Article 10 (Amendment)

[UT18GX]

Hi,

ARTICLE 10 (AMENDMENT)

B. An issuing bank is irrevocable bound by an ammendment as of the time it issue the ammendment.

A confirming bank MAY extend its confirmation to an ammendment and will be irrovecably bound as of the time it advises the amendment.

A confirming bank MAY,HOWEVER, choose to advise and ammendment without extending its confirmation and, if so, it must inform the issuing bank with out delay and infrom the beneficiary in its advice...

Now, what is can understand through this is...

A) It is an obligation for Issuing bank for acceting the ammendement...

B) It is upto confirming bank that wether he want to continue its confirmation or extend its confirmaiton after AMENDMENT,

Question:

what may be the reason why confirming bank dont want to go for AMENDMENT But, gets ready to choose to advise the AMENDMENT ?
what are other this which needs to be taken care while dealing with this kind of case ?


Thank's in advance !

Regard's
Rakesh

[ajoy]

Hope this covers it. My responses are in italics to your questions in bold below:

Now, what is can understand through this is...

A) It is an obligation for Issuing bank for acceting the ammendement...

I would word it differently. If an issuing bank sends out an amendment mesage it is implicit that it agrees to the amendment i.e the amendment message is irrevocable just like the original LC was irrevocable. ( In other words If IB was not agreeable to an amendment there would be no amendment msg issued in the first place.)

B) It is upto confirming bank that wether he want to continue its confirmation or extend its confirmaiton after AMENDMENT,

Yes. Just as the CB has a right to decide whether it will confirm an original LC it similarily has a right to extend its confirmation or refuse to extend its confirmation to any subsequent amendments. This is merely to protect the rights of the confirming bank which needs to manage its exposure. Of course the confirmation of the original LC remains irrevocable. CB at this stage can only refuse to extend its confirmation to the 'amended LC.

Question:

what may be the reason why confirming bank dont want to go for AMENDMENT But, gets ready to choose to advise the AMENDMENT ?

Take an example. let us say the original LC was USD 100,000 . Amendment no 1 raises LC amount to 200,000. The confirming bank maynot be able to /ready to take an exposure risk of 200,000 on the IB.

Let us say again that CB decides to not extend its confirmation to the amendment. However, it really has no choice but to advise the amendment as an advising bank.

( In practice, CB cant really refuse to act as an advising bank for the amendment as it has already confirmed the LC. We must remember that the LC itself is an undertaking from the IB to the Bene alone and so are any attempted amendments. So a CB playing teh role of an advising bank has the obligation to advise the amendment to the bene. In theory ,if CB does not want to advise the amendment it must inform the IB immediately who would have to find another bank to advise the amendment to the bene. As I said in practice very unlikely to happen.)

Assume again that the bene now decides to accept the amendment . Let us say credit compliant docs are now submitted for 200,000 and the IB is not abe to honour its LC. In this case the , confirming bank will have to pay 100,000 USD to the bene.

In the above case, the confirming bank has acted merely as an advising bank for the amendment.


what are other things which needs to be taken care while dealing with this kind of case ?

For The confirming bank :

It must make sure that the cover letter with the amendment clearly informs the bene that the the confirmation has not been extended to the amendment. If CB is not explicit in the advice cover then it might end up confirming the amended LC inadvertendly.

Apart from this there is no obvious additional risk.

For IB : No additional risk

For Bene : Cofirmation is not extended to amended Lc . In the above example , USD 100, 000 is confirmed but another 100, 000 is not protected by confirmation.

Comments welcome.

PS: Another example :

Original LC Expiry date 10 jan 2010

1st amendment recived by confirming bank expiry extended to 20 Jan 2010.

Assume that CB does not extend its confirmation to this amendment. It of course advises the amendment to the bene,

assume again that bene accepts the amendment and submits docs on 15 Jan 2010.

For IB .... docs have been submitted within expiry.

For CB the LC has expired.

In this case if IB fails to pay under the LC and the docs are otherwise compliant... the bene has no protection at all under the confirmation..

(Therfore there is higher risk for bene to accept this kind of amendment under an cofirmed LC when the CB refuses to extend its confirmation to the amendment.)

Cheers

Ajoy

PS: sorry for the lengthy post:)

[UT18GX]

Hi,

Ajoy

Thank you very much Friend,

You had really made all the point's clear to me not only points but, you had made the complete topic clear and easy for me..

Thanks a lot..

Reagard's
Rakesh