Article 9. Reimbursement Undertaking
Clause (a):
“In addition to the requirements of subArticles 6 (a), (b), and (c) of these rules, a reimbursement authorization authorizing or requesting the issuance of a reimbursement undertaking must comply with the provisions of this article.”
Explanation:
This clause emphasizes that when a reimbursement authorization is made, it must adhere not only to the basic requirements laid out in subArticles 6(a), (b), and (c) of URR 725 but also to the specific provisions detailed in Article 9. This ensures a consistent and standardized process across all reimbursement undertakings.
Example:
If Bank A (the issuing bank) requests Bank B (the reimbursing bank) to issue a reimbursement undertaking to Bank C (the claiming bank), the request must include all necessary details such as the credit number, currency, and amount, as well as compliance with the previously mentioned subArticles.
Clause (b):
“An authorization or request by the issuing bank to the reimbursing bank to issue a reimbursement undertaking is irrevocable (“Irrevocable reimbursement authorization”) and must (in addition to the requirement of Article 1 for incorporation of reference to these rules) contain the following: i. credit number; ii. currency and amount; iii. additional amounts payable and tolerance, if any; iv. full name and address of the claiming bank to which the reimbursement undertaking should be issued; v. latest date for presentation of a claim, including any usance period; vi. parties responsible for charges (claiming bank’s and reimbursing bank’s charges and reimbursement undertaking fee) in accordance with Article 16 of these rules.”
Explanation:
This clause highlights that the request from the issuing bank to the reimbursing bank to issue a reimbursement undertaking is irrevocable. It cannot be canceled or altered without the consent of all involved parties. The request must include specific details such as the credit number, amount, name of the claiming bank, and the deadline for claim presentation. Additionally, it should specify who will bear the charges involved.
Example:
Bank A authorizes Bank B to issue a reimbursement undertaking to Bank C. This authorization is irrevocable and must include details like the credit number, the amount (e.g., USD 500,000), and the name and address of Bank C. It should also state that the latest date for presenting a claim is 30 days from the shipment date, and indicate whether the claiming bank or the reimbursing bank is responsible for the charges.
Clause (c):
“If the Reimbursing bank is requested to accept and pay a time draft, the irrevocable reimbursement authorization must also indicate the following, in addition to the information contained in (b) above: i. tenor of draft to be drawn; ii. drawer; iii. party responsible for acceptance and discount charges, if any. An issuing bank should not require a sight draft to be drawn on the reimbursing bank.”
Explanation:
This clause applies when the reimbursing bank is requested to accept and pay a time draft. The reimbursement authorization must specify additional details like the tenor of the draft, the drawer, and who will bear the acceptance and discount charges. The clause also advises against requiring a sight draft on the reimbursing bank, as it goes beyond the standard practice.
Example:
If Bank A asks Bank B to accept and pay a time draft from Bank C, the authorization must mention that the draft is to be paid 60 days after the sight and indicate that Bank C is the drawer. It must also clarify whether Bank C or another party is responsible for any discount charges that might apply.
Clause (d):
“If the reimbursing bank is authorized or requested by the issuing bank to issue its reimbursement undertaking to the claiming bank but is not prepared to do so, it must so inform the issuing bank without delay.”
Explanation:
If the reimbursing bank is not willing or able to issue the reimbursement undertaking requested by the issuing bank, it must promptly notify the issuing bank. This ensures clear communication and avoids delays or misunderstandings.
Example:
Bank B, upon receiving a request from Bank A to issue a reimbursement undertaking to Bank C, finds that it cannot comply with the request due to internal policies. Bank B must immediately inform Bank A of its inability to fulfill the request.
Clause (e):
“A reimbursement undertaking must indicate the terms and conditions of the undertaking and: i. the credit number and name of the issuing bank; ii. the currency and amount of the reimbursement authorization, iii. additional amounts payable and tolerance, if any; iv. the currency and amount of the reimbursement undertaking; v. the latest date for presentation of a claim, including any usance period; vi. the party to pay the reimbursement undertaking fee, if other than the issuing bank. The reimbursing bank must also include its charges, if any, that will be deducted from the amount claimed.”
Explanation:
This clause specifies the essential information that must be included in a reimbursement undertaking. It should clearly state the terms, including the credit number, currency, amount, and the deadline for claims. If any party other than the issuing bank is responsible for the reimbursement undertaking fee, it must be stated. Additionally, the reimbursing bank should disclose any charges that will be deducted from the claim amount.
Example:
Bank B issues a reimbursement undertaking to Bank C for USD 500,000, referencing credit number 12345 issued by Bank A. The reimbursement undertaking specifies that the latest date for claim presentation is 30 days after shipment, and that Bank C is responsible for a fee of USD 500, which will be deducted from the claimed amount.
Clause (f):
“If the latest date for presentation of a claim falls on a day on which the reimbursing bank is closed for reasons other than those referred to in Article 15, the latest date for presentation of a claim shall be extended to the first following banking day.”
Explanation:
If the last date for presenting a claim falls on a day when the reimbursing bank is unexpectedly closed (e.g., due to a local holiday or other unplanned closure), the deadline is automatically extended to the next business day. This ensures that the claiming bank is not penalized for circumstances beyond its control.
Example:
The latest date for claim presentation is December 25th, but this falls on a public holiday in the country where Bank B (the reimbursing bank) is located. The deadline is then extended to December 26th, the next business day.
Clause (g):
“A reimbursing bank is irrevocably bound to honour a reimbursement claim as of the time it issues the reimbursement undertaking.”
Explanation:
Once the reimbursing bank issues a reimbursement undertaking, it is irrevocably obligated to honor any valid reimbursement claims. This means the reimbursing bank cannot back out or refuse payment once the undertaking has been issued.
Example:
Bank B issues a reimbursement undertaking to Bank C for USD 500,000. Bank C submits a claim as per the terms of the reimbursement undertaking. Bank B is legally bound to honor this claim and make the payment to Bank C.
Clause (h):
“i. An irrevocable reimbursement authorization cannot be amended or cancelled without the agreement of the reimbursing bank. ii. When an issuing bank has amended its irrevocable reimbursement authorization, a reimbursing bank that has issued its reimbursement undertaking may amend its undertaking to reflect such amendment. If a reimbursing bank chooses not to issue its reimbursement undertaking amendment, it must so inform the issuing bank without delay. iii. An issuing bank that has issued its irrevocable reimbursement authorization amendment shall be irrevocably bound as of the time of its advice of the irrevocable reimbursement authorization amendment. iv. The terms of the original irrevocable reimbursement authorization (or an authorization incorporating previously accepted irrevocable reimbursement authorization amendments) will remain in force for the reimbursing bank until it communicates its acceptance of the amendment to the issuing bank. v. A reimbursing bank must communicate its acceptance or rejection of an irrevocable reimbursement authorization amendment to the issuing bank. A reimbursing bank is not required to accept or reject an irrevocable reimbursement authorization amendment until it has received acceptance or rejection from the claiming bank to its reimbursement undertaking amendment.”
Explanation:
This clause deals with the amendment or cancellation of an irrevocable reimbursement authorization. Such changes cannot be made without the agreement of the reimbursing bank. If the issuing bank amends its authorization, the reimbursing bank may choose to amend its reimbursement undertaking accordingly, but it must notify the issuing bank if it decides not to do so. The issuing bank is bound by its amendment once it has been advised, and the original terms remain in effect until the reimbursing bank accepts the amendment. The reimbursing bank must communicate its decision regarding the amendment, but it is not obligated to do so until it hears back from the claiming bank.
Example:
Bank A amends its irrevocable reimbursement authorization by extending the claim deadline. Bank B, which issued the reimbursement undertaking based on the original terms, must decide whether to accept the amendment. If Bank B chooses not to amend its undertaking, it must inform Bank A. Bank A is bound by the new terms as soon as it advises Bank B, but Bank B will continue to follow the original terms until it accepts the amendment.
Clause (i):
“i. A reimbursement undertaking cannot be amended or cancelled without the agreement of the reimbursing bank. ii. A reimbursement undertaking amendment is binding on the reimbursing bank as of the time it is issued. iii. The original terms of the reimbursement undertaking (or a reimbursement undertaking incorporating previously accepted amendments) will remain in force for the claiming bank until it communicates its acceptance of the reimbursement undertaking amendment to the reimbursing bank. iv. A claiming bank must communicate its acceptance or rejection of a reimbursement undertaking amendment to the reimbursing bank without delay.”
Explanation:
This clause focuses on the amendment or cancellation of a reimbursement undertaking itself. Any such changes require the agreement of the reimbursing bank. Once the amendment is issued, it becomes binding on the reimbursing bank. The original terms remain in force until the claiming bank accepts the amendment. The claiming bank is required to promptly communicate its acceptance or rejection of the amendment to the reimbursing bank.
Example:
Bank B amends its reimbursement undertaking to change the payment terms. This amendment is binding on Bank B as soon as it is issued. However, Bank C (the claiming bank) must accept the amendment for it to take effect. Until Bank C communicates its acceptance, the original terms remain valid.