QUERY

An issuing bank sent a letter of credit, subject to UCP 600, with the following conditions:

Amount: EUR 2,418,154.10

Partial Shipment: Allowed

Credit Amount Tolerance: + / – 10%

10 percent more or less on total quantity and amount allowed.

Goods Description (included):

50MT For size 1.5x1,250XC ........

Total Quantity 5,000MT

........

The negotiating bank sent the shipping documents to the issuing bank with the following details:

Negotiated Amount: EUR1,471,959.10

‘........ 55.55MT For size 1.5x1,250XC ........

Total Quantity 3,043.88MT’

The issuing bank refused the said documents citing the following discrepancy: Quantity over-shipped for size 1.5x1,250XC

(There were several items shipped under the above letter of credit and among them for the size 1.5x1,250XC, the quantity had been over-shipped.)

MT734 from issuing bank was as follows:

734 ADVICE OF REFUSAL

20 Sender’s TRN:ABCD123456

21 Presenting Bank’s Reference: 954XYZ12345678

32A Date and Amount of `Utilisation: 161219EUR1471959,10

77J Discrepancies: 1. QUANTITY OVERSHIPPED FOR SIZE 1.5X1250XC

77B Disposal of Documents: DOCS ARE HELD PENDING RECEIPT OF ACCEPTABLE WAIVER FR APPL IN ACCORD. WITH ART 16C III B OF UCP600

The negotiating bank pointed to the clause “10 percent more or less on total quantity and amount allowed” and argued that the word “total” applied to the 10 percent tolerance limit and not to individual items in the letter of credit.

The issuing bank had argued that the tolerance in quantity applied to both the total quantity as well as to the quantity of individual items in the letter of credit.

We kindly seek your opinion on whether or not, following UCP 600 and international standard banking practice, the discrepancy stated by the issuing bank is a valid reason for refusal.

For your information, the above-mentioned negotiation was subsequently paid by the issuing bank notwithstanding that it insisted that the discrepancy was valid.

ANALYSIS

The credit allowed partial shipments and, additionally, indicated that the amount and total quantity of goods to be shipped were both subject to a tolerance of plus or minus 10%.

A number of line items were included within the goods description, each with an applicable quantity. The quantity of one of the line items that had been shipped was more than 10% over the quantity stated in the credit. As a result, this was cited as a discrepancy by the issuing bank.

However, the credit was specifically worded so that the tolerance of 10% applied only to the total quantity shipped under the credit and not to the individual line items noted in the goods description.

As a consequence, the stated tolerance for the quantity did not apply to the individual quantities, but only to the total quantity.

CONCLUSION

The discrepancy is not valid.