Article 2, “Credit means any arrangement, however named or described, that is irrevocable…”.
Article 3, “A credit is irrevocable even there is no indication to that effect.”
Article 10, “…a credit can neither be amended or cancelled without the agreement of the issuing bank, the confirming bank, if any and the beneficiary…”
These articles provide a guarantee to the seller that in any event, should the buyer wish to cancel the LC that has been issued, several parties must also agree to the said cancellation; issuing bank, confirming bank if any, and the seller. In another words, if the LC is to be cancelled, all parties must be aware of it and agree to it. In the absence of such cancellation notice and agreement, the undertaking of the bank to pay, shall stand in effect. The seller need not worry about getting paid and the buyer need not worry about making payment for his purchase.
So, premised on the above, trading parties especially the sellers, can be said to be in a safe harbour.
The question now is, is irrevocability an ultimatum? Is revocable LC no longer an option because the word ‘revocable’ has been totally deleted from the revised UCP?
The very beginning of UCP 600, Article 1, which reads “The Uniform Custom Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 (“UCP”) are rules that apply to any documentary credit (“credit”)(including, to the extend to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit.”
Firstly, this article says that all parties are bound by UCP 600 when the text of the credit expressly indicated that the LC is subject to these rules. Secondly, this article does not prohibit modification to any of the articles.
Finally, this article also does not prohibit exclusion parts of the articles. This article gives us an understanding that irrevocability of an LC is not an ultimatum as it allows and provides room for revocable LC to operate. It is therefore very important for seller and buyer to fully understand the implication of this article to avoid financial loss. The contract of sales should be expressly stated that the LC is subject to UCP 600 and INCOTERMS 2000. If, however, both parties agree to modify or exclude certain article or rules, this must also be expressly stated in the contract of sale to avoid further dispute.