THE IRREVOCABILITY OF THE CREDIT

Mr. Old Man exchanging views with Ravi, Frammi and Armagedo on LC Irrevocability

QUERY FROM RAVI

we have opened a irrevocable letter of credit to our exporter in Australia from State Bank of India. We have contracted 10 FCls at the price of 360 USD and now the prices jumped nearly 150 USD PMT. It is the intention of our shipper to escape from the commitment, he used to ask amendment one by one. We have done the amendment as per their requirement. But suddenly he (Shipper) asked one more amendment and he insisted "it should be done within 24 hrs a timeframe if not the contract and LC cancelled".

We have done the 2nd amendment as per thier request, but one day delayed. Holding this point, he (shipper) advsied their bank in Australia to Cancel the LC and informed the contract is null a void.

Here (State Bank of India) also return the LC to buyer, stating that "Beneficiary has advised us that they are rejecting the LC and advsie applicant".

1) Now our bankers (State Bank of India) said that the LC will be returned and deposit will be return).
2) Is this is applicable for "irrevocable letter of credit ".
3) We are relay upon the bankers and opening LC, but now we deceived by the bankers and shipper.

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COMMENT FROM MR. OLD MAN
Non-shipment: take legal action against the exporter ?

UCP 600 Art. 7.b says “An issuing bank is irrevocably bound as of the time it issues the credit.
UCP 600 Art. 8.b says “A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit.

In view of the above stipulation, it should be understood that the irrevocability of the credit is applied to the issuing bank’s and/or confirming bank’s obligation.

In foreign trade, the fact that the exporter tries to avoid its shipment obligation by asking for amendments to the credit when the prices rise high is quite normal.

In most cases the importer has to accept a bitter truth that unless the price is amended in accordance with the exporter’s expectation,. no shipment is to be effected whether the credit has been amended many times. From my banking experience I can say that taking legal action against the exporter for its non-shipment is a waste of time and money, especially when the value of the contract is too small.
To reduce the posibility of non-shipment when the prices jump high, shipment under big contracts should be covered by performance bonds issued by the exporter’s bank. The value of the bond ranges from 2 to 10% of the contract value. But in reality many exporters are ready to pay bond value when the prices jump higher than the prices agreed in the contract.

Best regards,
Nguyen Huu Duc

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Frammi's point of view
Take a closer look at the contract!

Under a credit you can't force someone to make use of it. But under a contract you might be able to do so.
Normally – but in any way depending on the clauses used in the contract – a contract can only be cancelled with the consent of both parties or if one parties is in gross neglect of his duties under the contract.
Provided that no further problems have arisen, that amendments to the credit were always effected in a couple of days or not caused by the contract but agreed to as a favour for the beneficiary, your assumption seems to be correct, that the beneficiary seems to flee from the contract.

Under the most contracts this is not possible!! And a condition like "if you and issuing bank and advising and confirming bank do not ….. within one day, the contract is cancelled" is an absolute imbecility, because the condition is not fulfillable. Even more as the contracts and the credits are independent, this "failure" should in no way be allowed to steal oneself away under the contract.

I would get in touch with the beneficiary and be very direct to him. There is no place for the friendliness, India is famous for. The beneficiary should be aware that you would consider entering legal proceedings against him for a breach of the contract, should the credit not be fully utilized. Of course in such case, you should be sure that you have really fulfilled the contract by 100 %!
-Each long journey starts with a small step-

Best regards
Frammi

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Armagedo's point of view
Sad

Hi!

If You have a way to push the shipper by means of contract claiming on him for non-delivery of contracted goods then do this.
Otherwise, You'll do nothing through LC channels.

Unfortunately, IRREVOCABILITY is referring to obligations of the issuing and confirming bank, but in no way to beneficiary.

Good luck. …