Automatic Extension – Notice of Non-Extension

The Problem

UCC 5-106(b) provides: “After a letter of credit is issued, rights, and obligations of a beneficiary, applicant, confirmer, and issuer are not affected by an amendment or cancellation to which that person has not consented except to the extent the letter of credit provides that it is revocable or that the issuer may amend or cancel the letter of credit without that consent.”  ISP98 Rule 2.06 expressly deals with “automatic amendments”.  UCP 500 does not.

Most LC provisions for automatic extension do not rely on practice rules, so that interpretation of the LC language is required to determine whether a notice sent to or received by the beneficiary will abort automatic extension or trigger automatic early expiration/termination.  (Some think of expiry as that which is triggered by the mere passage of time, and consider active triggers as resulting in “termination”.)

The beneficiary wants to require beneficiary receipt of any notice triggering early expiration/termination, and the issuer wants the trigger to be based on sending to the beneficiary.  Apart from whether notice is sent/received, there is frequently an interest as to when notice becomes effective, in which case the sender will want to base timely notice on its records on sending but may accept LC language giving effect to any notice covered by a postal or courier receipt evidencing a sending to the beneficiary’s address.

LC banks worry that it may be hard for them to prove that their notices of non-extension are effective, particularly if some kind of “strict” standard is applied to bank notices given under an LC.