Bank B before the cancellation takes effect.
Clause b: “The issuing bank must send notice of any amendment to a reimbursement authorization that has an effect on the reimbursement instructions contained in the credit to the nominated bank or, in the case of a credit available with any bank, the advising bank. In case of cancellation of the reimbursement authorization prior to expiry of the credit, the issuing bank must provide the nominated bank or the advising bank with new reimbursement instructions.”
Explanation:
When an issuing bank makes an amendment that affects reimbursement instructions, it is obligated to notify the nominated bank (the bank authorized to pay or negotiate the credit) or the advising bank (the bank that advised the credit). If the issuing bank cancels the reimbursement authorization before the credit expires, it must also provide new reimbursement instructions to the nominated or advising bank. This ensures that all parties are aware of the changes and can act accordingly.
Example:
Suppose Bank A amends the reimbursement authorization by changing the reimbursing bank from Bank B to Bank C. Bank A must notify the nominated bank or advising bank about this change. Additionally, if Bank A cancels the reimbursement authorization before the LC expires, it must provide the nominated bank or advising bank with new reimbursement instructions to avoid any confusion.
Clause c: “The issuing bank must reimburse the reimbursing bank for any reimbursement claims honoured or draft accepted by the reimbursing bank prior to the receipt by it of a notice of cancellation or reimbursement amendment.”
Explanation:
This clause obliges the issuing bank to honor any reimbursement claims or drafts that the reimbursing bank has processed before receiving the cancellation or amendment notice. The reimbursing bank acts based on the original authorization, and it must be protected from any losses due to actions taken before being informed of changes.
Example:
Consider that Bank B, acting as the reimbursing bank, has already processed a reimbursement claim based on the original authorization from Bank A. If Bank A later sends a notice of cancellation, Bank A must still reimburse Bank B for the claim that was honored before the cancellation notice was received.