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CONFIRMED TRANSFERRED LETTER OF CREDIT

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QUESTION

Dear Mr Old Man,

I read your blogs and find them really interesting and helpful. I have a query regarding transfer LC

1. Can a confirmed LC be transferred?

2. If yes, is it mandatory that confirmation is carried forward in MT720?

There is confusion regarding the same since as per UCP only 5 things can be reduced and all other terms must accurately reflect MT700 and the fact that 2nd beneficiary has the right to present directly to issuing bank. So, does the 2nd beneficiary get the confirmation benefit?

Would be really grateful if you could clear the doubt.

Regards,

Alok Pathak
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ANSWER

Dear Alok,

Thanks for your question. I would like to answer as follows:

1/ Yes. A confirmed LC can be transferred if the LC is transferable.

According to sub-article 38 (g) UCP 600, the transferred LC must accurately reflect the terms and conditions of the LC, INCLUDING CONFIRMATION, if any, with the exception of LC amount, unit price, expiry date, presentation period, latest shipment date, any of which may be reduced or curtailed.

2/ According to sub-article 38 (k) UCP 600, the 2nd beneficiary must present the documents to the transferring bank which is normally also the confirming bank under a confirmed LC. This is to facilitate the substitution of documents by the 1st beneficiary and it does not prevent the 2nd beneficiary from presenting the documents directly to the issuing bank as per article 6 UCP 600.

The beneficiary would insist on a confirmed LC when he is not satisfied with the creditworthiness of the issuing bank. The 2nd beneficiary should not present the documents directly to the issuing bank but the confirming bank to get a better payment and comply with LC terms and conditions and sub-article 38 (k) UCP 600 (in order for the 1st beneficiary to substitute the invoice and draft).

Payment under transferred LC may be delayed or even not made for various reasons if the documents are presented directly to the issuing bank bypassing the confirming/transferring bank.

Kind regards,
Mr. Old Man
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Dear Mr. Old Man,

Thanks a lot for your prompt reply and clearing the doubt.

Regards,
Alok

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One Comment

  1. Татьяна

    April 30, 2021 at 12:59 pm

    Hi, Good question! It is agreed that unless the transferring bank is the confirming bank, it would undertake to pay the second beneficiary only after receipt of the payment from the issuing bank. With regard to the case where the first beneficiary is to present its own invoice and draft (if any), UCP 600 sub-article 38 (i) just says that if the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary. Neither UCP nor ICC gives a firm answer that the transferring bank must pay the second beneficiary if it fails to act in accordance with sub-article 38 (i). It just says that the transferring bank should act in accordance with sub-article 38 (i) and, if necessary, utilise the second beneficiary s documents as good tender under the credit.

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