When is a letter of credit irrevocable?

Uniform Customs and Practice for Documentary Credits (UCP600) is a set of rules agreed by the International Chamber of Commerce. It applies to financial institutions which issue letters of credit. Its purpose is to standardise international trade, thereby reducing the risks of trading goods and services, and govern trade.

Unity Trade Capital Limited (UTC) issued an irrevocable letter of credit in favour of Heytex Bramsche GMBH (Heytex) in relation to an agreement between Heytex and Jibran Technical Services LLC (Jibran), a company in the UAE, under which Heytex was to supply PVC coated fabric to Jibran. The Letter of Credit issued by UTC incorporated the standard terms of UCP600; Heytex provided the documents required, thereby entitling it to immediate payment from UTC. UTC refused to pay Heytex under the terms of the Letter of Credit (and Jibran defaulted on payment for the fabric). 

Heytex presented a petition for payment of the sums due under the Letter of Credit. UTC disputed liability on the basis of a number of grounds. Perhaps most significantly, UTC tried to rely on “Credit Norms” included in the Letter of Credit which provided for the termination and avoidance of the credit, and the release of UTC from liability in circumstances where the seller/beneficiary and buyer/applicant sought to negotiate terms in relation to their own discrete, underlying sales contract. Not only did this deviate significantly from UCP600 (undermining the principles of autonomy and irrevocability, which are fundamental to the function of credits) but Heytex had not been given sufficient notice of the terms. UTC also sought to construe that the documents provided by Heytex were deficient; looking at the construction of the Letter of Credit, this was not the case.

In finding that there was no real or substantive dispute, the court noted that Letters of Credit are straightforward and benefit from international standardisation. This is an important observation and should be taken into account when looking at questions of construction. Where there is deviation from the standard terms this needs to be clearly noted (with a “red hand”) to the contracting parties. 

Heytex Bramsche GmbH v Unity Trade Capital Ltd [2022] EWHC 2488 (Ch)

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