Does a Transferred LC Have to Carry the Confirmation of the Original LC?

One of the recurring questions in transfer transactions is whether a transferred LC must also be confirmed when the original LC is stated to be confirmed. The answer depends on whether the confirmation was actually added by the bank concerned, not merely authorized or requested by the issuing bank.

QUESTION

Dear Sir,

I have a question that I’d like you to explain:

• The original LC opened in favor of the first beneficiary has confirmation.
• The LC transferred from the first beneficiary to the second beneficiary does not have confirmation.

Article 38(g) of UCP 600 states:

“A transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any…”

Based on this provision, I understand that the transferred LC should also be confirmed. However, none of the banks I contacted accepted such a confirmation arrangement.

Are the banks making a mistake, or am I missing something?

I look forward to your opinion.

Hung

_______

ANSWER

Dear Hung,

Thank you for your question.

You are correct in quoting Article 38(g) of UCP 600, which states that a transferred credit must accurately reflect the terms and conditions of the original credit, including confirmation, if any.

The key point, however, is the phrase “including confirmation, if any.”

Under Article 8(d) of UCP 600, a bank that is authorized or requested by the issuing bank to add its confirmation is under no obligation to do so. If it is unwilling to confirm, it must inform the issuing bank without delay.

Therefore, before concluding that the transferred credit should be confirmed, it is necessary to determine whether the original credit was actually confirmed by the advising/transferring bank. The mere fact that the original LC contains a request or authorization to confirm does not mean that confirmation was added.

If the transferring bank did not add its confirmation to the original credit, the transferred credit will likewise be unconfirmed. Conversely, if the transferring bank added its confirmation to the original credit, the transferred credit should also reflect that confirmation in accordance with Article 38(g).

If the first beneficiary can provide evidence that the transferring bank added its confirmation to the original LC, you may raise the matter with the transferring bank and request clarification.

One final point: this is not a matter of “back-to-back confirmation.” A transferred credit remains the same credit that has been transferred under Article 38. The issue is simply whether the confirmation attached to the original credit should also be reflected in the transferred credit.

Best regards,

Mr. Old Man