Amendment

Partial Acceptance of Amendments

Ozgur Eker (CDCS) How to Work With a Letter of Credit, Letter of Credit Basics ,
Partial Acceptance of Amendments

According to the letter of credit rules, the beneficiary should communicate its acceptance of the amendment to the bank that advised such amendment.

The beneficiary should give notification of acceptance or notification of rejection of an amendment.

If the beneficiary fails to give such notification of acceptance, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment.

As of that moment the credit will be amended.

But, what happens if a beneficiary of a letter of credit partially accepts an amendment?

Real Life Example: Kuldeep is Asking This Question From India

case study:Partial Acceptance of Amendments

Question: We have opened a confirmed 100% irrevocable lc at sight to our supplier in China on 28.January.2014 from our local bank in India.

Just after the issuance of the letter of credit our supplier contacted us for demanding more shipment period.

We amend the letter of credit by extending the latest date of shipment and expiry date.

One month later, our supplier, who is the beneficiary of the commercial letter of credit, got in touch with us again and requested another extension of the shipment period. We agreed and amended the letter of credit second time.

However the exporter again demanded from us more time to shipment. This time we add additional conditions to our amendment in addition to extension of latest date of shipment and date of expiry of the credit.

The seller accepted some clauses in the 3rd amendment and rejected others.

We have warned our supplier that partial acceptance of amendments is not allowed according to the UCP 600.

We told him that partial acceptance of amendments means the rejection of that particular amendment altogether. Our supplier denied our requests and insisted on his stance.

What we would like to know is that whether our letter of credit expired or not? You can find latest date of shipment dates and expiry dates corresponding to our amendments on above figure.

Answer: Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.

The beneficiary neither accepted the 3rd amendment nor they have made any shipment before the latest date of shipment or presented the documents before the expiry date.

The letter of credit has expired on 21.June.2014.

What is the effectiveness date of an amendment?

Effectiveness Date of an Amendment

Ozgur Eker (CDCS) How to Work With a Letter of Credit, Letter of Credit Basics , , ,
Effectiveness Date of an Amendment

Letter of credit is an irrevocable and conditional payment obligation of the issuing bank.

As the letter of credit is irrevocable, its terms and conditions can not be changed without the consent of the beneficiary.

The beneficiary may find some of the terms and conditions of the credit unacceptable. Under such circumstances, the beneficiary has three options,

  • leaving the deal by not utilizing the letter of credit
  • making shipments with the original letter of credit by taking discrepancy risk
  • seeking an amendment by applying to the applicant.

Amendment in a letter of credit, a change in terms and conditions of the letter (e.g., extension of the letter of credit´s validity period, shipment deadline, etc.) usually to meet the needs of the seller. (1)

But what is the effectiveness date of an amendment?

The question comes from Vincent, who is asking a question regarding the effectiveness date of an amendment.

Here is his question as arrived by e-mail.

If the bank issues an amendment directly to the beneficiary decreasing the letter of credit amount without indicating an effective date for the amendment, is the decrease effective the date the amendment is issued or is the decrease effective the date the beneficiary agrees to the amendment.

What is your opinion, with of course no responsibility for providing such an opinion.

Regards
Vincent

Dear Vincent ,

In order to find the right answer to your question we need to look at the related part of the letter of credit rules.

Amendments are explained at article 10 in UCP 600.

UCP 600 states that “a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.”

UCP 600 article 10 continues to clarify effectiveness date of an amendment for the issuing bank and the confirming bank as follows “an issuing bank is irrevocably bound by an amendment as of the time it issues the amendment.

A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment.”

On the next couple of phrases explains the position of a beneficiary against amendments.

“The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment.”

As UCP 600 clearly indicates letter of credit will remain in force as is for the beneficiary until the beneficiary communicates its acceptance of the amendment.

But how beneficiaries can communicate their acceptance to amendments. This would be a good discussion topic for a future page.

Is it allowed partial acceptance of amendments under the letter of credit rules?

References:

  1. Dictionary of International Trade, Amendment, https://www.globalnegotiator.com/