Assignment of a Credit

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Query from K.D.:
Dear Mr. T.O.Lee,
First of all i would like to repeat my pleasure about your cdcs exersises, they were very helpful to me and i've passed the cdcs exam. And suggest your website to my friends and cdcs candidates.
I would like to ask a question about assignment of a credit.
UCP covers the assignment of the proceeds by art.39. We receive an assignment notification from a HK Bank, indicating that the credit, itself, is assigned to them by beneficiary with the below quoted wording.
This assignment is a separate agreement between benef. and advising bank and UCP not cover this kind of agreement.
And the assignee bank is not a nominated bank, what should issuing bank do in this transaction. What if issuing bank receives the documents from a bank other than assignee bank ?
Thanks and Best Regards
K.
Quote

PLEASE BE ADVISED THAT THE BENEFICIARY OF THE ABOVE CREDIT HAS ASSIGNED ALL ITS RIGHTS, TITLE, INTERESTS AND BENEFITS IN AND TO THE CREDIT INCLUDING ALL MONIES NOW OR AT ANY TIME DUE UNDER THE CREDIT TO US. ACCORDINGLY, YOUR PAYMENT OBLIGATIONS UNDER THE CREDIT WILL NOT BE DISCHARGED UNLESS ALL PROCEEDS PAYABLE UNDER THE CREDIT ARE REMITTED TO US FOLLOWING THE BELOW PAYMENT INSTRUCTION.
PAYMENT TO BE MADE BY SWIFT (MT202) TO.... REFERENCE NUMBER STATED IN THE REMITTAL LETTER AS PER PRESENTATION.
PLEASE INSTRUCT THE L/C ADVISING BANK (IF ANY) TO DIRECT ALL FUTURE AMENDMENTS OF THE CREDIT TO US AND NOTE THAT ACCEPTANCE OF ANY AMENDMENT IS SUBJECT TO OUR CONSENT. PLEASE FURTHER NOTE THAT THE RELEVANT ASSIGNMENT IS WITHOUT PREJUDICE TO OUR RIGHTS TO ACT AS NOMINATED BANK UNDER THE CREDIT INCLUDING TO NEGOTIATE THE PRESENTED DOCS. THIS NOTICE IS GOVERNED BY HONG KONG LAW.
Unquote

Response from T.O. Lee:
Dear K.,
I assume that your LC is subject to UCP 600.
You have to get a crystal clear concept that assignment is a right under the common Law, that the UCP cannot intervene because law is over and above UCP. This said the beneficiary as an assignor and the advising bank, as the assignee, can make any assignment arrangement based on their private contracts under local law, but this only binds these two parties, as the roles of assignor and assignee, AND NOT also the separate roles of beneficiary or the advising bank under the LC.
In fact, by adding the assignment, the beneficiary takes two separate roles, the beneficiary and the assignor and the advising bank takes two roles too, as the assignee and the advising bank. If the LC requests the advising bank to take up nomination, and if that request is taken up, the advising bank becomes also the nominated bank, or taking three roles, assignee, advising bank and nominated bank.
When a dispute arises from LC operations, it depends on which role and which relationship is involved. Then the judicial decision will be based on applicable law or UCP in that order.
However, if you look at the last sentence of UCP 600 article 39, the issuing bank recognizes only the right to receive proceeds from the LC and nothing more, not recognizing the right to perform, including the right to present documents. So strictly under this article, the issuing bank should not recognize presentation from the assignee, whoever it is. But the complication is that the wording of the assignment advice appears to change the UCP provisions and the advising bank states that it has all the rights of the beneficiary, implying that the right to present documents as well.
This is a deviation from UCP and change the rule of the game governed by UCP 600
Most lawyers are not familiar with UCP or ISP and treat the LC according to law of contract, that they are proficient. So they mess up the relationship and add complication and confusions to the LC operations.
The questions you have to ask your bank's legal council are:

Has the advising bank the right to change the provisions of the LC unilaterally without the prior agreement of the issuing bank?
My personal opinion is that there is no such right and there is no amendment to give such effect. The advising bank is not nominated to go beyond the article 39.
Is such assignment binding to the issuing bank?
I do not think so, unless the issuing bank remains silent after receipt of such assignment advice. Although silence does not mean acceptance, yet this can be a defence in the court if the issuing bank does nothing to stop such assignment.
DECLAIMER:
I AM NOT A LAWYER AND MY OPINIONS GIVEN ABOVE ARE FROM THE PERSPECTIVES OF UCP 600, NOT FROM LAW. YOU SHOULD CONSULT YOUR LEGAL COUNCIL BEFORE ACTING ON OUR COMMENTS. WE ARE NOT HELD RESPONSIBLE NEVERTHELESS FOR ANY CONSEQUENCES WHATSOEVER.
Would you mind to allow us to post your appreciation of our CDCS in our website so that more people can get benefit?
T. O.

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