ICC Digital Library Forum

A letter of credit has been issued by xyz bank with a document required condition stating:quote
Copy of Amendment issued by xyz bank, advising full bill of lading details at the instructions of applicant. However xyz bank do not assume any responsibility if applicant fails to give instructions to us in due time. For this purpose article 11c of UCP 500 does not apply.unquote.
We like to have an opinion on the risk factor, is it in the spirit of UCP 500 to have such conditions and implications of having such a condition.

11c UCP is referring to pre-advises of LC's, according to which the issuing bank is bound to issue the credit in time. If 11c UCP is not applicable it sounds that the issuing bank does not have a valid application for the credit yet and will therefore not be held responsible to issue the respective credit.
Having said this, I would consider the notification just for information purposes and would not enter into any own engagement.
Same would apply for any amendment to any existing credit.

This is an inoperative LC with a pre-condition to be satisfied by the Applicant to secure operativeness. I have always advocated that banks should discourage issuance of such LCs and by various opinions issued by the ICC Banking Commission from time to time, the Banking Commission has held similar views in the past Although article 11 c obliges the Bank issuing the pre-advice to issue the operative credit instrument or the operative amendment thereto, express exclusion of article 11 c is indeed not keeping in spirit of the UCP. The Issuing bank could always override any article of the UCP under the “unless otherwise expressly stated” principle. Having said that, it is the beneficiary who is assuming the risk by accepting or relying on such an LC. As an advising bank, perhaps I would advise such LC without engagement on my part.

Regards,

Pradeep

Out of curiosity, I wonder what the Incoterm in the credit is. Perhaps, if the Incoterm is from either the E or F groups, and thus the buyer has to provide the vessel, the buyer (or the bank) is trying to protect himself from having the goods shipped by the seller on any means of conveyance.

I don't agree with the principle, but wonder if this isn't a misguided try for protection.

In any event I wouldn't really want to handle a DC with such terms -- it's more of what I would call "a letter of intention" than an DC

Judith

As I have said in the current issue of DC Insight, this should be regarded as an inoperative credit and banks should refuse to issue inoperative credits. They are not doing anybody any favours in pre-advising a fundamentally flawed LC.

Laurence

Hear ! Hear !! Hear !!!

Lawrence, you spoke my mind. I would not agree more to any thing else ! You remember Consulting Group and Banking Commission meetings in Moscow ? This issue came up and Gary went on record to assert that UCP 600 does not talk of inoperative LCs with pre-conditions to be satisfied by the Applicant "since banks would reject such LCs !!!"

Regards,

Pradeep

those clauses appear mostly in oil transactions where at the time of opening the D/C the vessel is not yet known and will be will be nominated later on. There exist therefore no other possibility other than to indicate that the nomination will follow by way of an amendment. On my opinion, art. 11 does not suit perfectly in this context. However, should no amendment be made by issuing bank, the documents will have to be accepted if otherwise in order without any possibility to the issuing bank to raise any objections.