CAN AN ASSIGNEE CONTROL LC AMENDMENTS? A LOOK AT ARICLE 39 OF UCP 600

QUESTION

Dear my expert friend “Old Man”,

I have the following question:

A beneficiary received a confirmed Letter of Credit issued by Bank A. The beneficiary assigned the proceeds to Bank B and subsequently requested Bank B to issue another Letter of Credit.

Is Bank B entitled to require the beneficiary to waive their right to accept or reject any amendments to the confirmed Letter of Credit issued by Bank A?

If so, what would be the appropriate wording of such a waiver?

Thank you, as always, for your continuous support.

TF

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ANSWER

Hi TF,

Thank you for your thoughtful question. I would like to answer as follows:

Assignment of proceeds is governed by Article 39 of UCP 600. The beneficiary may assign any proceeds to which it is or may become entitled under the credit, in accordance with the provisions of applicable law. However, this article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit, or to control its terms — such as the right to accept or reject amendments.

In view of the above, the assignee (Bank B) is not entitled to require the beneficiary to waive their right to accept or reject any amendments to the confirmed letter of credit issued by Bank A, unless there is a separate agreement between the assignor (the beneficiary) and the assignee (Bank B).

In my opinion, any such waiver — if agreed — must be included in a separate contractual agreement between the beneficiary and Bank B. It is outside the scope of the letter of credit and cannot be incorporated into the LC itself. The terms and conditions of the LC remain independent and are governed by UCP 600 and the parties directly involved in the credit — namely, the issuing bank, the confirming bank (if any), and the beneficiary.

By the way, as per Article 10(a) of UCP 600, except as otherwise provided in Article 38 (regarding transferable credits), an LC cannot be amended without the agreement of the issuing bank, the confirming bank (if any), and the beneficiary.

Best regards,

Mr. Old Man