Adding onto the original enquiry, assuming the credit required 2 shipments to be effected at the following intervals: -
By 31 May 01 200 Units of Panasonic Video Recorders
By 30 June 01 450 Units of Panasonic Video Recorders
Assuming 150 Units were actually shipped on 31 May 01 & the issuing bank has subsequently accepted the discrepancy of short shipment.
Is the beneficiary required to make good the short shipment of 50 Units when he makes the second shipment i.e. should he now ship a total of 500 Units or can he still ship 450 Units?
My thanks for your advice.
Shipments by instalments
Shipments by instalments
STRICT COMPLIANCE IS MOST SAFE
The second instalment shipment of 450 units is not discrepant because:
(1) It has been performed strictly according to the original DC stipulation on quantity;
(2) There is no amendment to change the quantity of the second instalment shipment; and
(3) The issuing bank and the applicant are both silent on the quantity of the second instalment shipment after accepting the short shipment in the first instalment shipment.
SUGGESTED REVISION OF ARTICLE 41
Perhaps in the next revision of Article 41 in UCP 500, we should offer to the applicant a choice in the shipped quantities, to be cumulative or non-cumulative, as available in the revolving documentary credits.
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[edited 4/2/02 10:26:13 PM]
The second instalment shipment of 450 units is not discrepant because:
(1) It has been performed strictly according to the original DC stipulation on quantity;
(2) There is no amendment to change the quantity of the second instalment shipment; and
(3) The issuing bank and the applicant are both silent on the quantity of the second instalment shipment after accepting the short shipment in the first instalment shipment.
SUGGESTED REVISION OF ARTICLE 41
Perhaps in the next revision of Article 41 in UCP 500, we should offer to the applicant a choice in the shipped quantities, to be cumulative or non-cumulative, as available in the revolving documentary credits.
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[edited 4/2/02 10:26:13 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Shipments by instalments
For simplicity purposes I would put my argument in this manner.
If we have a letter of credit that stipulates shipment schedule to be effected on specified periods and the beneficiary has made a timely presentation respecting the schedule but the documents contain other discrepancies would the bank apply the sudden death penalty to the letter of credit? In other words, would the bank cease the remaining shipment schedules due to the fact that documents does not comply with L/C requirement such as non-presentation of analysis certificate or even un-legalized commercial invoice.
There is nothing in article 41 that support this penalty to be exercised. My argument is solely based on UCP 500 and not on the applicant’s business strategies or the intention of the parties involved, although I do not undermine those factors.
I would request that we are referred to a specific UCP article that supports the yes answer to the above question.
If we have a letter of credit that stipulates shipment schedule to be effected on specified periods and the beneficiary has made a timely presentation respecting the schedule but the documents contain other discrepancies would the bank apply the sudden death penalty to the letter of credit? In other words, would the bank cease the remaining shipment schedules due to the fact that documents does not comply with L/C requirement such as non-presentation of analysis certificate or even un-legalized commercial invoice.
There is nothing in article 41 that support this penalty to be exercised. My argument is solely based on UCP 500 and not on the applicant’s business strategies or the intention of the parties involved, although I do not undermine those factors.
I would request that we are referred to a specific UCP article that supports the yes answer to the above question.
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Shipments by instalments
Referring to the query of Mr. Mandyvong on installment shipment that has been performed shortly, I agree with Mr. Lee’s response however I would like to pinpoint serious issues.
1. Is the issuing or confirming bank who has accepted short shipment may still be entitled to reject the second drawing on the basis of article 41?
The bank at the time of rejection may have not raised this issue nor it has intimated the beneficiary of its intention to cease the second shipment, however it is necessary in my opinion that the beneficiary through his bank insist on reinstating the second shipment (cumulative or non)
2. Does it matter if this reinstation is before or a after the presentation of the second documents representing second shipment? In other words, can we consider the second shipment as revocable since the original shipment schedule has not been effected?
Needless to mention that such action on the part of the bank to cease second shipment all of a sudden is not a good banking practice but one should not leave any room for risk if it could be avoided.
1. Is the issuing or confirming bank who has accepted short shipment may still be entitled to reject the second drawing on the basis of article 41?
The bank at the time of rejection may have not raised this issue nor it has intimated the beneficiary of its intention to cease the second shipment, however it is necessary in my opinion that the beneficiary through his bank insist on reinstating the second shipment (cumulative or non)
2. Does it matter if this reinstation is before or a after the presentation of the second documents representing second shipment? In other words, can we consider the second shipment as revocable since the original shipment schedule has not been effected?
Needless to mention that such action on the part of the bank to cease second shipment all of a sudden is not a good banking practice but one should not leave any room for risk if it could be avoided.
Shipments by instalments
WHETHER DISCREPANCIES WOULD TRIGGER ON "SUDDEN DEATH" PENALTY IN ARTICLE 41?
We wish to respond to Mr. Shehab's query made on 28 July 2001 regarding whether any existing Article in the UCP 500 may be relied upon to support that material discrepancies in documents presented in the first instalment shipment would trigger on the "sudden death" penalty of Article 41, invalidating that DC for the second instalment shipment/presentation.
"DRAWINGS" IN ARTICLE 41 TO MEAN "PRESENTATIONS FOR PAYMENT" FOR COMMERCIAL AND STANDBY CREDITS
We have already addressed to this issue in our opinions expressed on 26 July 2001, interpreting the word "DRAWINGS" in Article 41 to mean "PRESENTATIONS FOR PAYMENT" in commercial documentary credits as well as in standby letters of credit.
DEFECTIVE DRAWING DUE TO DISCREPANCIES WOULD TRIGGER ON "SUDDEN DEATH" IN ARTICLE 41
From such interpretation, any material discrepancies in the documents of the first instalment shipment "PRESENTED FOR PAYMENT(DRAWING)" under the DC would render that drawing defective. Such defective drawing would then trigger on the "sudden death" penalty of Article 41.
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[edited 4/2/02 10:23:16 PM]
We wish to respond to Mr. Shehab's query made on 28 July 2001 regarding whether any existing Article in the UCP 500 may be relied upon to support that material discrepancies in documents presented in the first instalment shipment would trigger on the "sudden death" penalty of Article 41, invalidating that DC for the second instalment shipment/presentation.
"DRAWINGS" IN ARTICLE 41 TO MEAN "PRESENTATIONS FOR PAYMENT" FOR COMMERCIAL AND STANDBY CREDITS
We have already addressed to this issue in our opinions expressed on 26 July 2001, interpreting the word "DRAWINGS" in Article 41 to mean "PRESENTATIONS FOR PAYMENT" in commercial documentary credits as well as in standby letters of credit.
DEFECTIVE DRAWING DUE TO DISCREPANCIES WOULD TRIGGER ON "SUDDEN DEATH" IN ARTICLE 41
From such interpretation, any material discrepancies in the documents of the first instalment shipment "PRESENTED FOR PAYMENT(DRAWING)" under the DC would render that drawing defective. Such defective drawing would then trigger on the "sudden death" penalty of Article 41.
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[edited 4/2/02 10:23:16 PM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Shipments by instalments
As T.O. Lee says in his response of 24.7.01, compliance with Article 41 is based on shipment performance. If instead of drawings, we focus on the aspect of shipments in Article 41, we can see that it requires instalment shipments to be made within the period allowed for that instalment. Specifically, it states that if any instalment is not shipped within the period allowed for it, the credit ceases to be available etc. In my opinion, it is flawed in that it does not opine on how shipment is to be determined. Is it :
(a) based on a presentation with all documents in order - or
(b) evidenced by means of the transport document called for in the L/C showing compliance with the shipment schedule alone, regardless of whether other documents are compliant. If other documents are not compliant, this presentation fails or applicant accepts discrepancies, but this is a separate issue from whether or not shipment is made according to the schedule. Shipment according to the schedule can be ascertained from the transport documents alone.
(a) based on a presentation with all documents in order - or
(b) evidenced by means of the transport document called for in the L/C showing compliance with the shipment schedule alone, regardless of whether other documents are compliant. If other documents are not compliant, this presentation fails or applicant accepts discrepancies, but this is a separate issue from whether or not shipment is made according to the schedule. Shipment according to the schedule can be ascertained from the transport documents alone.
Shipments by instalments
OFFICIAL INTERPRETATION CAN ONLY COME FROM THE ICC BANKING COMMISSION
To respond to Mr. Bacon's comments of 30 July 2001 on the interpretation of the word "SHIPMENTS" in Article 41, all of us here are trying to give our personal interpretations. The official and binding interpretation should only come from the ICC Banking Commission.
PROBLEM ARISES FROM INTERPRETATION OF "DRAWINGS", BUT NOT ON "SHIPMENTS"
However, interpretation of the word "SHIPMENTS" would not be an issue if we were to agree that the word "DRAWINGS" in the same Article is to be interpreted as "PRESENTATIONS FOR PAYMENT".
Even if the first instalment shipment (taking the narrow interpretation to mean, e.g. only "loading on board" in a marine BL) has been performed on schedule but the PRESENTATION FOR PAYMENT (DRAWING) of that shipment is discrepant due to a NON TRANSPORT DOCUMENT has discrepany(ies), then the "Sudden death" under Article 41 would be triggered on.
Mr. Bacon, the problem does not lie with the interpretation of "SHIPMENTS" but rather on "DRAWINGS".
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[edited 4/2/02 10:20:09 PM]
To respond to Mr. Bacon's comments of 30 July 2001 on the interpretation of the word "SHIPMENTS" in Article 41, all of us here are trying to give our personal interpretations. The official and binding interpretation should only come from the ICC Banking Commission.
PROBLEM ARISES FROM INTERPRETATION OF "DRAWINGS", BUT NOT ON "SHIPMENTS"
However, interpretation of the word "SHIPMENTS" would not be an issue if we were to agree that the word "DRAWINGS" in the same Article is to be interpreted as "PRESENTATIONS FOR PAYMENT".
Even if the first instalment shipment (taking the narrow interpretation to mean, e.g. only "loading on board" in a marine BL) has been performed on schedule but the PRESENTATION FOR PAYMENT (DRAWING) of that shipment is discrepant due to a NON TRANSPORT DOCUMENT has discrepany(ies), then the "Sudden death" under Article 41 would be triggered on.
Mr. Bacon, the problem does not lie with the interpretation of "SHIPMENTS" but rather on "DRAWINGS".
We are from http://www.tolee.com
[edited 4/2/02 10:20:09 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Shipments by instalments
The word "drawing" in article 41 has not been referred to in general terms to be interpreted in a way to mean presentation the way explained. Drawing has been qualified with an adjective noun "installment" therefore it specifically mean systematic claims in specified periods of time or per schedule. I m still of the opinion that if drawing is effected within the schedule of the credit then this drawing has fulfilled the requirement of article 41, however if any other discrepancy is found then we cannot trigger the "sudden death penalty" to the subsequent shipments/drawings.
If we have a standby letter of credit with installment drawings and one drawing has not been performed then the sudden death penalty would be applied, however if a timely drawing is performed but other material discrepancy is found then we cannot kill other drawings on the ground of our interpretation of the word drawing.
I agree with Mr. Lee that all our discussions are personal opinions and official interpretation is left for the ICC banking commission.
If we have a standby letter of credit with installment drawings and one drawing has not been performed then the sudden death penalty would be applied, however if a timely drawing is performed but other material discrepancy is found then we cannot kill other drawings on the ground of our interpretation of the word drawing.
I agree with Mr. Lee that all our discussions are personal opinions and official interpretation is left for the ICC banking commission.
Shipments by instalments
LOOK FOR INTENT RATHER THAN LITERAL MEANING
To respond to Mr. Shehab's comments made on 31 July 2001, in a situation where interpretation of certain words in an UCP 500 Article cannot be harmonised amongst members of the DC PRO here, we form our opinions based on the intent of the Article, rather than the literal meaning. That is the way we interpret "DRAWINGS".
Let us assume that the two instalment shipments and the two presentations in our case are all made according to the DC instalments schedule, and there is a material discrepancy in the packing list in the first presentation. According to Mr. Shehab, the DC is available for the second instalment shipment. Let us see what would happen then in certain situations.
APPLICANT FORCED TO ACCEPT GOODS WHICH MAY BE USELESS WITHOUT THE FIRST SHIPMENT
After rejection of the first instalment shipment, the applicant has to accept the second instalment shipment. If the merchandise is for building a Guinness Stout (the water of life in Ireland) bottling conveying belt system, and the motor used in phase one (delivered with the first instalment shipment) has been rejected.
Unfortunately, the couplings (devices to join the conveying belt system to the motor that provides the power), gears and conveying belts used in phase two delivered by the second instalment shipment only work with the motor in the first shipment (in shape and size of the couplings, r.p.m., torgue, and other specifications). As a result, the second instalment shipment would become useless but the applicant has to accept it nevertheless. This does not appear to be the intent of Article 41.
That is the reason why we opine that if the first instalment shipment is rejected due to material discrepancy(ies) in any document, the DC should automatically become void and the second instalment shipment should be rejected although it is compliant by itself. The purpose is to protect the applicant from such risk, possibility of getting goods which cannot be used.
We believe this is exactly the underlying purpose for introducing the "sudden death" penalty in Article 41.
We are from http://www.tolee.com
[edited 4/2/02 10:12:25 PM]
To respond to Mr. Shehab's comments made on 31 July 2001, in a situation where interpretation of certain words in an UCP 500 Article cannot be harmonised amongst members of the DC PRO here, we form our opinions based on the intent of the Article, rather than the literal meaning. That is the way we interpret "DRAWINGS".
Let us assume that the two instalment shipments and the two presentations in our case are all made according to the DC instalments schedule, and there is a material discrepancy in the packing list in the first presentation. According to Mr. Shehab, the DC is available for the second instalment shipment. Let us see what would happen then in certain situations.
APPLICANT FORCED TO ACCEPT GOODS WHICH MAY BE USELESS WITHOUT THE FIRST SHIPMENT
After rejection of the first instalment shipment, the applicant has to accept the second instalment shipment. If the merchandise is for building a Guinness Stout (the water of life in Ireland) bottling conveying belt system, and the motor used in phase one (delivered with the first instalment shipment) has been rejected.
Unfortunately, the couplings (devices to join the conveying belt system to the motor that provides the power), gears and conveying belts used in phase two delivered by the second instalment shipment only work with the motor in the first shipment (in shape and size of the couplings, r.p.m., torgue, and other specifications). As a result, the second instalment shipment would become useless but the applicant has to accept it nevertheless. This does not appear to be the intent of Article 41.
That is the reason why we opine that if the first instalment shipment is rejected due to material discrepancy(ies) in any document, the DC should automatically become void and the second instalment shipment should be rejected although it is compliant by itself. The purpose is to protect the applicant from such risk, possibility of getting goods which cannot be used.
We believe this is exactly the underlying purpose for introducing the "sudden death" penalty in Article 41.
We are from http://www.tolee.com
[edited 4/2/02 10:12:25 PM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Shipments by instalments
IMPARTIAL INTERPRETATION IS IMPORTANT
T.O. Lee's interpretation of Article 41 is based on what he sees as the intent of the Article. This is a subjective interpretation. I could argue that the intent is quite different, but I prefer to rely on the objective interpretation by limiting such interpretation to the wording used in the Article.
Therefore I reiterate that this Article focuses on the requirement to evidence shipments according to the scheduled instalments (excluding standbys), but does not indicate what constitutes such evidence.
I'm afraid Mr Lee has gotten his wires crossed when he referred to Guinness as the "water of life". As every Irishman knows whiskey and whisky are anglophone corruptions of the original Irish language "uisce beatha" literally meaning "water of life". I would be happy to demonstrate the difference when Mr. Lee returns to Ireland.
T.O. Lee's interpretation of Article 41 is based on what he sees as the intent of the Article. This is a subjective interpretation. I could argue that the intent is quite different, but I prefer to rely on the objective interpretation by limiting such interpretation to the wording used in the Article.
Therefore I reiterate that this Article focuses on the requirement to evidence shipments according to the scheduled instalments (excluding standbys), but does not indicate what constitutes such evidence.
I'm afraid Mr Lee has gotten his wires crossed when he referred to Guinness as the "water of life". As every Irishman knows whiskey and whisky are anglophone corruptions of the original Irish language "uisce beatha" literally meaning "water of life". I would be happy to demonstrate the difference when Mr. Lee returns to Ireland.