WHICH PARTY IS LIABLE FOR PAYMENT OF CHARGES?

BAGERO'S INQUIRY

Topic might be confusing. The problem is that – I'm a manufacturer and my customer from MidEast has established L/C for which I'm insisting to change into TT payment. But the customer has already opened it (without my consent) and the advising bank contacted me about L/C. Of course, I informed the bank that I would not accept it. Now the bank (advising one) is asking for some charge if L/C to be cancelled. Applicant has to cancel from issuing bank, right? Pls, advise
Thanks.

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MR. OLD MAN'S RESPONSE TO BAGERO'S INQUIRY
The party that requests shall be liable for payment of charges

Dear Bagero,

An LC is irrevocable. However, it can be cancelled if both the applicant and the beneficiary agree to do so. If one party wishes to cancel the LC it must obtain the other party’s consent which is confirmed under an authenticated swift message. Unless otherwise agreed, the party that requests for cancellation shall be liable for payment of charges.

The fact that the beneficiary refuses to receive the LC or pay any charges to advising banks sometimes occurs. In this case the advising bank normally informs the issuing bank of the fact and hold the original LC at the issuing bank’s disposal. Accordingly, the issuing bank will inform the applicant of the fact and ask for his further opinion. If unable to obtain the beneficiary’s agreement on accepting the LC, the applicant may request the issuing bank to cancel the LC. At the applicant’s request for cancellation, the issuing bank shall communicate the fact to the advising bank and ask the advising bank to confirm the beneficiary’s consent or return the original LC for cancellation.

Back to your case. If you keep on refusing to pay any charges in connection with the LC that you refuses to receive, the advising bank shall turn to the issuing bank for payment. It is the applicant that pays all charges arising out of its request for cancellation.

You are requested to refer to UCP 600 Article 37 (Disclaimer for Acts of an Instructed Party) to have a better view on your problem.

Best regards,
Nguyen Huu Duc

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