The Case of the 8 Containers
Last week the ICC Banking Commission – at their meeting in Jakarta – approved 6 new Opinions. One of those has been the subject of a number of discussions; namely TA.869rev.
As was mentioned at the meeting, when presenting the Opinions (and the suggested changes), even within the group of ICC Technical Advisors there were more discussions around this Query than is normally the case. In fact, different drafts were made, in order to determine which one was the better interpretation of international standard banking practice.
The purpose of this Blog Post is to show the details of the Query, the Opinion – as well as the counter arguments.
First to outline the case:
Extracts from the LC
32B Currency Code, Amount: USD 80,000.00
39A Percentage Credit Amount Tolerance: 10/10
43P Partial Shipments: ALLOWED
45A Description of Goods and/or Services:
400 MT WIDGETS AT USD200.00/MT, PACKED IN 8 CONTAINERS
46A Documents Required: 1 ORIGINAL INVOICE, 3/3 ORIGINAL B/Ls
47A Additional Conditions: BOTH QUANTITY AND AMOUNT 10 PCT MORE OR LESS ALLOWED
Presentation information:
1st Presentation – USD 26,400.00 – 3 containers with 132 MT
2nd Presentation – USD 44,000.00 – 5 containers with 220 MT
First presentation was paid by the issuing bank – and no refusal was made.
The issuing bank refused the second presentation citing the following discrepancies:
1. Short shipment in 8 containers
2. LC amount short drawn
The question is if these two discrepancies are correct.
Summarized, the answer from the ICC is the following:
This particular query includes specific requirements i.e.: 400 MT plus/minus 10% (i.e., a quantity between 360 MT and 440 MT) to be packed in 8 containers.
By the time 8 containers are utilised, the quantity of goods shipped is to be between 360 and 440 MT.
The second presentation was discrepant for the reason that the quantity of goods shipped and containers utilised in the first two drawings were 352 MT and 8 respectively, with a total drawing amount of USD 70,400 whereas the LC required that where 8 containers were utilised, the quantity shipped would be between 360 and 440 MT with a commensurate value of between USD 72,000 and USD88,000.
The query makes reference to Opinion TA816rev/R843 *). The reason for that reference is that TA816rev includes wording to the effect that when an LC permits partial shipments, there is always the possibility of only a partial utilisation of the LC and many valid reasons may exist for this. The new Opinion however, carefully distinct itself from that TA816rev in that they cover two different scenarios. I.e. the position of the ICC Banking Commission is that TA816rev deals with the issue of partial shipment (and the principles around that) – and actually is an example of a badly drafted LC, whereas TA.869rev deals with a very specific LC requirement (quantity vis-à-vis number of containers).
Most of the arguments that I have heard against the ICC opinion, are based on the premise that this is an issue of partial shipment. As such it is not, and that is proved by the scenario where the quantity shipped was the same as in the query – however only shipped in 7 containers. Clearly that would not have been a discrepancy, and as such the beneficiary would have the option to “end” their shipments there. I.e. the determining factor is the number of containers – which is part of the LC requirements.
It has also been argued, that a containers is not just a container; i.e. they come in different sizes (standard 20’ and 40’) – i.e. from the query it is not clear if the goods are shipped in the agreed container size.
As such this argument is not incorrect, and point to the limitations of ICC Opinions; being single answers to single questions. And the answers (Opinions) are alone based on the information from the question (Query). For this Query “a container is a container”: 8 are required by the LC. 3 are shipped in the first shipment, and 5 in the second! The only reasonable approach would be to base the answer on the details of the Query – not reading anything into it.
Another argument is that there may be a 3rd presentation showing shipment of the remaining goods into one or more of the containers already shipped.
Again that is not as such an incorrect argument; however a bit more farfetched than the one above. It would be really unusual to ship (example) 44 MT of WIDGETS into an LCL (Less Than Container Load) container. And again, the only reasonable approach would be to base the answer on the details of the Query – not reading anything into it.
So concluding here, the ICC Banking Commission has taken the direction to base the answer on the LC requirements- rather than on the principles of partial shipment.
Already now reviews of the 6 Opinions approved at the ICC Banking Commission last week is available in lcviews premium.
Take care of each other and the LC.
Kind regards
Kim
*) Here is a short review of Opinion TA816rev/R843:
LC information:
32B (Amount) USD 60,000,00
39A (Amount tolerance) 0/0
43P (Partial shipments) Permitted
45A (Goods description) 500 bags of dried grain
47A (Additional conditions):
1. Where there will be further shipment, beneficiary must present a certificate stating that there will be further drawings under the LC.
2. Upon final drawing, a certificate of final shipment should be presented
Presentation information:
Drawing USD 50,000
Goods shipped: 360 bags of dried grain
The presentation included a certificate issued by the beneficiary stating:
“We confirm that there will be no further shipments.”
Refusal information:
“Short shipment and short drawing as the beneficiary has presented a certificate confirming that there will be no further shipment”
Is this a valid discrepancy?
ICCs answer:
This is a badly issued self-contradicting LC and the issuing bank will have to face the consequences.
The LC permits „partial shipments‟, and there always exists the possibility of only a partial utilisation of the LC for very many reasons.