Can the Drawee’s Bank Cancel Its Aval after Confirming it by SWIFT?

A Q&A with Mr. Old Man

When dealing with documentary collections, many bankers assume that an aval—once issued—is as solid as steel. But what happens when an avaling bank suddenly cancels its commitment, cites problems with the underlying goods, and even goes to court?

In this Q&A, Mr. Old Man breaks down how avalization really works, which rules govern it, and whether an aval can ever be revoked after issuance.

QUESTION

Dear Sir,

I hope you are doing good. Thank you for sharing your knowledge. I need clarification on the scenario below.

Under a documentary collection (DA basis), the drawee’s bank (importer’s bank) issued an avalised confirmation via SWIFT. Based on that avalisation, the remitting bank (exporter’s bank) discounted the bill and credited the funds to the exporter. The remitting bank also informed the drawee’s bank that the discounting was done based on their SWIFT message.

Later, however, the drawee’s bank cancelled its avalisation, claiming the goods were not received, and even issued a court notice.

Now the exporter has lost the funds and is unable to recover the discounted amount.

Kindly clarify whether the drawee’s bank can cancel its avalisation.

Best regards,

Srivinoth

_________

ANSWER

Dear Srivinoth,

Thank you for your interesting question. Here is my response.

First, it is important to note that avalization is governed by national law, not by ICC rules.

Neither URC 522 nor URDG 758 applies to avals.

Why is that?

Because an aval is not a collection operation and not a demand guarantee. It is a bank’s endorsement—a guarantee of payment added directly to a bill of exchange. Once a bank avalizes a draft, it typically becomes jointly and severally liable, similar to a co-acceptor.

Under normal circumstances, an aval cannot be unilaterally cancelled. Only the beneficiary or holder of the draft can agree to such cancellation.

What happens in practice?

If the remitting bank discounted the draft based on an explicit, authenticated SWIFT confirmation of aval, the avaling bank would normally remain bound to honour the draft at maturity.

If a stop-payment order is imposed, the remitting bank can request the court to lift the injunction—provided no fraud is involved.

If the remitting bank discounted the draft without confirming the aval bank’s explicit approval, or if the aval message was ambiguous, then the avaling bank may not be obligated to reimburse—particularly in cases involving fraud.

Can the avaling bank cancel its aval in your scenario?

As a matter of international practice:

No, an aval cannot be cancelled once given—unless the holder consents.

But because avals are governed by local law, courts may override this rule if:

• there is evidence of fraud,
• the underlying transaction is disputed, or
• a statutory right permits suspension of payment.

In your specific case

The avaling bank claims goods not received and has obtained a court injunction to suspend or cancel its avalisation. This places the dispute squarely under judicial authority, not banking practice.

Ultimately, the court’s decision will determine whether the aval remains valid or not.

I hope this clarifies your issue.

Best regards,

Mr. Old Man