Fire, General Average, and LC Obligations

Can Documents Still Be Presented — and Should the LC Be Amended?

Intro

 In international trade, accidents at sea are not uncommon. Fires, groundings, and collisions may lead to cargo damage and the declaration of General Average by the carrier or salvor.

When such events occur before documents are presented under a letter of credit, issuing banks are often confronted with difficult questions:

Can the beneficiary still present documents? Is the bank obliged to pay? And should the LC be amended in light of the accident?

 The following Q&A addresses these issues from a strict LC and UCP 600 perspective.

Question

Dear Mr. Old Man,

I have a question that needs your expert opinion.

We were informed that the vessel Henry Hudson, carrying the goods under an LC issued by us, suffered a fire incident on 21 December 2025 at Los Angeles, USA, and that the shipping line declared General Average by the salvor.

The applicant informed us that they only have a draft bill of lading in hand.

At this time, no documents have yet been presented to our bank.

Our questions are:

1. Can the beneficiary still present documents under the LC?
2. Is the issuing bank bound to make payment?
3. The beneficiary now requests an amendment to the LC. Should we issue such an amendment?

Thank you for your opinion.

Best regards,

Obidur

________

Answer

Dear Obidur,

Thank you for your thoughtful questions. My views are as follows.

1. Can the beneficiary still present documents?

Yes.

The occurrence of a fire incident, the declaration of General Average, or any damage to the goods does not prevent the beneficiary from making a presentation under the letter of credit.

Under UCP 600 Article 5, banks deal with documents, not with goods, services, or performance to which the documents may relate. Accordingly, the beneficiary remains entitled to present documents provided the presentation is made in accordance with the terms and conditions of the LC.

That said, the beneficiary must present the documents required by the credit. A draft bill of lading is not a transport document under UCP 600 and cannot substitute for the required original bill(s) of lading.

2. Is the issuing bank bound to make payment?

The issuing bank is not automatically bound to make payment merely because an accident has occurred.

However, if the beneficiary presents documents that constitute a complying presentation, the issuing bank is bound to honour the credit in accordance with UCP 600 Article 7.

Any loss, damage, or General Average contribution is a matter to be addressed under the insurance policy and the underlying sales contract, not under the documentary credit.

3. Should the issuing bank amend the LC at the beneficiary’s request?

Under UCP 600 sub-article 10(a), a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any), and the beneficiary.

The applicant is not a party to the LC undertaking. Even where the applicant requests an amendment, the issuing bank remains entirely free to refuse.

In the present case, as a casualty has already occurred and the condition of the goods is uncertain, it would be prudent for the issuing bank not to issue any amendment that could expand or alter its undertaking after the event.

I hope this clarifies the issues.

Best regards,

Mr. Old Man