Cancellation of Irrevocable LC immediately after issuance

[VinodR]

Issuing bank had forwarded an Irrevocable LC to the advising bank. However, the Issuing bank contacted the advising bank to hold advising the LC for cancellation. Meanwhile, advising bank had not acted on the LC received as the Issuing bank contacted the advising bank over the telephone and agreed to forward a request via tested message (SWIFT).
1) What is the advising bank's obligations under UCP
2) Should the advising bank advise the LC and request cancellation authorisation from the beneficiary?
3) Does UCP 600 alter the situation compared to UCP 500?

[POLTERD.]

unless you have reasons to act as per 500's art.7, you must at least contact bnf and ask him if he wants the l/c or not.
if no,everything is ok.
if yes, you must advise the l/c to the bnf and inform issuing bank accordingly.
bogdan

[NigelHolt]

Vinod,

I cannot see that the UCP -500 or 600- has anything directly to say on this matter (500 7 certainly does not and, yes, I am well aware of 600 7(b)). I would also observe that the potential advising bank’s principal -i.e. the party on whose behalf it is acting- is the issuing bank and not the beneficiary. As a result I cannot -overall- see that the potential advising bank owes any obligation to the beneficiary. Therefore I would not have any qualms about not advising the credit. However, I would not be prepared to say to the issuing bank that it was cancelled; merely that its details had not been advised to the beneficiary.

Regards, Jeremy

[AbdulkaderBazara]

This happens sparingly. For the LC in question, banks will inform the issuing bank that they have closed their files or have cancelled their records, if the word cancel has to be used.

This is a relationship between the two banks and the bank designated as an advising bank has no obligation towards the beneficiary as long as:
a) it communicates its action to the issuing bank in time.
b) it did not advise the beneficiary of the issuance of the LC

regards
Abdulkader.

[GerhardH]

Hi Vinod,

as the issuing bank is bound upon opening the letter of credit, if it is irrevocable, the L/C is valid from the moment of opening. Only revocable L/C's art.8 qualifies the L/C issuing bank to amend or cancel the credit at any moment without prior notification.
Consequently, in my opinion, you would need the agreement of the beneficiary (also if it would be the wrong company) to cancel said L/C.
Best regards
Stephan

[NigelHolt]

Stephan,

The point is that the ‘advising bank’ is simply agreeing not to advise the Credit; no more. Furthermore, sub-Art 7(a) recognises a bank is under no obligation to advise a Credit. What the ‘status’ of the Credit is, assuming it is not advised, is a matter for the issuing bank to decide.

Regards, Jeremy