LIBF

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 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.

URR 725 Article 10: Standards for a Reimbursement Claim – CDCS Guide

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Article 10. Standards for a Reimbursement Claim – URR 725

Clause a:

“The claiming bank’s claim for reimbursement:
i. must be in the form of a teletransmission, unless specifically prohibited by the reimbursement authorization, or an original letter. A reimbursing bank has the right to request that a reimbursement claim be authenticated and, in such case, the reimbursing bank shall not be liable for any consequences resulting from any delay incurred. If a reimbursement claim is made by teletransmission, no mail confirmation is to be sent. In the event such a mail confirmation is sent, the claiming bank will be responsible for any consequences that may arise from a duplicate reimbursement;”

Explanation:
This clause specifies the form in which a reimbursement claim must be made. The claim should primarily be sent via teletransmission (e.g., SWIFT message), unless the reimbursement authorization specifies otherwise, such as requiring an original letter. The reimbursing bank may request authentication of the claim, and any delays caused by this authentication process will not be the reimbursing bank’s responsibility. Additionally, if the claim is sent via teletransmission, no further mail confirmation should be sent, as it could lead to duplicate reimbursements, for which the claiming bank would be responsible.

Example:
If Bank A (the claiming bank) submits a reimbursement claim via SWIFT to Bank B (the reimbursing bank), and Bank B requests authentication, any delay due to this process would not be Bank B’s responsibility. Moreover, if Bank A accidentally sends a mail confirmation of the SWIFT claim, leading to a duplicate payment, Bank A would bear the consequences.

“ii. must clearly indicate the credit number and the issuing bank (and reimbursing bank’s reference number, if known);”

Explanation:
The claim must include clear and specific details such as the credit number associated with the reimbursement request, the name of the issuing bank, and if known, the reference number of the reimbursing bank. This ensures the reimbursing bank can accurately identify and process the claim without confusion.

Example:
Bank A submits a claim that includes the credit number “LC12345,” the issuing bank’s name “XYZ Bank,” and the reimbursing bank’s reference number “RB67890.” This information helps Bank B accurately process the reimbursement.

“iii. must separately stipulate the principal amount claimed, any additional amount due, and charges;”

Explanation:
The claiming bank must itemize the reimbursement claim by separately stating the principal amount being claimed, any additional amounts that may be due (such as interest or fees), and any applicable charges. This transparency helps the reimbursing bank understand the components of the claim.

Example:
Bank A submits a reimbursement claim with the following breakdown:

  • Principal Amount: $100,000
  • Additional Amount Due (Interest): $500
  • Charges: $200
    This detailed breakdown allows Bank B to process each component correctly.

“iv. must not be a copy of the claiming bank’s advice of payment, deferred payment, acceptance, or negotiation to the issuing bank;”

Explanation:
The reimbursement claim must be a distinct document and not merely a copy of the claiming bank’s communication to the issuing bank regarding payment, deferred payment, acceptance, or negotiation. This ensures that the reimbursing bank receives a formal and specific request for reimbursement.

Example:
Bank A, after negotiating documents, sends an advice to the issuing bank. The reimbursement claim sent to Bank B must be a separate document, specifically outlining the reimbursement request, and not just a copy of the advice sent to the issuing bank.

“v. must not include multiple reimbursement claims under one teletransmission or letter;”

Explanation:
A single teletransmission or letter must only contain one reimbursement claim. This avoids confusion and ensures that each claim is processed individually.

Example:
If Bank A has two separate reimbursement claims, one for $50,000 and another for $70,000, it must send these as two separate SWIFT messages or letters to Bank B, rather than combining them into one.

“vi. must, in the case of a reimbursement undertaking, comply with the terms and conditions of the reimbursement undertaking.”

Explanation:
If the reimbursement claim is made under a reimbursement undertaking, it must strictly adhere to the terms and conditions outlined in that undertaking. Failure to comply could lead to the rejection of the claim.

Example:
If a reimbursement undertaking specifies that the claim must be submitted within 10 days of shipment, Bank A must ensure that its claim adheres to this condition when submitting it to Bank B.

Clause b:

“When a time draft is to be drawn on the reimbursing bank, the claiming bank must forward the draft with the reimbursement claim to the reimbursing bank for processing, and include the following in its claim:
i. general description of the goods, services or performance;
ii. country of origin;
iii. place of destination or performance;
and if the transaction covers the shipment of merchandise,
iv. date of shipment;
v. place of shipment.”

Explanation:
When a time draft is involved, the claiming bank must include the draft with the reimbursement claim and provide specific details about the transaction. This includes a general description of the goods or services, the country of origin, the destination or place of performance, and for merchandise shipments, the date and place of shipment. These details help the reimbursing bank verify the legitimacy of the claim.

Example:
Bank A submits a time draft to Bank B with the following details:

  • Goods: Electronics
  • Country of Origin: Japan
  • Place of Destination: New York, USA
  • Date of Shipment: August 1, 2024
  • Place of Shipment: Tokyo, Japan
    This information helps Bank B process the time draft accurately.

Clause c:

“A reimbursing bank assumes no liability or responsibility for any consequences that may arise out of any non-acceptance or delay of processing should the claiming bank fail to follow the provisions of this article.”

Explanation:
If the claiming bank fails to adhere to the provisions outlined in Article 10, the reimbursing bank is not liable for any consequences, such as non-acceptance or delays in processing the claim. This clause protects the reimbursing bank from potential errors or omissions made by the claiming bank.

Example:
If Bank A fails to provide the correct credit number in its claim, resulting in a processing delay, Bank B is not responsible for any issues that arise due to this delay.