A Few Questions and Answers on UCP - Part 6

Question : Bank of India, Calcutta, negotiated Sonali Bank, Dhaka’s L/C which stipulated presentation of documents within 16 days from the date of shipment. L/C was freely negotiable with any Bank in India.

Shipment has been made on 30.10.98 within last shipment date of 31.10.98. The Beneficiary presented the conforming documents to Bank of India on 13.11.98 a day earlier to the last date of presentation 14.11.98.

Bank of India sent the documents to Sonali Bank, Dhaka, under cover of their forwarding schedule date 17.11.98 certifying that "Documents have been disposed off in terms of Credit and all the terms and conditions have been complied with" but nowhere was there mention of presentation/negotiation date.
Sonali Bank under telex dated 23.11.98 stated we refuse "Negotiation of documents as per Article 14D(ii) of UCPDC 500" and stated discrepancy as "L/C expired and late negotiation by 3 days."

Bank of India disputed the same and informed Sonali Bank under telex dated 24.11.98 that "Beneficiary has deposited captioned bill within the validity of L/C". In refusal notice Sonali Bank have only mentioned that they have referred the matter to the drawee and has not mentioned "whether they are holding the documents at the disposal of, or returning them to the presenter".

Export goods in the meantime were auctioned by customs of the country of import in May 1999.
• Was issuing bank correct in refusing the documents/negotiation?

• Any evidence was required to be submitted for timely presentation of documents by Beneficiary?

• Mentioning only "refusing documents as per Article 14D(ii) responsibility of Issuing Bank for stating that "they are holding documents at the risk of Bank of India or returning to them" is covered?

• Is Issuing Bank precluded from claiming discrepancy under Article 14(e) of UCP500?

Who will be responsible for the material auctioned?

Answer: As per UCP 500 the negotiating bank has maximum of 7 days for examining documents and undertaking negotiation. In this particular case, as it is clear from the documents, negotiation was done 3 days after expiry of L/C according to the issuing bank which is well within the permitted reasonable time for examination of documents. The issuing bank, therefore, is not right in refusing the documents.

Any evidence for timely presentation of documents by the beneficiary is not needed so long as the documents have been examined by the negotiating bank and negotiation undertaken within a period of not more than 7 banking days.
As per UCP 500 Article 14D(ii) a bank deciding to refuse documents has to give a notice to that effect.

Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal or is returning them to the presenter. In this case, since the issuing bank failed to indicate whether it is holding the documents at the disposal of the Bank of India or returning them to that bank, the issuing bank is precluded from claiming discrepancies.

• In terms of Article 14(e) if the issuing bank fails to act in accordance with the provisions of this article and/or fails to hold the documents at the disposal of or return them to the presenter, the issuing bank ..... shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit. As per the provisions of this particular sub-clause, the issuing bank is precluded from claiming discrepancies.

• Since documents have been presented in time and negotiated, the issuing bank, in terms of Article 14(e) of UCP 500, is bound to pay to the beneficiary. As for the responsibility for the material auctioned, it is a matter between the issuing bank and the applicant for the credit.

Question: Clarification required on tolerance clause in L/C
An L/C allows for tolerance of 10% plus or minus in L/C amount
The L/C also bears a clause stating that commercial invoices issued for amounts in excess of the amount permitted by the credit not acceptable.
Kindly clarify whether the advantage of the positive tolerance of 10% as allowed by the L/C can we availed.

Answer: One can certainly avail the positive advantage of 10% tolerance allowed in the L/C.

Question : Kindly clarify the following :
• L/C value is $ 10000/- Tolerance allowed is +/- 10% in Quantity and Value. One of the L.C. condition states that "Documents must not be drawn in excess of the credit value". Here credit value means $ 10,000/- or $ 10,000 with variance of 10% i.e. 11000/-. Banks are objecting if we negotiate documents worth $ 10,500/-.

• L/C $ 17400/- Tolerance allowed is +/- 10%. In reimbursement instructions of L/C opening bank says that "Please claim reimbursement for $ 14,400/-". Does it mean that documents for which value is more than $ 14,400/- will not be reimbursed by the opening bank? If yes what is the significance of + 10% tolerance in this regard.

• L/C issuing bank address mentioned in clause 42 (A) is differing from the address mentioned in Instructions for negotiating bank column (Normally issueing bank will give their full address for forwarding the Original Documents). In such case which address to be treated as issuing bank’s correct address.

• L/C says that documents to be presented within 16 days. Should we include or exclude the B/L date for the purpose of arriving last date/expiry date for negotiation.

• As per U.C.P, if the B/L is signed by an Agent the words "On behalf of carrier as agents" should appear on B/L. In some of the B/Ls only name of the Carrier and the words "as agents" were mentioned but the notation "On behalf of the carrier" was not appearing. Will it be treated as discrepancy.

• Last date of Shipment is 31.01.00 and expiry is 15.02.00 Bill of lading was dated 28.01.00. We have asked bank to send the documents on collection basis on 05.02.00 as it was a state bill of lading. Does Opening Bank is obligated to check for all the conditions mentioned in L/C even after sending the documents on collection basis. Opening bank has pointed out some discrepancies. Is opening bank right to raise discrepancies even after sending it on collection?

• L/C expiry is 29.02.00. As we could not get country of origin by 29.02.00 we could not negotiate on 29.02.00 but were sent on collection on 02.03.00. In this connection we would like to bring to your notice that all documents were having the L/C NO., date and opening bank name as we were thought of negotiating before expiry of the L/C.

• In this case, when Negotiating Banks is requested to send it on collection are they duty bounded to check for the L/C conditions just because the L/C No. and other details are mentioned on the documents. What is the right of opening bank regarding discrepancies.

• L/C requires courier receipt as a proof of couriering non negotiable copies with in 5 days of shipment. Opening Bank point out a discrepancy that the courier receipt does not mention what it contains. Is it a valid discrepancy?

Answer: Clarifications required by you are given below ad seriatim :
• If the L/C stipulates documents must not be drawn in excess of the credit value, in that case tolerance will be available only in regard to quantity and not value. The specific stipulation of the credit will supercede provisions of Article 39. Hence bank’s objections seems to be all right.

• As already commented in 1 above tolerance will be available only if the L/C does not specifically provide otherwise. If, however, reimbursement is limited to the credit value then that will supercede Article 39.

• Address given in the L/C will be the correct address as provided in L/C for purposes of this particular question.

• If L/C says documents are to be presented within 16 days then it will include the date of B/L for purposes of arriving at the last date of negotiation.

• In this connection, I am sending by post a copy of the ICC Position Paper relating to B/L. It all depends upon various factors enumerated in the Paper.

• As per facts mentioned by you I am unable to find the logic for sending documents on collection basis for if the last date for shipment was 31/01/00 and expiry date as 15/02/00 then a B/L dated 28/01/00 will be perfectly all right and not stale. For this reason the Opening Bank is treating documents under L/C and not under collection (URC 522) and raising discrepancies. If you intend documents to be sent on collection basis then appropriate collection instructions need to be given through your bank to the Issuing Bank.

• In this particular case since documents were not sent under L/C the banks will handle collection on the basis of collection instructions.

• So long as the courier receipt can be linked with the other L/C particulars, there is no need for the courier receipt to mention of what it contains. In any case at the time of receiving such courier documents courier will not know what it contains.