Oil LC - Price clause

[VinodR]

Most of us would be aware of the oil price flutuation clause which read as "...IN U.S. DOLLARS PER U.S.BARREL ON BILL OF LADING QUANTITY SHALL BE THE ARITHMETIC AVERAGE OF THE MEAN QUOTATIONS FOR GASOIL UNDER THE HEADING ''FOB ARAB GULF'' AS PUBLISHED IN PLATTS ASIA PACIFIC/ARAB GULF MARKETSCAN:
1) Do banks need to check the rate published in Platts (external source)
2) If NO, can you quote the article under UCP 500 / ISBP which supports it?

[JudithAutié]

Hi

Nobody seems to want to reply, so I'll jump in with my thoughts.

I would turn the question around, in fact. Supposing you do check the Platts quotations, and do calculate the mean average price applicable (which in fact you are not required to do if you refer to paragraph 25 of ISBP /2007 version or para 27/500 version) and you find out that the price is not correct.

Under which article in the UCP would you refuse the documents ?

I consider that UCP500 Article 13 says that banks must examine if the documents stipulated in the credit appear on their face to comply.

Article 14 in UCP 600 is even more explicit in that it says compliance will be determined on examining "on the basis of the documents alone".

I would therefore consider that I do not have to :
- check the price by referring to another source document
- check the calculation to verifiy its correctness

This being said, most of the banks who handle petroleum credits usually subscribe to Platts or have the means to check the prices. I haven't any first hand knowledge of refusal of documents due to incorrect pricing.

Regards
Judith

[VinodR]

Thanks Judith!

I do accept your argument that Banks need not check the price as per platts quotation.

I would prefer Article 15 of UCPDC 500 (Article 34 of UCPDC 600) as the basis for not checking the price as per platts as Banks do not assume liability for the value of the goods represented in the invoice.

[DanielD]

I have always checked and if something was wrong I advised the beneficiary who could (they can also make mistakes) correct the invoice and was very pleased for our noticing the mistake. I do not know if such a mistake would be a discrepancy (see ISP 4.11 c iv however) but surely the right way to avoid potential trouble
Daniel

[JudithAutié]

Vinod
I suppose you could refer to article 15 but I interpret that article to mean that banks are not responsible for the "truthfulness" of the documents nor the intrinsic value of the goods or the doucments. (After all the article is entitled "Disclaimer on Effectiveness of Documents")

Daniel
I've been lucky in my petroleum credits that the beneficiary never seems to have made a mistake in his calculations, so I haven't run into that problem.

regards
Judith

[DanielD]

Judith,
Well I have seen this kind of mistake once or twice, but for me the checking went without saying. Now could the IB have rejected the documents because such a mistake?
I think you do not reject a set of documents for a shipment of oil in the real world, unless a set of disastrous circumstances.
But Vinod'issue makes me wondering now if an equivalent of ISP art.4 could not have been considered in the 600, Too late now and maybe better that way.
Daniel

[LakshmananS]

dear Vinod and others,
thanks for posting this subject as I have been thinking about this subject a few times before.

I believe banks here follow the safe practice of taking an undertaking from the applicant to accept invoice/s as presented without disputing the amount, and calling for a letter of confirmation from the beneficiary that the price applied in the invoice is strictly as per the formula stated in the LC.

I'm not sure how correct or incorrect it is, but that is the practice with soe banks.

regards,
Lakshmanan
Dubai