URR 725 Articles Explanation

URR 725 Article 17: Interest Claims and Loss of Value – CDCS Guide

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Article 17 – Interest Claims/Loss of Value

“Any claim for loss of interest, loss of value due to any exchange rate fluctuations, revaluations or devaluations are between the claiming bank and the issuing bank, unless such losses result from the non-performance of the reimbursing bank under a reimbursement undertaking.”

Explanation and Examples:

1. “Any claim for loss of interest, loss of value due to any exchange rate fluctuations, revaluations or devaluations are between the claiming bank and the issuing bank”

Explanation: This clause establishes that if there are any losses related to interest or value due to changes in exchange rates, or due to revaluation or devaluation of currencies, these claims should be directed between the bank making the claim and the issuing bank. Essentially, it means that the claiming bank cannot hold other parties accountable for these financial losses unless specific conditions are met.

Example: Suppose Bank A issued a letter of credit, and Bank B is the claiming bank. If there are fluctuations in exchange rates that affect the value of the amount being claimed, and if Bank B incurs a loss due to these fluctuations, Bank B must seek compensation from Bank A (the issuing bank) rather than from other involved parties. For instance, if Bank B claims $10,000 in foreign currency under a letter of credit and the exchange rate changes unfavorably, leading to a loss in value, Bank B should pursue a claim directly with Bank A.

2. “unless such losses result from the non-performance of the reimbursing bank under a reimbursement undertaking.”

Explanation: This clause adds an exception to the rule mentioned above. If the losses are due to the non-performance of the reimbursing bank (a bank that agrees to reimburse the issuing bank), then those losses are not solely between the claiming bank and the issuing bank. In such cases, the claiming bank may have recourse against the reimbursing bank as well.

Example: Consider a situation where Bank A (the issuing bank) is supposed to be reimbursed by Bank C (the reimbursing bank) for an amount under a letter of credit. If Bank C fails to perform its reimbursement obligation, and as a result, Bank B (the claiming bank) faces a loss due to exchange rate fluctuations, Bank B can then claim compensation not only from Bank A but also from Bank C. For example, if Bank C fails to reimburse Bank A, causing Bank B to suffer a financial loss due to currency devaluation, Bank B can seek recovery from Bank C as well as from Bank A.

URR 725 Article 16: Charges in Reimbursement Transactions – CDCS Guide

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Article 16 – Charges

a. “A reimbursing bank’s charges are for the account of the issuing bank.”

Explanation: This clause stipulates that when a reimbursing bank incurs charges while processing a reimbursement claim, these charges are to be covered by the issuing bank, not the reimbursing bank.

Example: Suppose Bank A (the issuing bank) authorizes Bank B (the reimbursing bank) to pay a reimbursement claim for a letter of credit. If Bank B incurs a fee for processing this claim, Bank A will be responsible for paying that fee, not Bank B.

b. “When honouring a reimbursement claim, a reimbursing bank is obligated to follow the instructions regarding any charges contained in the reimbursement authorization.”

Explanation: This clause requires the reimbursing bank to adhere to any specific instructions given by the issuing bank concerning charges when processing a reimbursement claim.

Example: If Bank A’s reimbursement authorization specifies that Bank B should deduct a particular fee from the reimbursement amount, Bank B must follow this instruction when it processes the claim.

c. “If a reimbursement authorization states that the reimbursing bank’s charges are for the account of the beneficiary, they shall be deducted from the amount due to a claiming bank when reimbursement is made. Where a reimbursing bank follows the instructions of the issuing bank regarding charges (including commissions, fees, costs or expenses) and these charges are not paid, or a reimbursement claim is never presented to the reimbursing bank under the reimbursement authorization, the issuing bank remains liable for such charges.”

Explanation: If the reimbursement authorization specifies that the reimbursing bank’s charges are to be borne by the beneficiary, these charges will be subtracted from the reimbursement amount due to the claiming bank. However, if the reimbursing bank incurs charges based on the issuing bank’s instructions and these charges are not paid, or if no claim is presented to the reimbursing bank, the issuing bank will still be liable for these charges.

Example: Suppose Bank A’s authorization directs Bank B to deduct its charges from the reimbursement amount due to the beneficiary. If Bank B follows this instruction, the charges are deducted from the payment made to the beneficiary. If Bank B’s charges remain unpaid or if no claim is made to Bank B, Bank A is responsible for covering those charges.

d. “All charges paid by the reimbursing bank will be in addition to the amount of the authorization, provided that the claiming bank indicates the amount of such charges.”

Explanation: This clause indicates that any additional charges incurred by the reimbursing bank will be added to the total amount authorized for reimbursement, provided the claiming bank specifies these charges.

Example: If Bank B pays $500 in charges to process the reimbursement, and the reimbursement authorization was for $10,000, Bank B can claim $10,500 from Bank A, assuming Bank A was informed about the $500 charge.

e. “If the issuing bank fails to provide the reimbursing bank with instructions regarding charges, all charges shall be for the account of the Issuing bank.”

Explanation: When the issuing bank does not provide specific instructions on how to handle charges, it is responsible for covering all such charges incurred by the reimbursing bank.

Example: If Bank A does not specify how to handle charges in its reimbursement authorization, any fees incurred by Bank B will be covered by Bank A.

URR 725 Article 15: Force Majeure – CDCS Guide

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Article 15 – Force Majeure

Clause: “A reimbursing bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism or by any strikes or lockouts or any other causes beyond its control.”

Explanation:

Article 15 of URR 725 addresses the concept of “Force Majeure,” which refers to exceptional circumstances that prevent a party from fulfilling its obligations under a contract. In this context, it specifies that a reimbursing bank is not liable for any consequences resulting from certain uncontrollable events that disrupt its business operations.

Example:

Imagine a reimbursing bank involved in a letter of credit transaction. If a severe earthquake (an Act of God) strikes and damages the bank’s infrastructure, making it impossible for the bank to process or reimburse transactions, Article 15 absolves the bank from liability. Similarly, if a bank’s operations are disrupted due to a violent riot or a war in its location, the bank cannot be held responsible for any delays or non-performance caused by these events.

To further illustrate, consider a situation where a bank is supposed to reimburse a beneficiary under a letter of credit, but due to a general strike (a strike or lockout), the bank’s operations are halted. According to Article 15, the bank is not liable for failing to meet its reimbursement obligations during this period of interruption.

In essence, Article 15 provides protection for reimbursing banks against claims related to their inability to perform due to extraordinary and unforeseen events beyond their control.

URR 725 Articles 13 & 14: Foreign Laws and Usages & Disclaimer on the Transmission of Messages – CDCS Guide

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Article 13 – Foreign Laws and Usages

Clause: “The issuing bank shall be bound by and liable to indemnify the reimbursing bank against all obligations and responsibilities imposed by foreign laws and usages.”

Explanation: Article 13 of URR 725 emphasizes the responsibility of the issuing bank to indemnify the reimbursing bank against any obligations or liabilities that arise due to the application of foreign laws and customs. This means that when a transaction involves multiple countries, the laws and practices of those countries may differ. The issuing bank must ensure that the reimbursing bank is not unfairly burdened by these foreign regulations. The issuing bank is therefore responsible for covering any costs or legal obligations that may arise from these foreign laws.

Example: Suppose an issuing bank in India requests a reimbursing bank in France to handle the reimbursement under a letter of credit. If the French bank incurs any additional obligations due to specific French banking regulations that are not present in Indian law, the Indian issuing bank must compensate the French bank for any losses or obligations. For instance, if the French law imposes a tax on the reimbursement transaction, the Indian issuing bank must indemnify the French bank for this tax.

Article 14 – Disclaimer on the Transmission of Messages

Clause: “A reimbursing bank assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages, delivery of letters or documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the credit, reimbursement authorization or reimbursement claim, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit, reimbursement authorization or reimbursement claim. A reimbursing bank assumes no liability or responsibility for errors in translation or interpretation of technical terms.”

Explanation: Article 14 of URR 725 provides a disclaimer for the reimbursing bank concerning the transmission of messages and documents. The reimbursing bank is not liable for delays, loss, damage, or errors that occur during the transmission of these communications, provided the bank follows the instructions laid out in the credit or reimbursement authorization. Furthermore, if the bank chooses the method of transmission in the absence of specific instructions, it still holds no liability for any issues arising from that choice. The bank is also not responsible for any errors in translating or interpreting technical terms.

Example: Imagine a reimbursing bank in Germany is transmitting documents related to a letter of credit to a beneficiary in Japan. If the documents are delayed, lost, or damaged in transit, or if there is a translation error in a technical term, the reimbursing bank is not responsible for the consequences, provided they followed the instructions given by the issuing bank. For example, if a key technical term is misinterpreted during translation from English to Japanese, leading to confusion, the reimbursing bank is not liable for any resulting issues, as per Article 14.

URR 725 Article 12: Duplications of a Reimbursement Authorization – CDCS Guide

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Article 12 – Duplications of a Reimbursement Authorization

Clause 1: “An issuing bank must not, upon receipt of documents, give a new reimbursement authorization or additional instructions unless they constitute an amendment to, or a cancellation of, an existing reimbursement authorization.”

Explanation: This clause emphasizes that once the issuing bank has provided a reimbursement authorization, it should not issue another authorization or any additional instructions unless they serve the purpose of amending or canceling the previous authorization. Essentially, this prevents the confusion and potential financial discrepancies that could arise from having multiple reimbursement authorizations for the same transaction.

Example: Suppose Bank A issues a reimbursement authorization to Bank B for $100,000 against a letter of credit (LC). Later, upon receiving the shipping documents, Bank A realizes there is an error in the amount. Instead of issuing a new reimbursement authorization for $95,000, Bank A should amend the original authorization to reflect the correct amount. Issuing a new authorization could lead to both $100,000 and $95,000 being reimbursed, causing a duplication.

Clause 2: “If the issuing bank does not comply with the above and a duplicate reimbursement is made, it is the responsibility of the issuing bank to obtain the return of the amount of the duplicate reimbursement.”

Explanation: If the issuing bank fails to follow the rule outlined in Clause 1 and, as a result, a duplicate reimbursement is made, the issuing bank bears the responsibility for recovering the duplicate amount. This clause ensures that the issuing bank is accountable for any errors or miscommunications leading to multiple reimbursements for the same transaction.

Example: Continuing from the previous example, if Bank A mistakenly issues a second reimbursement authorization without canceling or amending the first one, and both $100,000 and $95,000 are reimbursed, Bank A would be responsible for recovering the extra $95,000 from the beneficiary or any other party involved.

Clause 3: “The reimbursing bank assumes no liability or responsibility for any consequences that may arise from any such duplication.”

Explanation: This clause absolves the reimbursing bank of any responsibility for issues arising from duplicate reimbursements caused by the issuing bank’s failure to comply with the previous clauses. The reimbursing bank is merely executing instructions as provided and cannot be held liable for any mistakes made by the issuing bank.

Example: If Bank B, acting as the reimbursing bank, pays out both the $100,000 and $95,000 as instructed, it cannot be held accountable for the over payment. The onus falls entirely on Bank A to rectify the situation, as Bank B is only responsible for following the instructions provided by Bank A.

URR 725 Article 11: Processing a Reimbursement Claim – CDCS Guide

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Article 11 – Processing a Reimbursement Claim

a. i. “A reimbursing bank shall have a maximum of three banking days following the day of receipt of the reimbursement claim to process the claim. A reimbursement claim received outside banking hours will be deemed to be received on the next following banking day. If a pre-debit notification is required by the issuing bank, this pre-debit notification period shall be in addition to the processing period mentioned above.”

Explanation: This clause mandates that the reimbursing bank has up to three banking days to process a reimbursement claim after receiving it. If the claim is received outside of the bank’s working hours, the claim is considered received on the next business day. Additionally, if the issuing bank requires a pre-debit notification, the time allowed for this notification is added to the initial three-day processing period.

Example: If a reimbursing bank receives a claim at 5:30 PM on a Friday, and the bank closes at 5:00 PM, the claim is considered received on Monday, the next banking day. The bank then has until Wednesday to process the claim. If a pre-debit notification is needed and takes two days, the bank would have until Friday to complete the processing.

a. ii. “If the reimbursing bank determines not to reimburse, either because of a non-conforming claim under a reimbursement undertaking or for any reason whatsoever under a reimbursement authorization, it shall give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, no later than the close of the third banking day following the day of receipt of the claim (plus any additional period mentioned in sub-Article (i) above). Such notice shall be sent to the claiming bank and the issuing bank and, in the case of a reimbursement undertaking, it must state the reasons for non-payment of the claim.”

Explanation: If the reimbursing bank decides not to honor the reimbursement claim due to any reason, such as non-compliance with the reimbursement undertaking, it must notify the claiming bank and the issuing bank within three banking days after receiving the claim. If a pre-debit notification is required, the three-day period starts after this additional notification period. The notice must include reasons for non-payment.

Example: A bank receives a claim on Tuesday but finds that the claim is non-conforming on Wednesday. The bank must notify both the claiming bank and the issuing bank by Friday, explaining why the claim will not be paid.

b. “A reimbursing bank will not process a request for back value (value dating prior to the date of a reimbursement claim) from the claiming bank.”

Explanation: This clause prevents a reimbursing bank from accepting or processing any requests to backdate a reimbursement claim to a date earlier than the claim’s submission. Essentially, the reimbursement claim must be processed based on the date it was actually received, not any prior date.

Example: If a claiming bank submits a reimbursement claim on August 10th, it cannot request the reimbursing bank to process the payment as if it was received on August 1st. The reimbursing bank will only process the claim based on the August 10th submission date.

c. i. “When a reimbursing bank has not issued a reimbursement undertaking and a reimbursement is due on a future date: the reimbursement claim must specify the predetermined reimbursement date;”

Explanation: If the reimbursing bank has not issued a reimbursement undertaking and the reimbursement is scheduled for a future date, the claiming bank must clearly mention the predetermined date in its reimbursement claim.

Example: A claiming bank submits a reimbursement claim on August 1st, but the reimbursement is due on August 15th. The claim must explicitly state that the reimbursement is due on August 15th.

c. ii. “the reimbursement claim should not be presented to the reimbursing bank more than ten banking days prior to such predetermined date. If a reimbursement claim is presented more than ten banking days prior to the predetermined date, the reimbursing bank may disregard the reimbursement claim. If the reimbursing bank disregards the reimbursement claim, it must so inform the claiming bank by teletransmission or other expeditious means without delay.”

Explanation: This clause sets a limit on when a reimbursement claim can be submitted to the reimbursing bank, specifically not more than ten banking days before the predetermined reimbursement date. If a claim is submitted earlier than this, the reimbursing bank has the right to ignore it and must promptly inform the claiming bank if they do so.

Example: If the predetermined reimbursement date is August 20th, the claiming bank should not submit the claim before August 6th. If the claim is submitted on August 1st, the reimbursing bank can choose to disregard it and must notify the claiming bank immediately.

c. iii. “If the predetermined reimbursement date is more than three banking days following the day of receipt of the reimbursement claim, the reimbursing bank has no obligation to provide notice of non-reimbursement until such predetermined date, or no later than the close of the third banking day following the receipt of the reimbursement claim plus any additional period mentioned in (a) (i) above, whichever is later.”

Explanation: If the predetermined reimbursement date is more than three banking days after the reimbursement claim is received, the reimbursing bank is not required to notify the claiming bank of any non-reimbursement decision until the predetermined date. However, the bank may also choose to give notice by the end of the third banking day after receiving the claim, considering any extra time allowed for pre-debit notifications as mentioned earlier.

Example: A reimbursement claim is received on August 1st, with a predetermined reimbursement date of August 10th. The reimbursing bank has until August 10th to inform the claiming bank if they decide not to reimburse. However, if the bank decides earlier, it can notify the claiming bank by August 4th.

d. “Unless otherwise expressly agreed to by the reimbursing bank and the claiming bank, a reimbursing bank will effect reimbursement under a reimbursement claim only to the claiming bank.”

Explanation: This clause ensures that reimbursement is made only to the claiming bank unless there is a specific agreement between the reimbursing bank and the claiming bank stating otherwise. This is to maintain clarity and prevent unauthorized third-party claims.

Example: If Bank A submits a reimbursement claim to Bank B, the reimbursement will be made directly to Bank A. Bank B will not reimburse any third party unless explicitly agreed upon with Bank A.

e. “A reimbursing bank assumes no liability or responsibility if it honours a reimbursement claim indicating that a payment, acceptance or negotiation was made under reserve or against an indemnity, and shall disregard such indication.”

Explanation: This clause states that a reimbursing bank is not liable if it processes a reimbursement claim that mentions that the original payment, acceptance, or negotiation was made under reserve or against an indemnity. The reimbursing bank will disregard such indications when processing the claim.

Example: If a reimbursement claim from Bank A to Bank B states that the payment was made under reserve, Bank B can process the reimbursement claim without considering the reservation or indemnity conditions mentioned. Bank B will not be held responsible for any issues arising from those conditions.