Partial Shipment Vs Utilizing Full DC Quantity/Amount

[ramisy2k]

Partial Shipment vs utilizing full DC quantity/Amount after amendment – Case Study

FACTS:

1. A DC subject to UCP 600 called for the supply of 500MT goods (Amount USD 380,000.00) and prohibited partial shipments. DC allowed tolerance of +/- 5%. Max. date of Shipment was August 31, 2008.

2. Goods were shipped on August 14, 2008 and the commercial invoice indicated quantity 502MT. (Observation: Full DC quantity and amount were utilized by the shipper). Applicant released the docs and the payment received to the beneficiary safely.

3. Later on as per agreement, the applicant amended the same DC on Sep, 08, 2008 by increasing the quantity from 500MT to be read as 1000MT and total amount from USD 380,000.00 to be read as USD 760,000.00. Maximum shipment date and expiry dates were also stretched to October 31, 2008 and November 30, 2008 respectively. Other terms and conditions remain unchanged. (Observation: Amendment meant another 500MT in quantity and USD 380,000.00 in amount was made available to the shipper by the applicant).

4. On October 10, 2008 the applicant sent SMS to shipper that he cannot take the 2nd shipment because of world economic crisis as exchange rate is very high. Beneficiary responded him that shipment cannot be stopped and he has to fulfill the written agreement. Applicant told beneficiary that if cargo is shipped he would not release docs from his bank and would not take the delivery.

5. The beneficiary made the second shipment on October 28, 2008 and the commercial invoice showed quantity to be 510MT and total amount USD 387,600.00. (Observation: Shipper again utilized the whole available quantity and amount as per 2nd amendment).

6. Current Status: Beneficiary has presented the docs to advising bank (his Bank) for their review and further dispatch to the issuing bank.

Questions are:
1. Would this presentation constitute a partial shipment? If yes how?
2. Can issuing bank or applicant refuse the documents based on the fact that partial shipments are prohibited in the original DC? If yes then on what basis? Since they are ones who made the amendment which deems applicant’s intention for another full shipment? Common sense is that "why should they amend a credit in a way it cannot be utilized? It can only be meant in a way that one further complete shipment is allowed, which is what the beneficiary has done"?
3. Is there any law that would classify this as partial shipment?
4. Since the amendment was done after the original LC amount and qty were utilized by the shipper so that means now the beneficiary can again utilized the available qty and amount in one go. Is this true?
5. What kind of legal argument or logic can the beneficiary present to the bank incase the bank raises such discrepancy?
6. What are the other remedies available to the beneficiary to get this solved in his favor? Can the beneficiary take the applicant and the issuing bank to the court? Since there was an agreement between buyer and seller for 1000MT of Goods.

Other Points To be noted:
Applicant: Based and registered in Indonesia.
Beneficiary: Based and registered in Mauritius
Issuing Bank: One of the top banks in Indonesia
Beneficiary’s Bank: HSBC Mauritius

I would be grateful if anyone could assist me in the above.

Thank you very much for your time and attention.

Muhammad Asim

[ofei]

Your question is so long that I feel blurred while reading.
Both the original L/C and amendment to the L/C prohibited partial shipment. So your second shipment does not comply with the terms and conditions of the L/C. So the issuing bank has the right of non-payment.
The ground for non-payment is very clear----terms and conditons of L/C stated clearly that partial shipment not allowed.
The amendment was made alone by the applicant, you have the right not accepting it. But still you can only ship the quantity stipulated in the original L/C.
The best way to accpet or reject amendment is by communication instead of action only.
Why not read UCP600 carefully? You can find the answer you want.

Regards

Ofei

[ramisy2k]

Dear Oefi

Apologies for the inconvenience you faced in reading my question.
Please note that there is no way that we can solve it by communication as buyer wants to cancel order and because of price fall in the market of the goods. He is not willing to consider and discount let alone the amendment of partial shipment.
My point is that since the amendment was done after original LC amount was utilized so this is in other words a new LC now with 500MT quantity and relevant amount is available to be utilized. I have read the UCP 600 but couldn’t find answer for above anywhere? The word “Partial” means incomplete and not full so the original LC was used completely by one shipment and after that the amendment took place. Now my interpretation is that we can again utilize the available LC amount and quantity by having another complete shipment and not partial shipments within the available quantity.

What do you think?

[cristiand969]

As the credit increased qty and amount only and not amending partial shipments to be allowed the amendment is from practical point of view an inoperative one as a first shipment was effected regardless it was done before amendment occured. Any further utilization makes presentation discrepant.
The beneficiary have no choice but to settle amicably the issue with applicant or sell goods elsewhere. I am sorry for this situation
regards
Cristian

[shahriar]

i will rather consider the case from common sense point of view. when the LC was amended, obviously the issuing bank was ready to accept further shipment under that LC. otherwise there was no reason to amend. i will compare it with a revolving LC which does not allow partial shipment.

regd

shahriar

[ramisy2k]

Dear freinds,

thanks for your time and messages. As I said earlier, there is no chance to make buyer agree as he is not willing to pay a single penny and just becuase of LC we have a chance to get our money back. So we have prepared docs with utmost care and attention. We are just worried about Partial shipment issue which we fear issuing bank may raise. But logically they shouldn't raise this descrepancy becuase they are the ones who amended the LC which signifies they are expecting another shipment from the shipper. Why should they amend an LC that it cannot be used further? and then they themselves raising such descrepancy after making and amendment - this sounds really absurd..

For me partial shipment not allowed means there should not be any partial shipments in the current available quantity and amount - not more than one presentation of docs indicating seperate shipments even if the total quantity of the two equals 500MT. There is no law that would classify it as partial shipment...

[iLC]

this is one of the sorriest case i have heard. why issuing bank will amend such an LC? thats the ugliest part of LC dear friend.

anyway, following strict rule, the document does not comply. the amendment sets a condition that is impossible to comply. you should have ask for another amendment.


but i agree with shahriar. simple sense says that the issuing bank will accept the presentation. this seems so obvious. i think its a good case to go for ICC opinion.

[ramisy2k]

Dear ILC

Thanks for your email. As I said there is no chance to amend LC now. The docs have been sent to the advising bank. Let's see what happens.

Is there any reference in UCP Case Law that would classify this as full shipment instead of partial shipment?

kind regards
Muhammad Asim

[fathisaad]

there is no discrepancy the amend for quantity of goods to be
1000 MT and total amount of L/C to be USD760000.00
the amendment take place after first shipment effected
shipped of second shimpment after amend of L/C of otheres wise
complience with L/C terms and condition that is no discrepancy
Regards

[ramisy2k]

Dear Friends

Just to update you on the above case, our bank HSBC has forwarded the documents to the issuing bank. HSBC has told me that the docs are perfectly complying and there is no discrepancy.....Alhamdulilah....Inshallah docs would get through from the issuing bank too....

This means that there are always different angles to view a situation where there is no clear and defined rule in the UCP for these type of issues...may be the bank had the same logic as mine - utilizing full LC is different from partial shipment which is incomplete utilization of LC...

regards
Muhammad Asim

[jmitra]

dear asim,

it would be so kind of you if you please inform us the decision of the issuing bank as well.

regards

[ramisy2k]

Sure, I would keep all of you informed.

Acutally, I had many things in mind in the last few weeks when we were preparing documents and wanted to make sure they comply the presentation. But then, we finally decided to make things happen as they happen before going to the court. Because may be the issue of partial shipment turn out to be just a clot of our perception and the buyer, issuing bank and our bank may not even notice this confusion….

I consulted with one of world’s nine letter of credit experts. Based on the information, as I gave in this post above, his informal initial advise was that there is no case of partial shipment here.

Since now HSBC has termed our presentation as a perfectly complying so am pretty hopeful for the successful outcome. Since the issuing bank is in Indonesia and staff who checks the docs is not supposed to be so competent or may not have such deep understanding of letter of credits so they are expected to check docs as a routine process. But who knows……I am keeping my fingers crosses!!!!!!!!!

God Forbid, if they raised such discrepancy or any other invalid discrepancy then I would take them as well as the buyer to the court. I have consulted few lawyers and they said we would have a good cause of action against the bank and the applicant.

Lastly, I would like to say that I am a marketing person and these UCP and ISBP were foreign to me before this case. I was used to simple routine transactions of LC with my customers as I have my docs department as experts on the LC subject. After spending so much time on searching the interpretation of partial shipments for this case, what I have come to the conclusion that “a partial shipment is an incomplete utilization of LC” is this definition true?

Regards

Muhammad Asim

[ramisy2k]

Dear Experts

As expected the issuing bank has raised an absurd discrepancy in the presentation of documents ref. to above case:

Issuing bank states:

1. LATE PRESENTATION
2. CERTIFICATE OF ANALYSIS NOT ISSUED SGS

As we found out these two discrepencies are based on the 2nd Amendment which was done by the applicant without our consent. We immediately refused the amendment and sent our bank written notice that we refuse the amendment as we have already sent documents to them by DHL. Our bank confirmed us the receipt of the rejection notice from us. In the original LC, the presentation time was not mentioned nor it asked for the certificate of analysis issued by SGS. It just asked "Certificate of analysis". BL date was October 28, 2008 and issuing bank recieved the docs from our bank on November 17. So by no means presentation is late.

We just recieved message from our bank that Issuing bank has raised the discrepencies and they are waiting for our reply. Issuing bank had just once chance of raising the discrepancy which they have utilized and both of these discrepancies are improper. I would love to know your thoughts on how should we respond to these discrepencies to our bank now.

Awaiting your replies..

Asim

[ramisy2k]

dear friends
Ref my message above can any one suggest what should be our reply to issuing bank two invalid discrepancies above?
Also may refusal notices issuing bank can give against a presentation since they have already given one (above) notice above.
Thanks
Asim

[jmitra]

dear Asim,

i can understand your position. but i will require further information to make any intelligent judgment. first, what was the shipped on board date? 2. where was the document presented? nominated bank's counter? when was that?whats the expiry date of the lc? is the LC available with the nominated bank? does the nominated bank wrote "all terms and condition complies"?

there are so many questions that will pop up now. anyway, in case the discrepancies are invalid,all you have to do is sent a swift 799 refuting the discrepancies logically. there is no standard for answering a discrepancy notice.

this is getting serious now and im eagerly waiting to help you out.

regards

mitra

[ramisy2k]

Dear Sir

Thanks for your email. Yes I need such a strong legal answer that makes issuing bank speechless.

Here are the other facts for your information and appropriate answer:

1. Shipped on Board Date: October 28, 2008

2. Where was the document presented?

It's at our bank, HSBC Mauritius, LC is advised and available with our bank. The docs were presented to our bank on November 10, 2008. Our bank despatched documents to the issuing bank on November 14, 2008. They reached iussing bank counter's on the morning of November 17, 2008.

3. Nominated bank's counter? As told above, LC is available with our bank HSBC, the advising bank.

4. Whats the expiry date of the LC? November 30, 2008

5. Is the LC available with the nominated bank? does the nominated bank wrote "all terms and condition complies"? I don't know what our bank wrote but when HSBC sent the docs to the issuing bank, HSBC told me that the docs are perfectly complying with the terms and conditions of the original LC and Amendment No. 1 and there are no discrepancies.

Notes on Issuing bank's discrepancies:

1. The issuing Bank raised late presentation discrepancy because in their 2nd Amendment, refused by us, they tried to add/change the following:

a). COA to be issued by SGS (In original DC, it only asked COA in one copy)

b). Certificate of origin to be issued by UAE Government (In original DC, no certificate of origin was asked. We did not presented any certificate of origin in the docs.

C). Presentation time to be within 5 days from BL date.

Since we refused the above (2nd) amendment so we presented docs as per original DC and amendment No. 1 in which quantity and amount were increased.

2. Our bank surely sent the refusal of 2nd amendment notice to the issuing bank. They sent me the copy today of that message.

Now since issuing bank had just only one chance to raise all discrepancies they have infact raised totally invalid and improper rejection notice. I want to answer them with a strong message that they are forced to make us the payment on 60 days after BL date which is the payment term. Please suggest or draft, how should my reply should look like?

Any feedback welcome.

Thanks
Muhammad Asim

[iLC]

dear Asim,

the best part of this discrepancy notice is that it does not state "partial shipment as discrepancy which many of there were afraid off. so you may have party here.

now about the two discrepancies

1. LATE PRESENTATION
2. CERTIFICATE OF ANALYSIS NOT ISSUED SGS

since the original credit does not have SGS clause, so i will rule out 2 at the beginning.

about the first one, i agree with your. its not late presentation at all. by the way, is the LC available with the issuing bank?

you said you informed the advising bank that you are refusing the amendment. even thats not necessary as per UCP 600.

anyway, back to your main question; how to answer the discrepancies. there is no uniform way. but i will include the followings in my answer -

"our presentation is based on the original LC and its subsequest amendment dated xxxxx. based on that the discrepancies raised by you are not valid
1. The date of shipment was xxxx and we presented the document on xxx. as per UCP 600 sub article 14c we have 21 days which ends on 18-11-2008. so there is no late presentation

2. The inspection clause is related to the 2nd amendment dated xxx which we have already refused and therefore not a part of this LC.

You are therefore requested to honor the presentation immediately and remit fund as per xxxxxxxxxxx"

:roll: i think i have wrote the reply!! actually i loved the case.

[iLC]

dear asim,

there is a new post which u have posted while i was writing. the new post makes the situation more clear. i see no problem. you may enjoy. but you may need to make several conversation with the issuing bank to get your fund. im seeing this because i am unable to see any good intention of the issuing banks since the discrepancy raised are not valid and this is very much vivid. wish you good luck. please note that my last answer does not ensure a legally acceptable answer. as the great mr. Bean has said "what i have learned to comment on this case"

[ramisy2k]

Dear ILC and other friends

Many thanks for your message and suggested reply and liking this case. Other freinds are also welcome to help me by drafting a legal reply.

Anyway, adding on to my earlier message, please note that I just saw the issuing bank's discrepancy message again (see link below).

http://img217.imageshack.us/img217/5241 ... iesur8.jpg

As you can see, it does not state that they refuse the documents. Infact it says "We will obtain applicant's consent and would revert" and then after stating the discrepancies it says "Holding documents at your entire risk and responsibility"

My questions:

1. What does this mean "We will obtain applicant's consent and would revert"? On the face, it implies that they have just informed us about the discrepancies and would (ofcourse) obtain the applicant's consent and would revert..

2. Since they have not explicitly stated that they refuse the documents or whether the applicant would accept or not.....so does this mean that they can send another notice on the documents which can be a refusal notice or having other discrepancies?

3. Do you think that this notice from issuing bank is as per the terms of UCP 600, Article 16? I feel the bank has improperly communicated the discrepancy notice which are invalid and at the same time the message does not explicity refuse the documents (I have found a 80% matchable case study relating to this point. Please do read it here: http://www.bankersonline.com/lending/so_locrefusal.html

In the above link, the decsion was made in the seller's favour because the issuing bank did not refused the docs in time and just sent the notice (like we have recieved). So does this mean that if in my case issuing bank does not refuse the documents till 22nd Of November, they would have to honor the documents??? (I understand that even if they refuse document by November 22nd, we can still sue them for invalid discrepancies...

I am waiting for your kind replies. I need to send reply to my bank tomorrow.

Muhammad Asim

[cristiand969]

Dear Muhammad Asim
It seems the fields in your attachment pertains to a swift message MT 734 which in swift language is always Advice of Refusal. Therefore at this point you have to give up unfortunatelly.
Pls note the meaning of MT 734 from swift handbook:
It is used to advise the Receiver that the Sender considers the documents, as they appear on their face, not to be in accordance with the terms and conditions of the credit and that, consequently, it refuses them for the discrepancies stated. The Sender also provides the Receiver with details regarding the disposal of the documents.
Now coming back to the discrepancies quoted...
1. Certificate of analysis not issued by SGS. For this you can make use of Art. 14f. If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d).
2. regarding late presentation: I am not sure you have posted whether the credit is available with your bank as nomintated bank or with issuing bank. Also I haven't seen that you mentioned the time for presentation . Is it credit silent? If so 21 calendar days shall apply AFTER the date of shipment by virtue of art. 14 c. A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.
As the issuing bank has an undertaking towards you under this LC, I strongly recomend you that in case of issuing bank fail to pay to sue issuing bank before suing applicant.

[ramisy2k]

Dear cristiand969

Many thanks for your email and suggestions.

1. Yes you are right it is MT 734 REFUSAL ADVICE.

I have sent the disagreenment notice to my bank and they said they totally agreed with me. They would be sending the SWIFT message to the issuing bank today. I have asked my bank to put up this case with the issuing bank and demand immediate honor of the documents and confirm us the maturity date of the payment to be December 27, 2008.

41 A is absent in original DC
41 D is present. It says "Available with any bank in Mauritius"

Our Bank, HSBC, the advising bank is also in Mauritius

As I told above there is no indication of presentation time in the LC so 21 days are there. Our bank got the docs from us on Nov 7 and they forwaded the same to issuing bank on November 12th. Issuing bank recieved those docs on Nov 17.

Here is the image link of the main content of the notice of refusal that I sent to my bank.




I am pretty hopeful of success inshallah. I am not exchanging any emails with the customer now. The material has reached the destination port and I learnt from the destination agent that consignee is saying that this cargo is not his and agent is asking me to tell consignee that this cargo is his.

At my end, I am ready to sue the issuing bank if they didn't pay. I am in contact with my lawyer. The bank has been caught on the wrong foot. No they have no choice as they really blew away the golden chance to create a logical discrepancy. Let's pray for my success.

I thank all freinds who spent their time to help me in this case.

kind regards

Muhammad Asim

[cristiand969]

Dear Muhammad Asim,
Please do keep us posted on developments. One particular I would like to point out. It is useless for you to state that documents reached the issuing bank counters on 17.11.2008 with a view of establishing the presentation date. The presentation period starts from the date when you presented docs TO YOUR BANK , as the credit is available with any bank in Mauritius. In this respect calculation starts from the date of shipment to the date you presented docs to your bank.
regards
Cristian

[shahriar]

fully agree with Cristian. by the way, it seems i have missed a point earlier. the original credit does include a inspection clause. anyway, same request from me as well. keep us updated.

regd

shahriar

[ramisy2k]

Yes Cristian you are right. Thanks.
My bank has sent the below SWIFT TO THE ISSUING BANK. Let's see what happens now. I am sure my Allah is with me and success would be ours inshallah. Asim

[ramisy2k]

Dear Freinds

Dates are ordinary but human deeds make them extraordinary. November 25, 2008 was one such date, became special for us as we recieved the the confirmation from the issuing bank that docs are accepted and payment would be made on maturity date. (Alhamdulillah, all praises to Allah). Please note message below from the issuing bank:




Once again, I thank all the friends on this forum who took some time out of thier routine to reply and give suggestions on the forum. I learned alot due to this case and very happy to have it solved. All the best to you guys..Thank you!!

kind regards
Muhammad Asim

[jmitra]

congrats!! it was education for me also

[iLC]

i think one thing i learnt is the impotance of knowlege. the issuing bank let a good battle go out of its hand.