Letter of Credit Forum

Hi,

Please find attached herebelow R196.

Hope it's helpful.

Regards,

Nguyen Huu Duc

Further notice of additional discrepancies; shipment by instalments

Official Opinion R196 - 1995/96

From UCP400 - Sub-Article 16(d) and Article 45

QUERY

1) Bank A, Country M, opened a letter of credit in favour of the enquirer, Company F. Subsequently, an amendment was made to the L/C allowing the remaining shipment in four instalments. The documents for the first instalment were negotiated under L/C and paid. Documents for the second instalment were drawn on D/P terms and paid. Third instalment was shipped in two lots and the documents for both the lots were drawn under L/C and paid. Fourth instalment was also shipped in two lots. The payment of both these bills have been stopped.

2) The documents for two shipments under the last instalment were forwarded by our bank on 9.10.93 by courier to the opening bank.

3) The first discrepancy was raised on 19.10.93 relating to shipment of first lot of the last instalment for 'late shipment'. But since goods were shipped in time, our bank replied on 28.10.93 accordingly.

4) Opening bank then added further discrepancy on 2.11.93 relating to certificate of origin and insurance certificate. They also stated that third instalment was not shipped in full.

5) On 16.11.93 our bank informed the opening bank that documents were negotiated strictly as per terms of L/C and late shipment does not relate to the disputed bill. On 12.11.93, the opening bank advised that applicant was not prepared to take up the documents. By telex dated 19.11.93 our bank informed opening bank that in its schedule dated 9.10.93, the insurance certificate clearly stated that risk is covered from the date of the Air Waybill, and also informed them that since discrepancies were not conveyed within the reasonable period it is not acceptable in terms of sub-Articles 16(c) and 16(d) of UCP 400.

6) By a further telex dated 23.11.93, i.e. after about 42 days from the receipt of documents, the opening bank again raised discrepancy under Article 45 of UCP. Now. we seek your valued opinion on following points :

a) Can the opening bank raise a discrepancy in several lots?

b) The first discrepancy was raised on 19.10.93, i.e. after about 7 days following receipt of documents. The second discrepancy was raised on 2.11.93, i.e. after about 20 days, and the third discrepancy was raised on 23.11.93, i.e. after about 42 days.

c) Since the first discrepancy could not stand on any grounds, they raised the second discrepancy When the second also failed, the third discrepancy was raised after about 42 days, seeking protection under Article 45 of UCP.

d) As per contention of opening bank, the second instalment was not shipped under L/C and hence the L/C ceased to be available for further shipments. Please advise us if the third shipment was made in time and the document was negotiated strictly as per terms of the L/C and also paid by the opening bank whether the L/C becomes available for further shipment.

The issue is whether a credit which provides for shipments by instalments within given periods ceases to be available on the ground that one instalment has not been shipped, even though the following instalment has been shipped and paid by the issuing bank.

Issue 1

The issue is whether the issuing bank, after having notified the party from which it has received the documents that it refuses the documents due to discrepancies stated in that notice, is entitled subsequently to send further notice(s) stating other or additional discrepancies.

Issue 2

The issue is whether a credit which provides for shipments by instalments within given periods ceases to be available on the grounds that one instalment has not been shipped, even though the following instalment has been shipped and paid by the issuing bank.

ANALYSIS/CONCLUSION

Issue 1:

Analysis

According to UCP 400 sub-Article 16(d), a notice of rejection must state the discrepancies in respect of which the issuing bank refuses the documents, and that this is to be understood in the sense of all discrepancies. From this follows that an issuing bank would not be entitled to raise subsequently any further discrepancies if, e.g., the discrepancies mentioned in its first notice turned out to be inadequate grounds for rejection of the documents.

Conclusion:

After the issuing bank has given notice of rejection based on stated discrepancies, it is estopped from raising subsequently any further discrepancies.

Issue2:

Conclusion:

Analysis

When the issuing bank approved the subsequent instalment AFTER AN INSTALMENT HAD NOT BEEN SHIPPED, then one may presume that, unless otherwise stated by the issuing bank, the credit has been reinstated for the future instalments due.

In the event that the credit was not intended to be available for further instalments, the issuing bank should have notified the advising bank that the acceptance of that individual instalment was only applicable to that shipment, and should not have been construed as a general reinstatement of the credit.

R196 - UCP400 Sub-Article 16(d) and Article 45