1. Definition and Legal Basis

Advising Bank under Article 9 only authenticates and forwards LC - no payment obligation.

Confirming Bank under UCP 600 Article 8(a) - at request or authorization of issuing bank, adds its confirmation to the credit.

Article 8(b): "A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit."

Once it confirms, UCP says:

Article 8(a): Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must:
(i) honour, if the credit is available by sight payment, deferred payment or acceptance with the confirming bank;
(ii) negotiate, without recourse, if the credit is available by negotiation with confirming bank.

Key features:

1. Independent and Primary: Liability is separate from issuing bank. Beneficiary can claim against either. Issuing bank insolvency does not discharge confirming bank.
2. Irrevocable: Cannot be revoked without beneficiary consent.
3. Conditional on Complying Presentation: Only duty is to examine documents under Article 14, 15 - not goods, not underlying contract. Principle of Autonomy.
4. Without Recourse to Beneficiary: If it negotiates, it cannot recover from beneficiary if issuing bank fails to reimburse - unless fraud.

2. Scope of Liability

A. Must Honour Complying Presentation

If documents comply on their face, confirming bank MUST pay even if:

• Issuing bank is insolvent
• Applicant says goods are defective
• Issuing bank refuses to reimburse
• Country risk / sanctions on issuing bank country [unless sanctions clause incorporated]

This is Fortis Bank SA/NV, Stemcor UK Ltd v Indian Overseas Bank EWCA Civ 58.[2011]

Facts: IOB (India) issued LC, confirmed by Fortis. Fortis paid beneficiary on complying presentation. IOB refused reimbursement due to Indian regulatory restrictions.

Held CA: Confirming bank's undertaking is independent under UCP 600. Once Fortis had confirmed and paid against complying documents, IOB must reimburse. Political/regulatory risk of issuing bank is borne by issuing bank, not confirming bank. Confirmed LC shifts country risk to confirming bank - that's why confirmation fee is charged.

B. Must Examine Documents with Reasonable Care

Standard: Article 14 UCP 600 - 5 banking days, documents must not be inconsistent.

If confirming bank wrongly dishonours a complying presentation, it is liable for damages - face value + interest + consequential loss.

Case: Banque de l'Indochine et de Suez SA v J.H. Rayner (Mincing Lane) Ltd QB 711
Confirming bank tried to argue discrepancies to avoid payment. Court held confirmation is irrevocable undertaking to beneficiary. Once added, cannot rely on external defences.[1983]

C. Right to Reimbursement is Independent

Article 8(c): Confirming bank's undertaking to reimburse another nominated bank is independent of its undertaking to beneficiary.

3. Landmark Case Laws

1. The Autonomy Principle - Hamzeh Malas & Sons v British Imex Industries Ltd 2 QB 127[1958]

Foundation case. Court held LC is autonomous from sale contract. Confirming bank must pay on documents, even if buyer says seller shipped rubbish. This protects confirming bank's liability - it only looks at documents.

2. The Fraud Exception - Edward Owen Engineering Ltd v Barclays Bank International Ltd QB 983 & Sztejn v J. Henry Schroder Banking Corp (1941) NY[1978]

General rule is pay, but exception: If beneficiary's fraud is clearly established and confirming bank has notice, it may refuse.

In Edward Owen, Lord Denning: "A bank which gives a performance guarantee must honour that guarantee according to its terms... save in a case of very clearly established fraud."

For confirming bank, fraud must be in documents themselves, not in underlying goods. Mere allegation by applicant insufficient.

3. The Most Important Confirming Bank Case - Banco Santander SA v Bayfern Ltd 1 All ER (Comm) 776 (CA)[2000]

Facts: Santander confirmed a deferred payment LC (360 days) issued by Paribas. Santander discounted its own deferred payment undertaking - i.e., paid beneficiary immediately, at discount, before maturity. Later, it turned out underlying transaction was fraudulent (fake invoices). Issuing bank refused to reimburse at maturity citing fraud.

Held by Court of Appeal: Confirming bank who discounts its OWN deferred payment undertaking does so at its own risk. Under UCP 500, a confirming bank for deferred payment credit has no right to be reimbursed until maturity. If fraud is established before maturity, issuing bank can refuse reimbursement. Santander bore loss.

This was heavily criticized by banking industry as placing risk on confirming bank.

Reversal under UCP 600 - Fortis Bank v Abu Dhabi Islamic Bank (ADIB) N.Y. Slip Op, and ICC Opinion TA.878[2010]

UCP 600 Article 12(b) now expressly allows a nominated bank to prepay or purchase a deferred payment undertaking it has incurred. Article 7(c) says issuing bank must reimburse nominated bank that has honoured or negotiated. Result: Banco Santander is no longer good law under UCP 600. Under UCP 600, if confirming bank prepays its own deferred undertaking against complying documents, issuing bank MUST reimburse at maturity even if fraud later discovered, unless fraud was clear at time of presentation.

This is the current position.

4. Credit Agricole Indosuez v Muslim Commercial Bank Ltd 1 Lloyd's Rep 275 (CA)[2000]

MCB (Pakistan) issued LC, Credit Agricole confirmed. MCB became insolvent / refused due to Pakistan exchange controls. Credit Agricole paid beneficiary and sued MCB.

Held: Confirmation is absolute. Confirming bank liable to beneficiary even if issuing bank's failure is due to sovereign act. Confirming bank cannot use force majeure of issuing bank as defence.

5. Kuvera Resources Pte Ltd v JPMorgan Chase Bank NA EWHC 1490 (Comm)[2022]

Judge quoted UCP 600 Analytical Commentary: "A beneficiary under a confirmed letter of credit has a contractual right either to seek payment from the issuing bank under the letter of credit or from the confirming bank under the confirmation."

Court reaffirmed independence of confirming bank contract from issuing bank contract. Beneficiary chose to sue confirming bank directly, not issuing bank - allowed.

6. Indian Law - Federal Bank Ltd v V.M. Jog Engineering Ltd (2001) 1 SCC 663

Supreme Court of India held:

• Confirming / Negotiating bank's liability is independent.
• Once confirming bank negotiates documents that appear compliant, it is entitled to reimbursement from issuing bank.
• Issuing bank cannot refuse on ground that applicant says goods defective. Must honour reimbursement to confirming bank.

Also State Bank of India v Nav Jyoti Steels and UCO Bank v Fisab Trading reaffirmed that fraud must be egregious and established, not merely alleged.

4. When Confirming Bank Can Refuse to Pay

Only 3 defences:

1. Non-complying presentation - discrepancies under Article 16. Must give valid notice of refusal within 5 days stating all discrepancies.
2. Fraud in documents - clearly established to knowledge of confirming bank at time of presentation.
3. Illegality / Sanctions - If confirmation expressly includes sanctions clause (e.g., "subject to applicable sanctions laws") then ICC Banking Commission Opinion says confirming bank may decline. If no clause, must still pay and seek licence.

Confirming bank cannot refuse because:

• Applicant insolvent
• Issuing bank insolvent or refuses to reimburse
• Goods are defective
• Applicant instructs not to pay
• Exchange controls in issuing bank country

5. Liabilities Summary

Golden Rule: Confirmation = Adding a second issuing bank. Beneficiary gets two independent paymasters. That's why confirmation commission is high - confirming bank assumes country, bank, and commercial risk.