Tolerances

JimBarnes · Post by **JimBarnes** » Mon May 22, 2006 1:00 am

Let's return to ISBP para 2. Does an issuing bank take the risk of LC ambiguity in a dispute with the presenter? Does "ambiguity" mean just a 50-50 split or would it protect a presenter that acts on any reasonable interpretation of an ambiguous LC? Sure, courts can answer (or reframe) these questions, with or without focusing solely on ISBP, but what do the LC bankers think, because that should persuade courts. Jim Barnes

KimChristensen · Post by **KimChristensen** » Tue May 23, 2006 1:00 am

Jeremy, good one.

Given that this is extreme, and taken into account that the term in the credit is open for interpretations ….
IF the result of the opening posting is that “there is no discrepancy” – then the same must apply here. Assuming of course that it is possible to make an additional drawing – shipping the goods to be within the permitted range.
From your example there still is the 5% of the amount available for drawing.
Again – this situation arises because that the terms is not clear.

Jim, whatever I do I seem to end up in a court room

I would think that the purpose of ISBP para 2 is to protect the issuing bank in situations like this one. I would also think that the scenario that you mention is not really covered by para 2, but would probably (hopefully) be the same; i.e. the presenter that has made a reasonable interpretation would be protected.
To me para 2 points in the right direction – but I do think that it is uncomplicated. Like in this case if the issuing bank tells the applicant that the clause is ambiguous, then the applicant may claim (right or wrong) that it would have expected the issuing bank to inform of such “ambiguities” at the time of issuance. I have no idea if they would be able to be convincing on this point in court (in fact I would not dare to guess on anything LC related coming out of a court room) – but in any case it is not fruitful for the customer relationship.

Best regards
Kim

NeilKlug · Post by **NeilKlug** » Tue May 23, 2006 1:00 am

Thanx to everyone for their valued input on this subject.

Plse may I have responses in terms of the UCP rulings and in order to avoid any ambiguity in future, how should the tolerance issue be worded in letters of credit?

Regards
Neil

NigelHolt · Post by **NigelHolt** » Tue May 23, 2006 1:00 am

Kim,

I should have added that the Credit does not contain any ‘tolerances’. Thus a maximum of USD.01 only remains to be drawn.

Neil,

Firstly, I do not if there are any ‘UCP rulings’ and will leave you to search to see if there are any relevant ICC opinions.

Secondly, as to avoiding ambiguity, I think it is a question of clearly setting out ones intentions, where there is a tolerance on both quantity and amount and a unit price is not quoted, i.e. expressly stating either that the quantity and amounts can vary independently of each other or that the quantity and amounts can only vary in proportion to each other.

RolandLeupi · Post by **RolandLeupi** » Tue May 23, 2006 1:00 am

Jeremy,
your proposal to avoid ambiguity is perfect. So in the future we are going to issue L/C by complicating much more things that already are. I don't think that said "philosophy" is that of the ICC. However....
So by putting a sentence like you offer I give beneficiaries the possibility, to draw the higher amount. I seriousely doubt that the article regarding the allowances in credit was created in that sense.
Anyhow,I respect anyhow's understanding but feel unconfortable when an easy solution which works for almost the worldwide banking community has to end up with unending problems due to one specific case which I am sure would end even before a Court with a decision of good sense
Roland

JudithAutié · Post by **JudithAutié** » Tue May 23, 2006 1:00 am

Speaking from personal experience, I think that a simple solution to avoiding such an ambiguity would have been to indicate the unit price in the credit to begin with.
Absent such an indication, I consider that both the quantity and the total price could "benefit" from the tolerance individually.
In the past, working in the export of precious metals, I would have credits opened with a +/- 10 % tolerence on the amount and on the quantity, but specifically avoiding a unit price, which gave me the possibility of selling 90% in quantity for 11O% in value and thus be able to take market fluctuations into account. I never had documents refused for reasons related to tolerances.

Sorry I missed you all at Vienna. How was the meeting?

Judith

NigelHolt · Post by **NigelHolt** » Wed May 24, 2006 1:00 am

Roland,

Sorry but I am a little puzzled by your posting. I am struggling to see how (A) making ones intentions clear is ‘complicating much more things that already are’ or (B) by ‘putting a sentence like offer [this] give beneficiaries the possibility, to draw the higher amount’ (incidentally I suggest two possibilities based on the circumstances). As to ‘the article regarding the allowances in credit’, by which I assume you mean Article 39, I cannot see it has any applicability to the situation first outlined in this thread.

Judith,

I agree entirely with your simple solution. Presumably the documents you describe were never refused because the credits were framed in such a way as to allow the minimum goods to be shipped for the maximum amount. As usual, didn’t go to the last ‘Banking’ Commission meeting so can’t comment about it.

asamaha · Post by **asamaha** » Fri May 26, 2006 1:00 am

We may think that the total quantity of goods covered by the credit is not of the same quality and that the credit gives latitude to the beneficiary to deliver different kinds of honey with different prices within the indicated tolerances in quantity and value

Regards
Antoine Samaha

RolandLeupi · Post by **RolandLeupi** » Mon May 29, 2006 1:00 am

Jeremy,
Sorry for the missunderstanding. I went through your posting carefully and I agree with you
Roland

NigelHolt · Post by **NigelHolt** » Mon May 29, 2006 1:00 am

Roland,

No problem.

Jeremy