Confirm, May Add and Article 37 of UCP 600
by Xavier Fornt 2017 Jul/Aug/Sept
Swift is an essential tool for the operation of L/C’s.
However, SWIFT does not dictate the rules that applies to the L/C, but simply must conform to them.
Thus we see it in field 49 of the SWIFT MT700 (Issue of a Documentary Credit), concerning the Confirmation Instructions, when Swift offers us three possible “codes”.
• CONFIRM, which says that the Receiver is requested to confirm the credit,
• MAY ADD, which says that the Receiver may add its confirmation to the L/C, and finally
• WITHOUT, which says that the Receiver is not requested to confirm the L/C.
This analysis will focus on the first two: What is the difference between CONFIRM and MAY ADD?
From the practical point of view of the beneficiary the answer is “none”.
For the beneficiary it is only convenient to remind him that when field 49 contains the code CONFIRM, it does not mean that the L/C is confirmed.
Article 8 of UCP 600, relating to the undertaking of the confirming bank, in sub-article (b), it is clearly stated that
''A confirming Bank is irrevocably bound to honor or negotiate AS OF THE TIME IT ADDS ITS CONFIRMATION TO THE CREDIT”. [Emphasis added]
Let's go back to the differences between CONFIRM and MAY ADD.
Why does Swift make this forecast of two codes with the same practical effect for the beneficiary?
Because as we said before, Swift must conform to the applicable rules. That is UCP 600 and in article 2 of those rules “Confirming bank” is defined as follows:
''Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank's authorization or request''.
Following that the issuing bank “authorization” corresponds to the CONFIRM code, while Issuing bank “request” corresponds to the MAY ADD code.
In both cases it is clear that the confirmation is a voluntary act on the part of the confirming bank, and that is also reflected in UCP 600 sub-article 8 (d) which reads:
“If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation”.
What would be the difference between the CONFIRM code and the MAY ADD code, if the bank requested to do so agrees to add its confirmation?
The answer is found in sub-article 37 (c), which in point states:
“A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses ('' charges '') incurred by the bank in connection with its INSTRUCTIONS”. [Emphasis added]
In my modest opinion, perhaps wrong, when using the CONFIRM code, an instruction is being given, while when using the MAY ADD code, only a possibility is being offered to the receiving bank of the message. But this code is not an instruction.
Consequently, if the beneficiary refuses to pay the confirmation fees or commissions, in case the CONFIRM has been used, the confirming bank, is covered by sub-article 37 (c) and could go back to the issuing bank and ask for payment of that commission, whereas if the code used had been the MAY ADD, that would not be an instruction and consequently, the confirming bank would not be covered by this sub-article 37 (c).
The UCP 600 is rich in nuances that we have to know how to interpret.