Tolerances

[NeilKlug]

We issued a letter of credit where one of the terms of the L/C states:
"A tolerance of plus/minus 5 percent is allowed on value and quantity"
Amount of L/C: $29550.15

Description of goods read as:-
"18.55 tons of honey". No price was stated on the L/C.

Beneficiary exported 18.55 tons of honey for $30978.50

Applicant refused docs on the basis of "Beneficiary invoked the 5% tolerance on the amount and not proportionately on the value".

Plse may we have views on this aspect

Regards
Neil Klug

[asamaha]

Applicant cannot refuse the documents since no mention of any unit price is made in the LC.

Antoine Samaha

[RolandLeupi]

Since the L/C allows for a tolerance of 5% on value and quantity same cannot apply for the amount only but must also be proportionaly for the quantity.
I would not accept those documents either.

[NigelHolt]

Neil,

Logic -or perhaps more accurately the way my mind works- suggests to me that "A tolerance of plus/minus 5 percent is allowed on value AND quantity" must differ in meaning from "A tolerance of plus/minus 5 percent is allowed on value OR quantity".

To me, the latter would be saying that the value or quantity can vary from that stated in the Credit INDEPENDENTLY of the other.

If this is the case, the former must mean that the value or quantity can only vary from that stated in the Credit in proportion to the other.

Thus I would agree with the applicant.

Regards, Jeremy

[KimChristensen]

The problem here – as it usually is – is that it is not totally clear from the credit what is the intention; thereby it is open for interpretations – and as it appears here – such may go in both directions.
I can follow both Roland and Jeremy from a logical point of view; but from an L/C point of view (which is something completely different – I am not that sure. Such tolerances to the quantity/price apply to which they refer. In this case there is a 5% tolerance allowed for the amount AND a 5% tolerance allowed for the quantity. I see nothing in the question indicating that it should be proportional.

There is by the way a similar topic on:
http://focus.dcprofessional.com/Dcpro-L ... cator=7.10

This one opens:
“We opened an L/C allowing +/- 10 tolerance in connection with the amount of the credit and the quantity.”
In this case the general view (back in 2004) was that such tolerances work independent of each other.

Anyway – I think the problem lies in the fact that the intention is unclear, so – as a last resort – I would refer to ISBP para 2: “The applicant bears the risk of ambiguity in its instructions …”

Best regards
Kim

Ps. How can an applicant refuse documents under an L/C?
[edited 5/19/2006 9:46:17 AM: Ps added]

[NigelHolt]

Kim,

Good spot.

With respect to the previous ‘thread’ I interpreted the Credit terms thus:
“The D/C amount is: EUR 60.000 +/- 10%
The quantity is: 21,000 kg +/- 10%”

Whether or not I was correct to do so I am not so sure in hindsight, but I regard the terms quoted by me -and on which I based my response- as being different from those posted by Neil. To me it is reasonably arguable that had the issuing bank intended that the quantity and amount could vary independently of each other it would have placed the ‘tolerances’ in both the amount and goods description ‘fields’. Nonetheless I quite agree that there is scope for dispute on the meaning of the Credit term at issue in this ‘thread’ and would not be certain that a judge would share my current view as to how it ought to be interpreted. Overall it seems to me the issuing bank has created a dilemma for itself through poor issuing (no offence meant Neil; it can happen to us all).

Lastly, as to para 2 of ISBP I am not convinced all courts would uphold it. I imagine many courts would operate on the basis of what is the most reasonable interpretation of the term in dispute.

Jeremy
[edited 5/19/2006 12:23:44 PM]

[PradeepT_old]

Hi Jeremy/Kim,

Personally, I would like to be guided by the implied meaning of the text used in the LC. The applicant intended to import 18.55 tons of Honey at a price of USD 29,550.15 It is obvious that the price of one ton was USD 1,593 and I can infer from the stipulation of +/- 5% tolerances both in value "AND" quantity, as to what the applicant would have meant. The logic put forward by Jeremy is logical and leads to the logical conclusion. I would not take a chance and reject the documents too.

Regards,

Pradeep

[KimChristensen]

Dear Pradeep,

If life was only that simple
I think you are speculating as to the intention of the applicant. There are perfectly good examples where quantity and amount may vary independently of each other. I am not saying that you are wrong – only that what is logic to you, may not be logic to everyone.

Best regards
Kim

[edited 5/22/2006 8:51:26 AM]

[NigelHolt]

Pradeep,

I’m afraid I would not agree with you that one can interpret the Credit by reference to the apparent per ton price of the goods.

My initial ‘logic’ was based purely on semantics, and I have also since thrown in a bit of Credit formatting practice to back it up. Nonetheless, I am not 100% convinced of the rightness of my opinion.

Regards, Jeremy

[NigelHolt]

An afterthought. If:
1. the Credit had allowed partial shipments and:
2. the beneficiary had presented documents for -say- USD29550.14 expressed to cover -say- one tenth of a ton of honey,
would this have been a discrepancy? Why / why not?

[edited 5/22/2006 5:00:14 PM]