reimbursing bank

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 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.

URR 725 Article 9: Reimbursement Undertaking – CDCS Guide

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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.

 

URR 725 Article 8: Amendment or Cancellation of Reimbursement Authorization – CDCS Guide

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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.