Confirmation Charge

bdesh · Post by **bdesh** » Wed Jul 15, 2009 11:53 pm

Hi everybody,
CASE 1:
Issuing Bank requested the Advising Bank to add their (The Advising Bank) confirmation to the credit at beneficiary's cost.
.
CASE 2:
Issuing Bank requested the Advising Bank to add their (The Advising Bank) confirmation to the credit at beneficiary's cost on receipt of written request from the beneficiary to do so.
.
Advising Bank requested the Issuing Bank to pay the confirmation charge as the beneficiary did not collect the credit and did not pay the charge.
.
Is the Issuing Bank under obligation to pay the charge?
.
Regards

ajoy · Post by **ajoy** » Thu Jul 16, 2009 9:42 am

Hi

Advising Bank will always have recourse to Issuing Bank for services performed as long as they have followed the IB's instructions.

In case 2 Advising/confirming bank must have proof that a) bene asked for confirmation in writing. Not sure what you mean by bene did not collect credit. Was the credit advised at all?

Cheers
Ajoy

bdesh · Post by **bdesh** » Thu Jul 16, 2009 9:38 pm

Hi Ajoy,
Thanks for your reply.
Do u want to say that the following bear same meaning?

CASE 1:
Issuing Bank requested the Advising Bank to add their (The Advising Bank) confirmation to the credit at beneficiary's cost.
.
CASE 2:
Issuing Bank requested the Advising Bank to add their (The Advising Bank) confirmation to the credit at beneficiary's cost on receipt of written request from the beneficiary to do so.

.
Regards
bdesh

picant · Post by **picant** » Fri Jul 17, 2009 12:57 am

Hi Pals,

it seems to me that.

case 1, MT700 will indicate "confirm", case 2 "may add" . Case 2 beneficiary will bear confirmation costs, as the correct sentence is "to be confirmed on benficiary request, so may be considered that beneficiary is the party giving instructions. However as confirmation fees refer to a credit facility given to the issuing bank, the confirming bank will bear the risk only against payment of said commissions.

Other comments appreciated

Ciao

iLC · Post by **iLC** » Sat Jul 18, 2009 5:55 pm

agree with picant. great interpretation.

bdesh · Post by **bdesh** » Sun Jul 19, 2009 1:27 am

Hi picant,
Usually confirming bank requires reimbursement claim authority and availability of the LC with them.
In case "may add", what are the steps?
Thanks & regards.
bdesh

picant · Post by **picant** » Sun Jul 19, 2009 4:15 am

Hi Pals,

Reimbursemnt authorization, Swift MT740 to reimbursing bank, does not mean that the confirming bank is sure to obtain money immediately, as the issuing bank could not have funds in the account of reimbursing bank. Confirmation means to grant a credit facility to the issuing bank, independently from any authorization to reimburse, only is the issuing bank has n account with yourselves, you can taste it. Remember that some banks, specially US banks, are ready to grant "irrevocable confirmed undertaking" but this double the costs. Anyway, a bank asked to add confirmation, with may add clause, will evaluate all terms and conditions, ask for a modification, that, IMHO, is not to be treated as an amendment. Reimbursement instructions are not for beneficiary(even if no banks delete it when advise an l/c)

Other comments appreciated

Ciao

ajoy · Post by **ajoy** » Tue Jul 21, 2009 11:02 am

Hi Ajoy,
Thanks for your reply.
Do u want to say that the following bear same meaning?

CASE 1:
Issuing Bank requested the Advising Bank to add their (The Advising Bank) confirmation to the credit at beneficiary's cost.
.
CASE 2:
Issuing Bank requested the Advising Bank to add their (The Advising Bank) confirmation to the credit at beneficiary's cost on receipt of written request from the beneficiary to do so.

Your question was - is the issuing bank liable to pay the charges ? I think the answer is yes in both cases assuming Advising Bank has followed instructions and made reasonable attempt to recover thier charges from the Bene.

Why ??

because 'in both cases Advising bank is following instructions of the issuing bank and therfore acting as its agent.' Therfore it has recourse to the Issuing bank for any unpaid/unrecovered charges as long as it has followed the instructions recieved from the IB.

Case 1:
Advising Bank is the 'agent' here and following instructions. Therfore Advising bank has recourse to the IB for its confirmation charges.

Case 2:
Advising bank is still the 'agent ' here and the instructions from IB are:
Add confirmation to the credit against a written request from the bene.

Even though the bene may be considered as the party giving instructions it does not change the relation between the IB and advising bank...AB is still the 'agent' of the IB who has instructed Advisng bank to take instructions from the bene.

Therefore the IB is still liable to compensate the Advising bank for instructions carried out i.e confirming the LC on the bene 's request.

Let me add case 3 for further clarity:

Case 3: IB requests as below:

Please add confirmation to the Lc against written request from the bene only if the bene pays your confirmation charges upfront I.e before you confirm.

In this case if Advising bank takes a written request from bene but does not collect its confirmation charges before confirming the LC the IB is not liable to compensate the Advising bank.

I hope this third case makes things clearer.

BTW I am not sure why 'reimbursement' comes into the picture here. It is obvious that the Advising /Confirming Bank may not be obliged to pay under a LC where its confirming charges have not been paid. However, the advising bank /confirming bank has run up opportunity costs here by blocking available limits for confirmation and therefore has a right to claim the confirmation charges from the issuing bank..even where the LC has expired unutilized.

So provided that the Advising Bank is acting strictly on IB instructions it will always have recourse to the Issuing bank for any costs/losses/charges etc.

looking forward to your comments.

Best regards

Ajoy

bdesh · Post by **bdesh** » Wed Jul 22, 2009 12:06 am

Hi Ajoy,
Thanks a lot for adding Case 3 making the matter clearer to me.
.
Regards