ICC Digital Library Forum

Posting enquiry as received:

A transferable LC with following conditions received:

1. LC revolving by time 1 plus 10 times - cumulative.
2. Advance payment 15 percent against simple receipt.
3. 85% against shipping documents.
4. Invoice to show unit price and quantity of goods shipped

First beneficiary wants to transfer the 85% of the LC value i.e amount covering the shipping documents. 1st beneficiary intends to substitutes the 2nd beneficiary’s invoices and show the full value of the goods less the advance payment. Is this workable under transferable LC? If not, how could it be made workable?

NEED TO PRESENT FULL INFORMATION FOR A GOOD ANSWER

When members try to post queries from their friends or students, please do some homework first to ensure that such queries provide sufficient key information to enable responsible answers or comments.

In this query, we are lacking the following information:

1 Are partial shipments allowed?

2 Is there any shipping schedule in the DC that may trigger on Article 41 sanction?

RISKS WITH MULTI-PURPOSE DC

We do see a lot of risks arising out of this transferable DC that can be "revolved".

For example, if it contains a shipping schedule and the second beneficiary has failed to ship the goods according to the shipping schedule, then it may trigger on Article 41 instalment shipment sanction.

But the DC is cumulative and unshipped goods can be added on to the next shipment. Is there any conflict between the DC wordings and Article 41 of which the DC is also subject to?

www.tolee.com

[edited 10/17/02 5:59:45 PM]

Received following additional details as required:

1) Yes partial drawings allowed.

2) The LC is revolving on a monthly basis commencing the month of November and available for YY amount per month.

3) Neither shipment schedule nor maximum amount per drawing is provided.

regards

Further information/clarification is needed -
does the DC quote the unit price ?
When you say that the invoice will show the full invoice price less advance payment, do you mean e.g. (a) 10 units @ $1000 = $10000 less advance = $8500 ;
(b)10 units @ $850 = $8500

As to which of these is acceptable under the DC depends on the exact wording of the DC. The beneficiary must choose which of the above two example draftings of the invoice is acceptable not only under the DC, but also in compliance with the Customs requirements of the importing country. The import licence may, for example, be linked to the full ($10000) invoice value and unit price. Deviation from this may not be acceptable to Customs/licensing authority/Central Bank in the importing country.

Laurence

From the way the DC is worded, we guess that the gross profit for the 1st beneficiary should be 15% and the price from the second beneficiary should be 85% of the value of the DC. Is our speculation correct? This has an impact to our comments.

www.tolee.com

To T.O. Lee,

Yes

To Laurence,

Unit price not provided in the LC.

regards

Abdulkader,

Your answer to one question (from Laurence) would lead to another question (from us).

IMPLIED UNIT PRICE

Since there is no unit price being mentioned in the DC, then there should be at least quantity and trade terms (e.g. Incoterms 2000) in the DC. Depending on the unit of quantity used in the DC, we may be able to calculate the unit price from the simple formula

Unit Price = Total DC Value/Total Quantity.

However, in the information provided so far, you have not stated whether a packing list is required in the DC.

If a packing list is not called for, then in the situation that the DC states 1000 bags/bundles for USD1 million, the price per bag/bundle may not be too helpful, as one bag/bundle may be 100 kegs. and another bag/bundle may be 105 kgs.

From our experience, in commodity trade, particularly those low value goods, the trade practice is not to waste time and money to ensure uniformity in weight or volume in packing unit. That is why the answer from a scholar and a consultant may be different simply because the scholar never trades.

Even if a packing list is called for, but if it only registers the number of bags/bundles without giving the weight or volume of each bag/bundle, then it still won't help in calculating the unit price of the goods.

But if the DC says 1,000 MT for USD1 million, then the unit price should be USD1,000/MT, without the need to refer to the packing list.

REASONABLE ASSUMPTION TO REDUCE COMPLEXITY OF THE QUERY

We assume that there is no tolerance allowed in the DC regarding shipping quantity and drawing amount, including those from Article 39 of UCP 500. Otherwise this would further complicate the issues as well as increasing the risks.

THE JOB OF A BARRISTER AND A CONSULTANT

Please don’t blame us as a consultant who always tries to make a problem more complicated. This is in fact our job - to ensure that every doubt from our customer has been removed. Otherwise a small pebble can create a traffic accident, even for a Ferrari or a Harley Davidson.

For the same reason, as a DC consultant and court expert, we have to answer many deep-searching questions from the “five star” barristers, who do not want unpleasant surprises in the courtroom.

Therefore please provide ALL the key information in the DC. Otherwise our quesitoning period may never finish.

www.tolee.com

[edited 10/20/02 3:53:46 PM]

T.O.

Hope following information concludes the required details:

1) Quantity provided in units

2) No tolerance allowed

regards

Since Abdulkader has said that advance payment of the 15 percent is against simple receipt, there is no requirement for presentation of an invoice as a condition for payment of the 15%. Depending on the wording of the DC, it is debatable whether the first beneficiary's invoice should show 85% or 100%.

As T.O. has said, if the goods are sold in units (as confirmed by Abdulkader), there is an implied unit price, but this is true only if one type of goods is supplied. Assuming only one type of goods supplied, there is an implied requirement for the unit price in the invoice to match the DC. Whether that unit price should be based on 85% or 100% depends on the wording in the DC.

Even so, bear in mind what I said earlier about complying not only with the DC requirements, but the legal requirements of the importing country.

Laurence

Abdulkader

ALL OR NOTHING

As pointed out by Laurence, there are still many uncertainties and variables in your query, (so far one appearing after another, upon further enquiries from Laurence and us). So this is not an easy query to provide a good answer, unless all the terms in the DC are known. That is the reason why under the "Enquiry" section in the homepage of our DC website, we ask the enquirers to provide us with ALL the related documents without screening. Otherwise we would not be able to give any preliminary comments or quotation. The “GIGO” Rule is always there.

By the way I am leaving tomorrow to Vienna and then Rome to attend the ICC Banking Commission meetings and have to pack up, prepare the documents and to finish pending works before I leave Toronto. So I have no spare time to tackle this time consuming query.

MY ABSENCE FOR ICC MEETINGS

I will be absent from the DC Pro Discussion Forum during the period of 22 October to 3 November 2002.

If upon my return, this query is not yet resolved, and if I have the luxury of spare time during that time, I hope I would be able to provide further comments, but not necessarily a solution since so many uncertainties are there.

Hope that upon my return this query has been resolved.

T. O.
www.tolee.com

[edited 10/21/02 5:07:12 PM]