Advising Bank Refused To Advise Amendment

[kevintam]

Article 9(d) states that 'A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto'. However the advising bank can refuse to advise amendment according to article 9(e). What can the issuing bank do with regard to the amendment? What is the rationale behind the construction of this article. Should the ucp deny any right of the advising to refuse advising any amendment?

Any comments highly appreciated

[kevintam]

any opinion appreciated

[Sabrina]

If the advising bank cannot satisfy itself to the apparent authenticity of credit or amendment, it may choose not to advise such credit or amendment. Issuing bank is also well aware of this UCP provision and hence they always attempt to fulfill the required conditions.In case where advising bank has any doubt they may at their sole discretion decide the fate of such message.

[kevintam]

nitinkp

Thank you for your view

[abrar]

The issuing bank could still elect to use a different channel if the issue of authentication is key to the beneficiary. For example, the issuing bank and beneficiary agree to have the amendment advised directly. The amendment is after all issued as soon as it it is transmitted by the issuing bank, and its effectiveness and operativeness to the beneficiary does not become less so simply because the advising bank refuses to advise it.

[Sabrina]

The issuing bank could still elect to use a different channel if the issue of authentication is key to the beneficiary. For example, the issuing bank and beneficiary agree to have the amendment advised directly. The amendment is after all issued as soon as it it is transmitted by the issuing bank, and its effectiveness and operativeness to the beneficiary does not become less so simply because the advising bank refuses to advise it.

Dear Abrar,

I could not relate your opinion with article 9(d) which states " A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto."

Amendment is irrevocable once issued but having said that can issuing bank choose to advise amendment directly to the beneficiary if the advising bank is unable to satisfy itself to apparent authenticity of the message ? The advising bank may choose to advise the amendment without authenticating and inform the issuing bank of the same or may seek clarification from the issuing bank about inconsistencies. What would be the significance of advising bank if the issuing bank choose to advise amendment directly to the beneficiary after advising bank notifies it about its inability to authenticate amendment? Besides we also argue that “Onus to advise message timely to the beneficiary is of advising bank”

Seek your opinion....

Regards,
Nitin

[abrar]

The intention behind Art 9 d provides for the situation whereby an issue bank is not allowed to either advise amendment direct or via a different advising bank, but this supposes that the advising bank is willing to advise. If the advising bank refuses to advise a subsequent amendment, both the beneficiary should be made aware. However, as from that point on, if the beneficiary nevertheless chooses to accept and act on the amendment, the situation is taken out of the hands of the advising bank, and in a sense,there is no benefit to be had for the beneficiary in the issuing bank re-advising the amendment. If the advising bank is also a confirming bank, although this may affect the continuing engagement of the advising bank, the beneficiary/ issuing bank relationship is unaffected.

[kevintam]

Hi Abrar

Thank for your comment. According to article 9(d), the issuing bank must use the same advising bank to advise any amendment, so I don’t agree that the issuing bank can use another channel to advise the amendment. You may criticize me using literal interpretation, but LC transactions always involve a large amount of money, so I prefer to be conservative in interpreting the rules.

I raised this posting because I am thinking that article 9(d) will leave the issuing bank in limbo in case the advising bank refused to advise any amendment due to some unforseen situation such as hostile litigation between the issuing bank and the advising bank or political problems, for instance.

[abrar]

I raised this posting because I am thinking that article 9(d) will leave the issuing bank in limbo in case the advising bank refused to advise any amendment due to some unforseen situation such as hostile litigation between the issuing bank and the advising bank or political problems, for instance.

It would only leave the bank in limbo if the beneficiary elects not to accept the amendment from the issuing bank, on account of lack of authentication. If the beneficiary does agree to accept, despite the advising bank's refusal to advise, the LC may be performed under, but available with the issuing bank in this case. In practical terms, the issuing bank may request for the advising bank to close its files ( subject to its recovery of any outstanding charges) and then for reissuance of the LC plus all amendments through another bank with whom it has authentication.

As far as the issuing bank and advising bank relationship, there is the matter of outstanding charges (if any) which would need to be settled.

The point is, a refusal by the advsing bank to advise an amendment does not invalidate the credit, any unadvised amendment, and the right of the beneficiary to perform under it.

[kevintam]

Hi abrar

Would you comment on the interpretation of article 9(d): ‘A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.’ (emphasis added)

I would also like to know what are ‘outstanding charges’. Each country has its own banking practice and charges, I am interested to know more about that. Thanks

[abrar]

Hi abrar

Would you comment on the interpretation of article 9(d): ‘A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.’ (emphasis added)

I would also like to know what are ‘outstanding charges’. Each country has its own banking practice and charges, I am interested to know more about that. Thanks

All UCP articles must be applied in context.The sub-article is designed to protect the position of an advising bank and the beneficiary in ensuring that there is a constant and unbroken chain of communication between the issuing bank and the advising bank, and the imperative "must" disallows the issuing bank using an alternative advising bank for the purpose of routing amendments, when a chain of communication has already been established.

This is a commonsense practice, but cannot cater for the situation whereby the advising bank refuses to pass on an amendment ( perhaps due to authentication issues, or clarification matters). If such issues cannot be resolved, and there is an impasse, in such a case, I think we agree that the amendment has undoubtedly been issued and is effective, provided the beneficiary is willing to accept it. .

If the issuing bank is unable to have the amendment advised through existing chain of communication, it is up to the beneficiary to decide whether it will nevertheless accept the amendment as issued by the issuing bank , or (if the issue is to do with authentication), whether it requires an alternative authentication process. If the beneficiary elects to accept the amendment under these circumstances, it is clear that the issuing bank should relieve the advising bank of its responsibilities, and there is no reason why the advising bank should refuse to accede, provide any outstanding charges which it may have agreed to defer, is settled.

It should be remembered that the use of an advising bank is an accomodation to the beneficiary by the issuing bank, but not a mandatory requirement. The LC belongs to the beneficiary, and the right to perform under it is not necessarily compromised by the issuing bank's agent (i.e the advising bank) in not carrying out its functions.

[kevintam]

Thank you for your explanation, but I prefer to be conservative and use literal interpretation. Accordingly, the only option available to the issuing bank is to cancel the credit and reissue a new one and advise through another advising bank.

[Sabrina]

Hi,
I think we are missing something while discussing the course of action if the advising bank is unable to advise the amendment for some reason. Article 9(f) allows advising bank to advise amendment even if they are unable to establish authenticity of message. Do we need any alternate channel to route the amendment to the beneficiary? The fact that the amendment is operative and irrevocable cannot justify that the amendment can be advised to the beneficiary bypassing advising bank (which previously advised LC; at least for authentication reason)

Seek your opinion experts....

Thank you,
Nitin

[dinesh2476]

What is the reason for having such conditions in the ucp. When advising is not able to perform authentication,they can simply reject the amenment,why need to relay beneficiary rely when authentication is in question