Dear Sir,

Pls provide some light on the following confusion:

A transferable credit for USD10000.00 available with Bank X [nominated bank] by negotiation. At the time of transfer the first beneficiary instructs the transferring bank regarding amendment under the following way:

“Transferring bank has been instructed by the beneficiary that:

-     Any amendment [if follows] related to the requirements for the document to be presented only. The transferring bank can automatically advised the same to the subsequent beneficiary.

-     Amendment [if follows] related to value increase, extension of expiry date and last date of presentation, the transferring bank must take prior permission from the first beneficiary before advice the same to the subsequent beneficiary.

The transferring bank accepts the above conditions and transfers the credit to subsequent two-second beneficiary. It is mentionable here that the 1^st beneficiary performs 20% of total value. And thus transfer only 80% of the credit and First beneficiary substitute his invoice and draft for the same of second beneficiaries 

Later on an amendment   follows under the following conditions:

1. Please add under field 46a, “beneficiary must accompany a certificate of origin duly issued by the chamber of commerce of the exporting country evidencing that the merchandise are of “Y” origin with existing.
2. Credit value increased by USD10.00 and now total credit amount is USD10010.00.
3.  Last date of presentation now to be read as 15.01.08 instead of advised earlier.
4. Port of loading should be read as  “W” instead of “P”

Now the beneficiary asked for the transferring bank to advise only condition 1 of above amendment to subsequent second beneficiaries.

Transferring bank make an argument that as per article 10(e) partial amendment is not possible.

On the other hand beneficiary makes an argument that condition 2,3,.4 is  amended on persuasion of me with the applicant so that  I can perform my part under the transaction conveniently and has no impact the subsequent second beneficiaries.

1. Is transferring bank’s argument correct?

2. If the answer of question 1 is “YES”, what course of action the transferring bank should take?

3. If the answer of question 1 is “NO”, how you reconcile the above with sub article 10(e).

Regards

Nesar

The query related to the amendment that can automatically be advised to the 2nd beneficiaries is not clear though this has no impact on the question raised as the 1st beneficiary was advised of the amendment in question.

In my opinion both the 1st beneficiary and the transferring bank arguments are not correct.

The discussion implies that the 1st beneficiary has accepted the amendment as a whole. Therefore, from the perspective of the issuing bank and the applicant there is no issue of partial amendment. Now let's go to the amendment and analysis which condition the 1st beneficiary can withheld and which one he has to advise to the 2nd beneficiaries:

1) The first condition of the amendment (origin of goods) - there is no issue here as the 1st beneficiary has requested the transferring bank to advise it to the 2nd beneficiaries.

2) Second condition of the amendment (increase of amount) - there is no issue here as well as the 1st beneficiary can transfer an LC with a lesser amount; therefore this increase may not be advised to the 2^nd beneficiaries

4) Third condition of the amendment (expiry date) - here if the new latest date of presentation is an extension to the existing presentation date, there is no issue. However, if it relates to curtailing the period and the new date is less than the latest presentation date on the transferred credits, then the change must be advised to the second beneficiaries so that they can at least meet the terms and conditions of the master credit. It is always preferable that there should be a gap between the latest presentation date on the master LC and the subsidiary LCs i.e. to allow time for replacement of documents (if applicable) by the 1st beneficiary.

5) 4th condition of the amendment (Port of Loading) - there is a change in the port of loading; this has to be advised to the 2nd beneficiaries unless the master LC allows payment of the total amount transferred without affecting shipment i.e. without producing transport documents.

UCP 600 sub-article 10(e) refers to acceptance of amendments and not to how such
amendments can be advised under transferable LCs.

Under transferred LCs, amendments can be partially advised to 2nd beneficiaries.
The “Commentary on UCP 600” (By the UCP 600 Drafting Group) states:

" (...)For the benefit of both (the first and any second beneficiary), UCP600 allows more flexibility - to request a transferring bank to advise amendments, or only certain kinds of amendments, to second beneficiaries subject to certain conditions. For example, the first beneficiary may instruct the transferring bank to advise only amendments to the credit amount and expiry date or only amendments of the requirements for documents to be presented, etc. The wording in sub-art.(38e) also removes the concept of the first beneficiary providing an irrevocable instruction regarding amendments. The wording in sub-art.38e does not allow the first beneficiary to change those
instructions once the transferred credit has been issued, without the agreement of the second beneficiary.
An amendment is advised in whole or in part to a second beneficiary, either at the time the amendment is made to the original l/c (simultaneous amendment) or when the first beneficiary elects to advise the transferring bank independently as to which amendment to advise to the second beneficiary. Variations between the amendment received and the amendment advised would be restricted to the items that may be reduced or curtailed as shown in sub-art.(g) or, in case of more than one second beneficiary, the applicability of an amendment to each second beneficiary.(...)"