COULD AN MT799 BE CONSTRUED TO BE AN AMENDMENT?

QUERY FROM PT

Dear Mr Old Man,

I am facing a difficult case which I would like to ask for your help.

We received an MT 700 from Issuing Bank in Singapore. Two days later, we received an MT 799 from Issuing Bank, in which they amended some clauses of the credit and in that MT 799, Issuing Bank stated that “ The above reflection does not construe as an amendment to the LC but as a correction only and forms an intergral part of the credit”

We were wondering that whether we could consider that MT 799 as an MT 707, i.e an amendment of the credit and the Beneficiaty still have the right to accept or refuse to comply with it.

In my opinion, the credit is irrevocable once it was issued and it can not be amended without the agreement of the Beneficiary. If we accept that MT 799 as an intergral part of the credit, it, in some extent, means that whenever the applicant and Issuing Bank want to change the conditions of the credit, they can simply change then advise the Beneficiary and say that it is a correction and forms an intergral part of the credit like in this case. So the beneficiary then have no choice but to comply with the corrections.

I am very confused and would like to ask for yr opinions on this matter.

I look forward to hearing from you soon.

Best regards,
PT
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ANSWER

Hi,

It is agreed that a credit is irrevocable once it is issued and it can neither amended nor cancelled without the agreement of the beneficiary. It is also agreed that amendments are normally issued in MT707 format. However, this does not mean that MT799 format are not used for amendments.

It is the wording of an MT799 that will decide whether it is an amendment. From your description, the said MT799 amended some clauses of the original credit, hence, it would be deemed to be an operative amendment which should be advised to and subject to the consent of the beneficiary in accordance with sub-article 9(b).

This view is supported by ICC Opinion TA698rev.

However, the problem here is that the issuing bank stated in the MT799 that “… does not construe as an amendment to the credit but as a correction only and forms an integral part of the credit”.

I think to avoid dispute it is advisable for the beneficiary to give notification of rejection of the amendment/correction message if he feel unable to comply with.

Regards,
Mr. Old Man

P/s: For your reference please find the attachment of TA698rev

QUOTE
Could a MT799 be construed to be an amendment message? Could a nominated bank, asked by another bank to add its confirmation through the instruction "may add", be considered to be a confirming bank if it failed to advise the first bank it was not prepared to add its confirmation? Was a bank, at the moment of forwarding documents to another bank, obliged to advise the other bank of the amendments which had been rejected by the beneficiary?

Official Opinion TA698rev – Unpublished UCP 600
From UCP600 – UCP 600 sub-articles 16 (c) (iii) (b), 11 (a), 8 (d), 10 (c), 10 (d), 7 (b), 9 (b), and 12 (a)
QUERY
Bank A issued an L/C via SWIFT MT700 and advised it through Bank B in the beneficiary's country with the instruction that it "May Add" confirmation. The L/C was available with Bank B by deferred payment.
The day after issuing the L/C, Bank A sent a SWIFT MT799 message to Bank B stating "Pls read correctly item 2 and 3 under documents required in filed 46A: … " and "Pls add also item 4 under docs required: … ". The requirements for items 2 and 3 were restated in full. Bank B acknowledged, by SWIFT MT730, receipt of this MT799 message with the following notice: "We have contacted beneficiary about confirmation and we'll revert a.s.a.p." Subsequently, Bank B has not advised Bank A about the fate of the confirmation.
Fifteen days later, Bank A sent another amendment by SWIFT MT707 extending the shipment date and expiry date of the L/C. Bank B also acknowledged receipt of this message by MT730.
When forwarding the documents to Bank A, Bank B noted on its cover letter that the documents complied with the credit terms and that it would pay the beneficiary at maturity. Documents were presented to Bank B within the L/C's validity.
In reviewing the documents, Bank A found discrepancies – an additional document as required by the MT799 was missing; a transport document was not marked as required in the MT799; the taking over protocol showed the delivery term FCA instead of EXW named place as was required in the original MT700.
Bank A sent an advice of refusal by SWIFT MT734 referring to sub-article 16 (c) (iii) (b) of UCP 600, stating discrepancies which, all except one, related to the amendment sent by MT 799.
After the L/C's expiration, Bank A contacted Bank B to forward the documents required by the MT799 in order for the applicant to resolve customs formalities and clearing of the goods. Bank B forwarded one of the required documents one month later.
After receipt of the documents, and not having received a waiver from the applicant in a reasonable time, Bank A returned the documents to Bank B.
Bank B contested, for the first time, Bank A's advice of refusal which was sent two months earlier, on the grounds that Bank A's MT799 could not be considered as an amendment and that it was not accepted by the beneficiary. Therefore, in Bank B's opinion, the presented documents should have been examined against the terms and conditions stated in the MT700 and the amendment sent by MT707, and that they should be considered to be a compliant presentation against which Bank A should pay.

National committee analysis
1. Could the MT799 be construed to be an amendment message?
Sub-article 11 (a) of UCP 600 states: "An authenticated teletransmission of a credit or amendment will be deemed to be the operative credit or amendment, and any subsequent mail confirmation shall be disregarded."
2. Could Bank B, being the nominated bank under the L/C, and asked by Bank A to add its confirmation, be considered to be a confirming bank, as it failed to advise Bank A that it was not prepared to add its confirmation as required by sub-article 8 (d) of UCP 600? Bank B, on its covering letter accompanying the documents, stated that it would pay the beneficiary at the maturity date, thus expressing its undertaking towards the beneficiary.
Sub-article 8 (d) of UCP 600 states: "If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation."
3. Was Bank B, at the moment of forwarding documents to Bank A, obliged to advise Bank A of the amendments which had been rejected by the beneficiary? Also, in accordance with which terms and conditions, had it performed the examination of documents, especially bearing in mind that there was more than one amendment under the L/C?
Sub-article 10 (c) of UCP 600 states: "The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended." [emphasis added]
Sub-article 10 (d) of UCP 600 states: "A bank that advises an amendment should inform the bank from which it received the amendme
nt of any notification of acceptance or rejection."

National committee conclusion
An MT799 is an authenticated teletransmission and, as such, it is to be considered as an operative instrument. Therefore, Bank B must act upon receipt of the amendment sent by MT799 and advise it to the beneficiary.
Bank B, being a nominated bank and asked by Bank A to add its confirmation to the L/C, may be considered to be a confirming bank, as it has advised Bank A that it had contacted the beneficiary for confirmation (and thus expressed its willingness to do so if the beneficiary had asked for it). Moreover, Bank B never advised Bank A of its refusal to add its confirmation, and it had advised Bank A on its covering letter accompanying the documents that it would pay the beneficiary at maturity, i.e., that it had undertaken an obligation towards the beneficiary.
As a confirming bank, Bank B was obliged to advise Bank A, from which it had received amendments, which amendments had not been accepted by the beneficiary. It was also obliged to indicate amendments, if any, to which it has not extended its confirmation (sub-article 10 (b) of UCP 600). If it had done this, it would have provided information both to the issuing bank and to the beneficiary concerning what terms and conditions would be relevant for checking of documents in order to ascertain whether the presentation was compliant or not.
Although a confirming and issuing bank must, based on the documents alone, conclude whether the documents represent a complying presentation, the confirming bank, being in direct contact with the beneficiary and also responsible for checking the documents, should advise the issuing bank what the valid terms and conditions are for checking, i.e., which amendments have not been accepted by the beneficiary. This would confirm that the two banks are in accord when the document checking is performed.
Consequently, Bank A's refusal of documents was justified, since Bank B had not acted in accordance with generally accepted rules and practices for the handling of L/Cs as stated in UCP 600, and also because all discrepancies stated by Bank A were not related to the amendment sent by MT799.

Analysis and final conclusion
1. The conclusion of the national committee with regard to point 1 is supported subject to the following: sub-article 7 (b) states: "[A]n issuing bank is irrevocably bound to honour as of the time it issues the credit." The wording of the MT799 provided new wording for documents 2 and 3 plus details of a document not appearing in the MT700. The wording of the message would indicate that an amendment to the original L/C terms, subject to the consent of the beneficiary, was to have been advised to the beneficiary in accordance with sub-article 9 (b).
Bank A is obliged to honour a presentation of documents that complies with the terms and conditions of the original credit; the original credit and MT799; the original credit, MT799 and MT707; or the original credit, MT707 but not the MT799. See point 3, regarding acceptance or rejection of the amendments.
When bank systems permit, banks should use the correct SWIFT message type for the transaction and not the MT799.
2. The conclusion of the national committee regarding point 2 is not supported. The instruction to Bank B in relation to confirmation was "May Add". Such an instruction allows Bank B to add its confirmation upon a request from the beneficiary. Such a request need not be forthcoming at the time of advising the credit and may occur at any time. Sub-article 8 (d) would only be applicable if Bank B was not willing to consider any request to add confirmation. If it was awaiting a request from the beneficiary, there would be no need for it to advise the issuing bank of this fact. The credit would have been advised on an unconfirmed basis, pending receipt of a request for confirmation from the beneficiary.
Whether or not Bank B entered into an express communication with the beneficiary, in accordance with sub-article 12 (a), is of no concern to Bank A and does not affect the confirmation status of the credit.
3. The conclusion of the national committee regarding point 3 is not supported. Bank B was under no obligation to inform Bank A of the amendments that had been accepted or rejected by the beneficiary. In these situations, it is Bank A that would need to make its own determination from the documents presented, in accordance with sub-article 10 (c), absent any specific indication of acceptance or rejection from the beneficiary and/or Bank B. It is unclear whether Bank B received a notification of acceptance or rejection of the amendments from the beneficiary. Only if it had received such a notification would it be required to send a notification in accordance with sub-article 10 (d).
UNQUOTE