Article 10, UCP-600-Amendments

Once a credit is issued by an issuing bank and advises by advising bank to the beneficiary; beneficiary must need to check the terms and conditions of the credit which should be as per pre-decided sales contract between beneficiary and applicant, if it doesn’t meet the beneficiary pre-agreed terms through sales contract; they may ask applicant to modify the same by an amendment.

A bank previously agreed to issue a credit at the request of its customer does not mean that it is required to amend it as requested by that customer, there is no obligation to an issuing bank to issue the amendment and that is their sole discretion. For example, a customer may submit a request for an amendment that does not meet bank policy or which contravenes the applicable regulatory requirements. Sometimes bank may also chose not to extend further credit to its customer by increasing the amount of the documentary credit or extending its validity or by agreeing to extend the payment terms.

Article 10 of UCP-600 

a. Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.

A credit is an irrevocable undertaking issued by an issuing bank which cannot be changed, modified, or cancelled without the consent of the parties involved in credit, there could be three parties to a credit, issuing bank, beneficiary and confirming bank (if any).

For example, credit issued for an amount of USD 10,000 and there is a request to an issuing bank by its customer (applicant) to increase the amount of the credit by USD 5,000 more by issuing an amendment, issuing bank will ensure their own terms (regulatory/exposure etc.) before issuing an amendment; because a credit is issued in the favor of beneficiary, who has to perform under the credit; beneficiary makes sure whether modified terms of the credit are acceptable, a confirming bank provide a separate undertaking upon an issuing bank undertaking by confirming a credit, if a confirming bank is involved; they must also need to check if the terms of an amendment is acceptable by them or not.

Article 38, UCP where a transferred documentary credit is involved has slight changes for an amendment which we can discuss later while discussing the particular article.

b. 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. A confirming bank may, however, choose to advise an amendment without extending its confirmation and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.

An issuing bank is irrevocably bound by an amendment same as credit; as of the time it issues the amendment, that is why an issuing bank must, therefore, ensure that its amendment advice is complete and precise at the time of issuance.

A confirming bank as their sole discretion extend their confirmation and will be irrevocably bound as of the time they advises the amendment, if a confirming bank does not want to extend the confirmation to an amendment they must need to inform the issuing bank immediately and may still choose to advise an amendment without their confirmation, however, if they do so, must need to inform the beneficiary on their cover letter while advising an amendment.

c. 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. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, 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.

Until and unless an acceptance or rejection of amendment not being provided by beneficiary; the terms and conditions of the credit or any previously accepted amendments will remain in force, Beneficiary should provide a notification of acceptance or rejection of an amendment, i.e. a notification provided to the advising bank, confirming bank or second advising bank prior to the date of presentation of the documents, this does not happen in most of the documentary credits as it is not a mandatory requirement.

In most of the cases bank will be required to make its own determination as to whether an amendment has been accepted or rejected, based on its examination of a presentation made by or on behalf of the beneficiary. If a beneficiary fails to provide a prior notification of acceptance or rejection of an amendment, a presentation that complies with the documentary credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment(s) and, as of that moment, the documentary credit will be amended.

Example:

A documentary credit is issued for USD20,000 covering a shipment of 1000 unites of car, credit states partial shipments (43p) allowed, an amendment is issued reducing the credit amount to USD10,000 and the number of cars to 500 unit, beneficiary has not provided a notification of acceptance or rejection of the amendment prior to the presentation of the documents. Documents are presented in the amount of USD10,000 covering a shipment of 500 cars, because partial shipments were allowed, the question for the banks who scrutinizes the documents whether the beneficiary has accepted or rejected the amendment, or this is just a partial shipment! Above sub-article 10(c) will also not help in this situation. Even if the beneficiary was contacted to enquire as to the status of the amendment, it could simply advise that it has not yet decided to accept or reject the amendment. The safest course of action, where no notification for an acceptance or rejection has been received or possible by even after presentation of documents, treat the drawing as a partial shipment.

d. A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection.

A bank advises an amendment should inform the bank from which it receives the same; of any notification of acceptance or rejection, however, as we already discussed, it is not a mandatory requirement and does not happen in most of the cases, because the final decision for an acceptance or rejection depends on beneficiary and a beneficiary usually does not immediately decide to accept or reject, other parties may also not be able to convey the same further until they receive the notification from the beneficiary.

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

If some parts of an amendment are not acceptable to beneficiary, they must decide whether to reject the amendment in its entirety and seek reissuance in an acceptable form, or to accept the amendment, but seek a further amendment that rectifies the problems which are not acceptable in the current amendment.

Example:

Considering the same above example given for sub-article 10(c), reduction of amount from USD 20,000 to USD 10,000 may be acceptable to beneficiary but does not want to accept the reduction of quantity to 500 Cars, in that case they may reject the amendment in its entirety and seek applicant to issue another amendment as per their terms by an issuing bank, a beneficiary may also chose to accept the same amendment informing applicant separately to issue another amendment for the term (s) which is/are not acceptable to the current amendment, point to note here that beneficiary cannot accept the reduction of amount if they want to reject the reduction in quantity of cars.

f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.

An amendment should not incorporate any condition that implies that it will be automatically accepted or rejected in the event that the beneficiary does not provide a notification of acceptance or rejection within a specified period, for example an amendments contains wording “this amendment will be automatically deemed to be accepted if no consent is being provided till dated 10XX20XX”, this condition will be disregarded and an acceptance or rejection notification may be determined at the time of presentation as per sub article 10(c).

An amendment is usually issued in the form of initially issued credit and must need to advise through the same advising bank of the credit, Usually an authenticated SWIFT MT707 is used to issue an amendment and MT708 may be used for continuation of an amendment, however, even if a credit is issued in the SWIFT format, an amendment may be issued in free format using MT799.