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dear all,

we have received a letter of credit which says "we will deduct 10% as penalty charge in case of late shipment." i have two questions on it.

1. do you think that this clause by nature approves any late shipment as discrepancy?

2. if the presenter on its covering letter gives a clear instruction

"Issuing bank must take our prior approval before deducting any amount from the bill value except reimbursement charges and otherwise must not honor and deliver the document to the applicant"

then can the issuing bank deduct the 10% without approval of the presenter based on the LC terms?

Hi Pals,

I saw many l/c bringing such a clause but clearer:

Late shipment, if documents will be accepted by ourselves(the bank) will incurr in a late shipment penalty of .....
Presenting bank must state this authorization on the cover letter...... or the like.

So the issuing bank will refuse the discrepant document, but in case of applicant's waiver, will apply this clause, authorized.
Remember that any action on commercial contract is ouside l/c and any notice must start with "WE UNDERSTAND THAT.....

Other comments appreciated
Ciao

dear picant,
thanks for your kind reply. could u please elaborate

picant wrote:Remember that any action on commercial contract is ouside l/c and any notice must start with "WE UNDERSTAND THAT.....

Hi Pals,

this is the clause for penalty used in my area:
-For b/l evidencing shipment date later than terms of shipment the following amount will be deducted automatically from the proceeds in the case that applicant accepts the document: ...% per day of delay etc."

I think the wording could be better, but the meaning is understable.

"WE UNDERSTAND" I meant that in case of discrepant documents where applicant ask the issuing bank to send a message to the presenting bank to obtain a discount, an allowance etc, the issuing bank will not send a message as:"Please authorize us to deliver documents to applicant against payment of the reduced amount fo...."
BUT
"We understand that applicant is ready to withdraw documents against a discount of..... etc" or the like
In the meantime applicant will contact beneficiary for a proper agreement, than beneficiary will instruct the presenting bank to instruct the issuing bank accordingly.

"WE UNDERSTAND" IMHO places the issuing bank in a correct position versus beneficiary and the banks involved.
Other comments appreciated
Ciao