Letters of Credit under Armenian Law: Did you say it is irrevocable?

02/04/19

Letters of Credit under Armenian Law: Did you say it is irrevocable?

As a civil law country Armenia has moved towards the codification of legal acts in codes, inter alia the commercial and contractual relations being governed by the Civil Code of the Republic of Armenia (ACC). In essence the ACC has introduced provisions dealing with the definition, legal nature and the relations between the parties to a letter of credit transaction.

It appears that the definition of a letter of credit has been somehow reproduced from then UCP 400, which has been subject to change in UCP 500  and consequently in UCP 600. Such definition can also be stated to be in line with Article 5 definition of Uniform Commercial Code (UCC) except that UCC accepts any value in payment while ACC restricts payment in monies and acceptance of bills of exchange as means of discharge of payment obligations under the letters of credit.

More importantly however, the ACC makes distinctions between revocable and irrevocable letters of credit: a revocable letter of credit is one that may be changed or revoked by the emitting bank without prior notification to the recipient of funds while the irrevocable letters of credit as a letter of credit, which may not be revoked or changed without the consent of the recipient of funds.

However, Article 936 of ACC raises a presumption of law with respect to the type of the letters of credit which is outdated – it stipulates that the letter of credit is considered as revocable unless otherwise stated therein.

The presumption of revocability is an outdated approach which was enshrined in UCP 400. UCP 500 changed the presumption to irrevocability whereas UCP 600 repealed the revocability of the letters of 

credit in entirety. Article 3 of UCP 600 provides that “a credit is irrevocable even if there is no indication to that effect”.

This approach seems more odd on the background that the provisions of the ACC governing the relations connected with the bank guarantees has adopted the presumption of irrevocability. Article 386 of ACC provides that the guarantor may not revoke a guarantee unless otherwise provided.

The outcome of the current regulation is that in case if the parties to the credit do not incorporate the UCP 600 expressly in the contract, the presumption as to revocability of the letters of credit will prevail. Until the ACC will be amended to that effect, the parties should take care to provide for rules which will change the revocability presumption of the letter of credit.

Author:

Gor Margaryan - Managing Partner

Disclaimer:  The views and opinions expressed in this article are those of the author and shall not be deemed as legal advice. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products.