QUESTION
Dear Mr. Old Man,
LC issued ABC Bank states that amendment and confirmation fees are for account of the beneficiary.
Some days ago we received from ABC Bank a request for cancellation of the LC and a claim for USD230.00 being their cancelation fees and cable charges. We advised the beneficiary of the same but the beneficiary confirmed having requested for LC cancellation but refused to pay the claiming charges by instructing us to take no action until LC expires.
So, please take a few minutes to make comments on this, how should we act now?
Look forward to hearing from you soon,
Thank you with best regards,
M.
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ANSWER
Dear M.,
UCP 600 Article 10 (a) says “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.”
So in view of the above, unless the beneficiary confirms accepting the cancellation by an authenticated message via the advising bank, the LC is deemed to be not yet cancelled. Hence no confirmation fee is to be paid.
Back to your case, the beneficiary instructs your bank to take no action until the LC expires. It is understood that on the one hand the beneficiary wants to cancel the LC (as he may not fulfill his obligation under the LC contract), but on the other hand he does not want to pay the cancellation fee.
I think your bank may have two options:
+ to notify the issuing bank of the same and wait for their further instructions; or
+ to notify the issuing bank that the beneficiary does not accept to cancel the LC.
It is obvious that in this scenario the beneficiary appears to be cunning enough to avoid paying cancellation fees but he may face a legal action if he fails to fulfill his obligation under the LC contract.
Best regards,
Mr. Old Man
