ICC Digital Library Forum

Vin,

IF QUANTITY IS IN PACKING UNITS OR INDIVIDUAL ITEMS (PIECES), THERE IS NO 5% LESS TOLERANCE IN DRAWING

The invoice is made out in pieces, or in " packing units or individual items". Then according to sub Article 39 (b) there MAY BE no 5% less telerance on the drawing amount.

Since the DC does not state any quantity, as told by the enquirer later, it is difficult, if not impossible, to ascertain whether the quantity shipped is exact, over or under the quantity contracted between the buyer and the seller.

This Article 39 has not dealt with such a scenario as what we are now facing, where the DC does not indicate any quantity, and the quantity shipped is unknown as to whether over, under or exact as compared to the quantity as intended or contracted by the parties.

So we cannot quote the UCP 500 for an indisputable answer. That is why we use the word MAY BE in paragraph 1 & 4 here.

LOGICL INFERENCE TO GET OUR ANSWER

To guess an answer, if there is one, we should therefore come back to simple common sense and logical inference, such as what we ouwld do in guessing who is the murder (usually the butler) in Argatha Christie or Sherlock Holmes (C. Doyle) detective stories, "The Oriental Express" or "The Hound of Baskerville".

THE CLUE IS EXW

The clue to the answer appears to be resting upon the EXW.

If the price is in EXW, there is no valid reason to ship the full quantity by charging less since there is no price reductions due to savings in freight, insurance premium or other expenses.

If over shipment is done, there is no reason for underdrawning if the Incoterm used is EXW.

If there is undershipment, then according to sub Article 39 (b), there is no 5% less tolerance on drawing amount if the quantity expressed is in "packing units or individual items" (as in this case in 100,000 pieces). Then shipment of 100,000 pcs. would be deemed to be a discrepancy since it is against the intention of this sub Article, that allows no tolerance in underdrawing for quantity expressed in pieces.

MAY STILL BE A DISCREPANCY BECAUSE QUANTITY IS IN PIECES

If the Incoterm is not EXW, but FOB, CFR or CIF, then the seller is allowed under sub Article 39 (b) to underdraw up to 5% provided the quantity (if stated in DC) and the unit price (if stated in DC) are the same IF AND ONLY IF THE QUANTITY IS EXPRESSED BY/IN VOLUME OR WEIGHT. BUT NOT IN PIECES. So under such a situation, there is no tolerace for 5% underdrawing, as we have said before in this query.

That is why the clue is in Incoterm or EXW.

PROBLEMS IN CUSTOMS CLEARANCE

If we go back to reality, and if there is no Incoterm used in the price, then the buyer may encounter problems in clearing customs. This may be a material defect and for perishable goods, that means substantial if not total loss as the goods may go bad due to delays in clearing customs. For commodity, the price may also flunctuate widely during such period.

I am leaving now to Saudi Arabia and see you in the DC Pro on 11th October 2001 again.

htttp://www.tolee.com

[edited 9/29/01 6:47:55 PM]

I understand the logic behind the assumptions given by Mr. Lee but I don’t agree that the Incoterms term is absolutely necessary to determine the applicability of article 39c. to the case. I agree with Vincent O´Brien above that the art. 39(c) applies to our case.

This article does not mention any connection to Incoterm so the only possible outcome is that it would apply also in case of EXW or any other term. Therefore Mr. Qingtang is, in my view, correct that any assumptions are not necessary in this query.

I am a bit confused by some comments above. It is said above that IF QUANTITY IS IN PACKING UNITS OR INDIVIDUAL ITEMS (PIECES), THERE IS NO 5% LESS TOLERANCE IN DRAWING.

Actually the art.39b says that the tolerance +-5% re. quantity of goods does not apply when the Credit stipulates the quantity in terms of a stated number of packing units or individual items.

The art.39c says: “Unless a Credit which prohibits partial shipments stipulates otherwise, or unless sub-Article (b) above is applicable, a tolerance 5%less in the amount of the drawing will be permissible………”

So if QUANTITY IS IN PACKING UNITS OR INDIVIDUAL ITEMS (PIECES), then the art.39b is not applicable and art.39c might be applicable if other conditions of the art.39c are complied with.

Pavel Andrle

T.O.

Sorry about delay in responding to you points/

The original enquiry facts from qintang concerned a Credit issued as follows:

Documentary credit,
- description of goods as : Toys
credit amount as : USD100,000.00
partial shipment : not allowed
........................................

Under this Credit documents documents were presented covering shipment
of 100,000 pieces of toys and amount invoiced as USD96,000.00
........................................

So now on examination of the stipulations of the Credit and the examination of the documents presented we must apply UCP to ascertain whether or not they appear on their face to be in compliance.

Qintang later stated that these facts reflected the whole picture of the LC which the queries related.

T.O. makes some very valuable points and his insight is very valuable as with the introduction of UCP 500 we saw article 39 of UCP 500 replacing article 43 of UCP 400 with sub-article 39 c being introduced as a new sub-Article. This was to cater for situations where the amount of the credit was rounded up when the Credit was issued based on a quotation when in fact the cost of freight or insurance may actually turn out to be less on actual shipment.

In this particular case as posted, from the documents alone we do not know why the drawing was 96% of credit amount but that is the way the document/invoice has been presented. We must now on examination of these documents alone make our decision based on the Credit stipulations and the application of UCP 500.

T.O., in his previous posting makes the point that "The invoice is made out in pieces, or in " packing units or individual items". Then according to sub Article 39 (b) there MAY BE no 5% less telerance on the drawing amount."

If we once more read 39 b we see that it concerns the stipulations of a CREDIT (not the invoice) in respect of the QUANTITY (with proviso that amount of drawing does not exceed amount of the Credit).

In fact this sub- article states "this tolerance does not apply when the CREDIT, repeat when the CREDIT stipulates the quantity in terms of a stated number of packing units or original items"

Therefore, I am quite happy to accept that the drawing of USD96,000.00 is permissible under 39 c.


Regards

Vinnie

Sorry! The DC Pro software does not allow me to delete this duplication posting. DC Pro got to improve on this.

T. O.
[edited 10/22/01 8:12:46 PM]

Vin,

Now the DC does not state any quantity of the goods (a bit strange but it is true anyway) but the invoice states the goods in pieces.

SUB ARTICLE 39 (B) USES THE WORD "CREDIT" NOT "INVOICE"

As you have rightly pointed out (Irish eyes are not only beautiful but very sharp too), Article 39 (b) deals ONLY with a situation where the CREDIT DOES state the quantity of the goods in pieces, this sub Article seems not to be applied AUTOMATICALLY or READILY in this case.

THE UNDERLYING PRINCIPLE IS THE SAME

Having said that, if we try to visualize the underlying intention of the UCP 500 Working Party in making this sub Article, it should be applicable in this case, where the invoice does state the quantity of the goods in pieces, although not so convinsingly due to the wording used in this sub Article being CREDIT AND NOT INVOICE. However, the underlying principle should be the same from a common sense approach.

That is why right from the start, we have already pointed out that the way the goods are described would have an important impact to our answers. That is also why we say under EXW, there should not be any underdrawing.

A GOOD SUGGESTION FOR UCP 2005

So we have a good suggestion to modify this sub Article in the UCP 2005

Why UCP 2005?

The ICC Banking Commission says that there will not be any amendment to UCP 500 until the year 2003. We estimate that it should take at least two years to complete the redrafting. So we think that the new UCP should be ready by the year 2005 and at which time I should be able to retire if my financial goals have been accomplished at that time. But now we have the 911 impact which may delay my retirement planning.

"If the Credit does not describe the quantity of the goods, and if the invoice describes the goods in stated number of packing units or individual items, 5% underdrawing is not allowed" or words of similar effect should go into this sub Article in the UCP 2005.

http://www.tolee.com

[edited 10/23/01 4:50:59 PM]

I agree with Mr. Vobrien in his interpretation of art. 39 of UCP500. Nevertheless I consider the reasoning given by Mr. T.O.LEE as very useful.

Pavel Andrle