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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Brindle Co sells machinery to Kalo Ltd under an irrevocable credit confirmed by Harbor Bank, a bank in Brindle's own country. Kalo's issuing bank later becomes insolvent before payment. What is the effect of the confirmation?

Harbor Bank, as confirming bank, has given its own independent undertaking to pay Brindle Co against complying documents. The issuing bank's insolvency therefore does not remove Brindle's right to payment, which is the main protection confirmation provides.

  1. AHarbor Bank has its own independent undertaking to pay Brindle Co against complying documentsCorrect
  2. BBrindle Co must wait until the issuing bank's liquidation is complete
  3. CThe credit becomes revocable because the issuing bank failed
  4. DKalo Ltd becomes directly liable to Harbor Bank instead of Brindle Co receiving payment

Explanation

A confirming bank adds its own definite undertaking to that of the issuing bank. Brindle can therefore claim from Harbor Bank against complying documents despite the issuer's insolvency. The credit does not become revocable, and waiting for liquidation defeats the purpose of confirmation.

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