国际贸易实务（双语）
案例集
山东工商学院中加学院
国际贸易教研室
2009-8
目 录
1【Case 1】CIF or Not?
2【Case 2】CFR & Shipping Notice
3【Case 3】CFR & Goods Quality
4【Case 4】The buyer delays the sending of the vessel under FOB.
5【Case 5】Damage caused by serious quality mistake
6【Case 6】Fraud by quality clause
8【Case 7】The buyer refuses to take delivery because of shortage
9【Case 8】Damage caused by improper packing
10【Case 9】Missing address in documentary collection
11【Case 10】Refusal of payment under D/P
12【Case 11】A dispute caused by D/A
13【Case 12】D/P changed into D/A
14【Case 13】Discrepancies in documents 1
15【Case 14】Discrepancies in documents 2
16【Case 15】Discrepancies in documents 3
17【Case 16】Discrepancies in documents 4
18【Case 17】Discrepancies in documents 5
19【Case 18】Discrepancies in documents 6
20【Case 19】Dispute on partial shipment
23【Case 20】Is it a right decision?
24【Case 21】The issuing bank refuses to make payment
25【Case 22】Damage caused by early shipment
26【Case 23】“Gum” or “Gum Rosin”?
27【Case 24】A quantity clause with “about”
28【Case 25】 Trap clause 1
30【Case 26】Trap clause 2
31【Case 27】Whose fault is it?
33【Case 28】Silence amount to acceptance?
34【Case 29】A promise made to be broken
【Case 1】CIF or Not?
An import and export company H in China signed with a British company D a contract on CIF basis, whereby company H exported some light industrial products to company D. There were two special clauses in the contract: (1). “The goods must be shipped to a port in Britain from Shanghai in October 1996; the relevant L/C opened by company D should reach company H by the end of August; company H must guarantee that the loaded vessel arrives at the destination not later than December 1. (2) Should the loaded vessel arrive at the port of destination later than December 1, company D is entitled to cancel the contract. If the payment has been made at the time, it must be returned to company D exactly the amount.” After that, in the course of clearing up contract files, a controversy arose in company H about the nature of this CIF contract. Some people held the opinion that the contract was on CIF basis in spite of the two particular terms, giving following reasons: firstly, the contract was signed under the trade term of CIF, which indicated the nature of the contract; secondly, company D made such special requirements only to protect their benefits; thirdly, the contract provided payment by L/C, which was in accordance with CIF term’s characteristic of payment against documents. Others believed that according to INCOTERMS 2000, the seller’s delivery obligations are fulfilled as long as the seller has completed shipment of goods at the appointed point and handed over to the buyer documents stipulated in the contract and so the seller is not required to guarantee the arrival of goods at the destination. Therefore, this contract was a false CIF contract, as it changed the nature of CIF term by taking physical delivery as a condition of fulfillment. The contract must be renegotiated. Finally, company H reached a common perception and got the two special clauses amended through negotiation with company D. The contract was carried out smoothly.
Analysis:
Although the contract was concluded on CIF basis, it was not a genuine CIF contract. This case indicates the significance of CIF term’s sphere of application. The two special clauses in the original contract not only contradicted with the nature of CIF term, but also disagreed with the practices of international justice and arbitration.
First, the original contract not only set a limit to the date of arrival, but also stipulated that the buyer was entitled to cancel the contract or demand back the payment that had already been made. Evidently, the restrictive date of arrival served not as the date of payment, but as a condition of payment. Therefore, legally the contract was not a genuine CIF contract as it made physical delivery a condition of payment.
Second, under CIF terms, the risk of loss of or damage to the goods passes from the seller to the buyer when the goods have passed the ship’s rail at the port of shipment. A contract that expands the buyer’s risk from the port of shipment to the port of destination is not a CIF contract. According to the provision in the original contract, company H was obligated to refund the payment in case of natural calamities or accidents during the course of delivering the goods, which evidenced that the seller assumed all the risks during the transport.
Third, under CIF terms, the buyer must make payment against documents rather than against the arrival of the goods at the port of destination, provided that the seller has fulfilled his delivery obligations and presented the required documents. As per the original contract, whether company H could receive the payment for goods or not depended on buyer’s receiving on schedule. Although the seller might receive the payment by means of L/C, the payment would be taken back by the buyer if the goods could not duly arrive at the port of destination. Besides, company D could take advantage of relevant L/C clauses that are in accordance with those in the contract to deny the seller the payment for goods. Company H could hardly make a claim for his rights under a normal CIF contract since this contract was the one “in name but not in reality”.
【Case 2】CFR & Shipping Notice
An import and export company in China signed an export contract with an importer in Marseilles, France on drawnwork tablecloth with an amount of USD80, 000, payment by D/P at sight.
On the morning of January 8, 1997, the goods were all loaded onto the named vessel. The export salesperson in charge of this contract got so busy that he did not remember to send the buyer the shipping advice until the next morning. Unexpectedly, when the French importer went to the local insurance company to insure the goods, the latter had already learned that the ship suffered a wreck on January 9 and refused to underwrite the goods. The French importer immediately sent a telex saying, “owing to your delayed shipping advice, we are unable to insure the goods because the vessel has been destroyed in a wreck. The loss of goods should be for your account. At the same time, you should compensate our profit and expense losses which amount to USD8, 000.” Soon all the shipping documents sent through the collecting bank were returned to the export company, for the reason that the importer refused to take up the documents. Being a regular client of the exporter’s, the French importer did not insist on claiming for compensation after the exporter explained his difficult situation and apologized for the whole thing. However, the exporter should learn his lesson from this experience.
Analysis:
1. Under CFR terms, all the risks, duties and expenses after goods’ passing ship’s rail are normally borne by the buyer. However, Incoterms 2000 provides that “the seller must give the buyer sufficient notice……”. Here the word “sufficient” refers to both “sufficient” content and “sufficient” time. The latter means the seller must give the shipping notice in a timely manner to allow sufficient time for the buyer to effect insurance of the goods. The later the seller sends the shipping notice, the less time the buyer has to insure the goods. In this case, the buyer’s failure to send the “sufficient notice” led to his loss of both goods and money. On the other hand, if the seller had informed the buyer immediately after shipping the goods, the buyer would have insured the goods in time at the local insurance company. In that case, the insurance company would have assumed its liability for compensation even if the accident had happened prior to the buyer’s effecting insurance as both the buyer and the insurance company were ignorant of the accident. Thus, it can be seen how important it is to send the shipping advice to the buyer in time under CFR terms. That is why shipping advice is often referred to as “insurance notice” in trade practices.
2. When CFR terms or FOB terms are used in combination with payment by collection, the buyer may cover the goods against “seller’s interest risk” before exporting the goods to counteract the buyer’s failure to effect insurance or the buyer’s refusal to retire the documents. Had the seller in this case covered the shipment against the said risk, the loss would have been somewhat mitigated.
【Case 3】CFR & Goods Quality
A French company imported a batch of wheat on CFR basis. The contract provided that the landing quality of the goods should be taken as final. However, when the goods arrived at the destination, the import quarantine bureau detained the goods as they had found that the goods contained a great deal of bacterium forbidden to enter the country. Unfortunately, the goods were consumed by a fire while in detainment. A dispute broke out between the buyer and the seller.
Analysis:
Under CFR terms, the buyer should bear all the risks after the goods have passed the ship’s rail and been loaded on board. However, should the seller be held responsible for any default before that point?
In this case, it was the seller who should assume the risks. The reason is that although this was a CFR contract, the seller breached it by delivering the goods which failed to meet the quality standard provided in the contract. This fundamental default has caused the detainment and then the loss of the goods. Therefore, while the risks had been transferred to the buyer, the seller’s default returned the risks to the seller.
Of course, under CFR contract, when the seller’s default is not fundamental, the buyer should bear all the risks for any loss of the goods at the port of destination. Meanwhile, the seller should make due compensation to the buyer as per the contract and relevant laws.
【Case 4】The buyer delays the sending of the vessel under FOB.
Company A in China signed a contract on FOB basis to export wheat to Company B in Africa. It was contracted that shipment should be made in four lots. The shipping clause ran as follows: “the vessel nominated by the buyer should reach the port of shipment within eight days before the date of shipment. Otherwise, any of the seller’s loss or damage thus incurred shall be borne by the buyer.” The contract also specified, “The buyer must give the seller a notice of vessel name and the estimated date of arrival by telecommunication five days before the vessel arrives at the port of shipment.” During the course of fulfillment, the first three lots were shipped smoothly according to the contract. However, the buyer was slow to send the vessel for the last shipment. In reply to Company A’s repeated urges, company B said that they were unable to book shipping space because of shipping company’s busy schedule and asked for postponing delivery for two months. Company A replied as follows: “according to the contract, you are bound to send the vessel to pick up the goods. In case of any difficulties in this aspect, we may allow you to delay the shipment on condition that you make a compensation which amounts to USD200, 000.” Finally, the bargain of compensation was settled at USD150, 000 and company B was allowed to delay vessel sending for two months.
Analysis:
Under FOB terms, it is the buyer’s obligation to arrange for delivering the goods. With reference to INCOTERMS 2000, “the buyer must contract at his own expense for the carriage of the goods from the named port of shipment.” It also provides that “the buyer must give the seller sufficient notice of the vessel name, loading point and required delivery time”. If the buyer’s vessel fails to arrive at the port of shipment duly, or fails to accept the goods, or stops loading ahead of the schedule specified in the contract, all the risks and loss of and damage to the goods are to be borne by the buyer as of the appointed date for delivering the goods or the expiry date of the time limit.
It was learned later that during the implementation of the last shipment, the international market price of wheat dropped drastically, which greatly influenced the sales of company B who then attempted to cancel the delivery of the last shipment by hanging it up. However, company A made good use of INCOTERMS explanation for FOB terms and protected its own interests through proper means.
【Case 5】Damage caused by serious quality mistake
An export company in China concluded a deal on edible citric acid. While delivering the goods, they mistook inedible citric acid for the edible kind. Not until several days after the vessel’s departure did they discover the mistake. By now, the relevant documents had already been sent by the negotiating bank. To avoid severe consequences, the export company tried to withhold the documents at the post office, while, on the other hand, it urgently informed the ocean shipping agency to ask the agent in Hong Kong to intercept the goods when the ship called at the port. Though an accident has been avoided, the export company has suffered a great loss.
Analysis:
It can be clearly seen in this case that the export company has severely violated the stipulations of relevant international conventions. CISG indicates that the seller must supply the goods of contracted quality; otherwise, the buyer is entitled to claim compensation or to reject the goods and cancel the contract. It is a very serious fault for the export company to have mistaken inedible citric acid for the edible kind. If the mistake had remained undiscovered, and the inedible citric acid had been misused in food, serious consequences would have occurred. While found out early, the mistake has caused great troubles in handling the matter and a consequent loss therefrom.
There are two lessons to be drawn from the case:
a. A sound management system should be established. Follow-ups are necessary to ensure that the goods are manufactured in accordance with the orders.
b. The personnel in charge should develop strong sense of responsibility. If the personnel in charge had marked “edible” or “for industrial use”, the said accident could have been avoided.
【Case 6】Fraud by quality clause
In October 1997, a Chinese enterprise signed a sales contract with a Hong Kong trading company. The contract prescribed that the buyer should order from the seller 5000 metric tons of castiron well cover on FOB basis at unit price USD610/MT. The total amount reached USD3, 050, 000. It was also provided in the contract that the goods should be shipped bimonthly in ten equal lots, 500 metric tons each lot. The goods must be manufactured according to the sample provided by the buyer and must go through the buyer’s examination before acceptance.
According to the quality clause, the surface of the casting should be smooth, and there must not be any casing defects such as cracks, air holes, sand holes, shrinkage holes, and slag inclusions etc.
The contract also stipulated “that the seller must pay a sum of caution money equal to 10% of the payment of the first delivery; the seller may take back the caution money within 5 days after the first delivery of 500 tons of goods have been found to meet the quality standard; the seller must ask the buyer to come to the place of origin to sample the goods and sign a quality confirmation document; the buyer has the right to reject the goods if they do not meet the quality requirement; without mutual agreement, neither party should terminate the contract unilaterally, otherwise all the economic losses thus incurred will be sustained by the party who terminates the contract.”
The seller remitted the caution money of RMB250, 000 to the buyer immediately after signing the sales contract, and put in a lot of work and money to trial-produce the product as per the buyer’s pattern. After producing some samples, the seller telexed the buyer to inspect the samples as per the agreement so that the seller may start the mass production once the samples were recognized. However, the buyer at first excused himself from coming with a busy schedule, and then proposed that the buyer ask the local commodity inspection office to conduct the inspection instead of the seller. In order to obtain the quality confirmation for the timely delivery of the goods, the seller had to accept the proposal. When the quality inspectors came and checked the contract and the complementary agreement, they found that the word “smooth” appearing in the first clause of quality was a vague concept without any specific criteria, and that the hidden danger of the second clause was even greater. The inspectors immediately realized that this was probably a fraud by means of quality clauses. Having sealed up the sample for keeping, the inspectors asked the seller to urge the buyer to come round for inspection as provided in the contract, and told the seller not to produce on a large scale before obtaining the quality confirmation. However, the buyer did not come, but claimed in the reply that they were going to sue the buyer because the buyer had not produced the required products within the time limit provided in the contract and thus constituted a default. Not until then did the seller completely wake up to the reality that the Hong Kong Company had not only swindled the caution money but also made a false countercharge.
Later it was evidenced that the Hong Kong Company had defrauded several other trading companies on Chinese mainland. With the help of the inspection office, the seller stopped the production to avoid further loss. However, the caution money could not be recovered.
Analysis:
This is a typical case of defraud in which the buyer took advantage of the evadable contract. The so-called evadable contract means that one of the two parties tricks the other party into a default by signing a contract, which bears one or more clauses that are impossible for the other party to meet. This kind of contract has the following characteristics: (1) there is always an attractive price clause serving as the “bait”; (2) there are impracticable or ambiguous technical standards serving as the “trap”; (3) there is always a caution money clause or a penalty clause; (4) the target is always the poorly managed and inexperienced small trading companies who are eager for instant profit.
Here are some countermeasures:
(1) Be cautious about your trading partner. Investigation should be made on the creditability of the trading partner.
(2) Make sure that quality clause is reasonable. Quality clause matters because it provides the only basis by which both the seller and the buyer evaluate the goods. Therefore, whether the seller can fulfill the contract or not depends on whether a reasonable quality clause can be reached or not. An ambiguous quality clause without any specific criteria or range is unacceptable. For those products that are hard to get away from potential defects, methods like specifications, grades, quality tolerance can be applied to define quality. Otherwise, the seller may give the buyer a handle and find himself in a passive position.
(3) Ask the departments concerned to check the contract. In China, most defraud cases are attributable to the loopholes in contracts. Therefore, it is necessary for the foreign trade companies to consult certain departments about technical problems before signing the contract and, after signing the contract, ask organizations such as commodity inspection bureau, CCPIT and law consultation service to look through the contract so as to revise or terminate the contract when necessary.
(4) Do not easily accept caution money clause or penalty clause and the like. These clauses are added to the contract only when the deal is truly substantial to avoid any damage to the other party.
(5) Try to convert the “buyer’s sample” into “counter sample”.
【Case 7】The buyer refuses to take delivery because of shortage
An export company in China signed a fruit export contract with a Hungarian firm, payment to be made upon the acceptance inspection after the arrival of the goods. However, the goods arrived were found to be 10% short in total weight; the individual weight was also less than that stipulated in the contract. The Hungarian firm neither made payment nor took the delivery. The fruits all rot away. The Hungary’s custom charged the export company USD50, 000 for the storage and disposal of the goods. The export company got into a hobble.
Analysis:
Quantity of goods is one of the indispensable terms of international sales contract of goods. According to the laws of certain countries, the quantity of the goods delivered by the seller must agree with the stipulation of the contract, otherwise the buyer has the right to claim for compensation or even reject the goods. In this case, although the export company was apparently in a passive position, it was possible to retrieve the loss by arguing on just grounds. First, the export company should investigate whether the shortage of weight was caused by normal loss during transportation or by its own default. If the export company was in breach of the contract, it should be identified whether the breach was fundamental or not. Should the breach was not fundamental, the Hungarian firm had no right to reject the goods and refuse to make payment but could only demand price reduction or compensation for the loss. Should the breach was fundamental, the Hungarian firm might reject the goods, but it should take good care of the goods, or resell the fresh goods on behalf of the seller to reduce the loss to the minimum. CISG Article 86 specifies clearly “If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller.” The Hungarian firm failed to fulfill the obligation to preserve the goods and abate the loss. Therefore, the export company should negotiate with the Hungarian firm about the damage of the goods and retrieve the loss as much as possible.
【Case 8】Damage caused by improper packing
A Chinese company imported some flammable liquid chemical raw material from a French company. When the goods arrived at the destination, it was found that there was a slight leakage caused by the defect in a few packages. However, the Chinese company failed to take any measures to save the loss and prevent the damage from expanding. As a result, the leakage worsened after the warehousing of the goods and led to a self-ignited fire. Afterwards, the Chinese company claimed against the French company for full compensation of the total loss, but was refused.
Analysis:
In view of the situation in this case, the buyer could not make a claim for the total loss. While receiving the goods, the buyer had already taken possession of the goods. Besides, with the awareness of the leakage and the knowledge about the danger of the inflammability of the goods, the buyer should have taken reasonable precautions to prevent the expansion of the damage. Under these circumstances, it was the buyer’s responsibilities to protect the goods and prevent the damage from expanding. Since the goods’ self-ignition had resulted from the buyer’s failure to fulfill such responsibilities, the seller should not answer for the expansion of the damage. As per CISG Article 86 (1), the buyer was only entitled to claim the compensation for the damage caused by the slight leakage induced by the deficiency of the few packages, rather than claim the compensation for the damage expanded because of the buyer’s failure to take precautions. Therefore, the French company was justified in turning down the claim against total loss lodged by the Chinese company.
【Case 9】Missing address in documentary collection
An agricultural products import and export company (company A) in China sold a batch of Hempseeds worth USD985, 000. It was written in the contract that “payment by the seller’s draft 20 days after sight to be accepted by the buyer upon presentation. Documents are to be delivered to the buyer against acceptance. Payment is to be made on the date of maturity.” Company A shipped the goods according to the contract on time and presented the documents on March 15 to its remitting bank for collection. The remitting bank appointed Bank . as the collecting bank and mailed the documents to it.
On April 25, a message was received from company B, the buyer:
“Re xxxxx tons of Hempseeds under Contract No. xxxxx, as per your shipping notice on March 14, we have contacted the shipping agency. The goods have arrived for a long time, but presently we still have not received the documents covering the goods. Please check with your bank about it.”
Company A replied on April 28:
“Thank you for your fax of April 25. Re xxxxx tons of Hempseeds under Contract No. xxxxx, we have checked and hereby confirm that we entrusted the handling of D/A 20 days to Bank C on March 15. Bank C sent the documents to you on March 16. Please check.”
On April 30, company B sent another message:
“Thank you for your fax of April 28. We have inquired our correspondent bank W repeatedly but found nothing related to this collection. Please find it out with the collecting bank D. K. through your remitting bank. Look forward to your reply.”
Upon receiving the message, company A contacted the remitting bank who at the same time received a message from the collecting bank D. K.:
“We acknowledge documents and the collection instruction. Because the drawee’s address on the documents and the collection order is not in detail (only contains the name of the city, no road name and house number), we have tried hard to find it out but in vain. Please tell us immediately what to do.”
Checking with the file copies, company A found that what the collecting bank said was indeed the case. The person who dealt with this business missed out the drawee’s address when filling out relevant instructions to the documentation department. Company A also realized that it should have chosen Bank W, the correspondent bank of the payer, as the collecting bank. In fact, as company A did not appoint collecting bank, the remitting bank chose Bank D. K., which had no business relations with the payer, to do the job.
After study, the remitting bank immediately sent the detailed address of the payer to Bank D. K. so that Bank D. K. could make presentment for acceptance.
However, a protest note was received from the collecting bank. Because of the delayed documents, the buyer could not pick up the goods in time. As a result, the goods were first damaged by rain and then were stored in the customs warehouse with high expenses. Therefore, the buyer refused to make acceptance.
Company A negotiated with the buyer but could not reach agreement. Finally, company A had to commit the goods to an institution stationed in the buyer’s country for disposal and sustained a big loss.
Analysis:
In accordance with URC522 Article 4. b. iii, a collecting instruction should include “details of the drawee including full name, postal address, or the domicile at which presentation is to be made and if applicable telex, telephone and facsimile numbers.” It is also provided in Article 4. c that “collection instructions should bear the complete address of the drawee or of the domicile at which the presentation is to be made. If the address is incomplete or incorrect, the collecting bank may, without any liability and responsibility on its parts, endeavor to ascertain the proper address. The collecting bank will not be liable or responsible for any ensuring delay as a result of an incomplete/incorrect address being provided.”
Obviously, in this case, the collecting bank was not responsible for the loss incurred because company A did not provide detailed address of the drawee on the collection instruction.
【Case 10】Refusal of payment under D/P
An agricultural products import and export company (company A) in China exported a batch of frozen prawns to company B. The contract provided that “payment by draft drawn on buyer payable at sight, documents against payment.” Company A followed the stipulation of the contract and shipped the goods on September 15.
In July of that year, the buyer sent company A a notice of relocation. Due to negligence, the person who prepared the documents applied the old address to the “notified party” on the bill of lading and the collection instruction. Meanwhile, considering safety of payment, company A made out the bill of lading “to order of The Commercial Bank” so that the title of the goods would be held by the bank. On September 18, the remitting bank sent the documents abroad. Upon the receipt of the documents on September 28, the Commercial Bank sent a notice to the drawee according to the collection instruction. However, the notice was returned on October 10 by the post office for reason of “unknown address”. For the same reason, the carrier failed to get in touch with the notified party, so it notified the consignee indicated on the bill of lading, the Commercial Bank instead. As the Commercial Bank made no response, the carrier had to unload and store the goods in the warehouse for the time being.
On October 11, the Commercial Bank notified the remitting bank of the situation that the drawee could not be found. On October 13, company A provided the latest address of the drawee to the remitting bank that immediately sent a corrected collection instruction to the Commercial Bank and asked the latter to present the documents to the drawee as soon as possible.
Not until October 20 did the Commercial Bank present the draft and the documents to the drawee, company B. However, the buyer refused to take the documents and make payment, giving the following reason: because of delayed delivery, the goods had been unloaded and deposited into the warehouse the inappropriate temperature of which caused part of the goods to melt.
In the end, company A had to entrust the goods to its other clients at the port of destination to sell the goods at a much lower price and lost a lot of money.
Analysis:
As a result of its own fault, company A failed to provide the buyer’s new address to the remitting bank in time, making the collecting bank unable to reach the drawee and the carrier unable to find the notified party, thus the goods could not be delivered to the buyer in time and began to melt. Company should shoulder the full responsibility for this problem. Because according to URC522 Article 4. C. ii. “The collecting bank will not be liable or responsible for any ensuing delay as a result of an incomplete/incorrect address being provided.”
Furthermore, it was improper for company A to make out the bill of lading to order of the collecting bank. According to URC522 Article 10. a, “Goods should not be dispatched directly to the address of a bank or consigned to or to the order of a bank without prior agreement on the part of that bank. Nevertheless, in the event that goods are dispatched directly to the address of a bank or consigned to or to the order of a bank for release to a drawee against payment or acceptance or upon other terms and conditions without prior agreement on the part of the goods, which remain at the risk and responsibility of the party dispatching the goods.” Therefore, when the carrier contacted the Commercial Bank for picking up of the goods, the latter turned its back on it. Consequently, the carrier stored the goods in the warehouse where the goods were deteriorated.
As a form of collection, D/P is preferred by importers for its advantages such as the saving of L/C establishment expenses and guarantee deposit, and the acceleration of cash flow. As far as exporters are concerned, D/P is safer than D/A as the title to the goods is transferred only when the importer has made the payment, otherwise the title remains in the hand of the exporter. However, risk exists where the importer has a bad credit standing and refuses to take the documents and make the payment. Therefore, it is important for the importer to investigate the credit status of the buyer when applying D/P.
【Case 11】A dispute caused by D/A
On December 26, company A in Fujian Province of China signed a contract with company B in Hong Kong covering the assemblage of 3, 000 sets of electronic clock, radio and table lamp with the materials supplied by clients. The total amount was HKD 246, 000. It was stipulated in the contract that “the raw materials and supplementary materials will be delivered to party A for assembling with the payment term of D/A 60 days,” that “party A will deliver the finished products to party B with the payment term of D/P at sight,” and that “the payments will be handled by Bank of China in Quanzhou and xx Bank in Hong Kong.” However, problems arose in the course of implementation of the contract: taking advantage of the loopholes of the contract clauses, party B increased the amount of collection for reduced quantity of materials delivered, and transferred the bill of lading to its remitting bank before it declared bankruptcy. Party A refused to accept the draft upon finding the shortage in quantity, but the bank who now was the creditor insisted that party A pay the full amount of HKD246, 000. Company A got into a difficult situation. Fortunately, with the mediation of Bank of China, Xiamen Branch, the problem was solved and company A was spared a great loss.
Analysis:
In this case, party A’s trouble was attributable to the following factors:
1. The contract contained incomplete and inaccurate clauses. For example, it was provided in the contract that “the unit price of the incoming material offered by party A is HKD82/set CIF Xiamen.” The prices of the spare parts and accessories were not stated. Party A availed itself of the loophole and presented an invoice covering 3, 000 sets at HKD82 each as well as a draft of HKD246, 000 to the bank for collection, while the actual delivery was only worth USD95, 000. The contract also stipulated that “in case of any substandard materials and/or any shortage in quantity, party B will make replacement and/or supplement the very month.” There was no provision that acceptance would not be made under such circumstance. That was why party B managed to collect the full amount in spite of short quantity and inferior quality.
2. After finding the problems with the goods, party A refused to make acceptance, but failed to go through a series of formalities such as inspection notarization, warehousing and insurance of the goods, etc, which would help hold the consignor responsible, so that party B made use of party A’s picking up the goods to force the latter to pay the full amount of HKD246, 000.
The bank has played a significant role in this case. It was Bank of China Xiamen branch who made great efforts to persuade the remitting bank in Hong Kong to charge party A only HKD95, 000 according to the actual quantity of delivery.
Here are the keys to this problem:
1. Apply relevant stipulations of URC. According to URC, “in respect of documentary collections, partial payments will only be accepted if specifically authorized in the collection instruction.” Bank of China Xiamen branch analyzed the correspondence exchanged between the remitting bank and the collecting bank, identified several basic points to support partial payment, and finally persuaded the remitting bank to accept HKD95, 000 as payment.
2. Handle the dispute in a reasonable and fair manner. For example, the remitting bank advanced that aside from the net amount of HKD95, 000 paid to the bank, all other expenses including insurance premium and transportation charges should be borne by the drawee. Meanwhile, the remitting bank also required the drawee to pay HKD12, 000 of interest. The Xiamen branch argued that although these requirements were reasonable in a way, Party B should assume primary responsibility for the breach of the contract; it was certainly unfair to ask party A to bear all the expenses. The Xiamen branch offered a suggestion that party A bear the expenses created within China but be exempt from the interest. The remitting bank accepted it, and the dispute was settled.
【Case 12】D/P changed into D/A
On April 9, 2001, a remitting bank accepted an outward collection business of D/P at sight with the amount of USD100, 000. Following the exporter’s instructions, the remitting bank mailed the full set of documents together with a collection instruction to a collecting bank in the . A week later, the principal claimed that the importer required the remitting bank to change “D/P at sight” into “D/A at 60 days sight”. The principal ignored the remitting bank’s warning about the high risk of D/A and insisted on the change, so the remitting bank sent a modification instruction. However, the collecting bank never sent the notice of acceptance. On August 2, the principal asked the remitting bank to instruct the collecting bank to send back the documents. On August 19, the remitting bank received the returned documents only to find that one of the three original bills of lading was missing. Through an organization in the ., the principal learned that the goods had been picked up by the importer. The remitting bank required that the collecting bank either send back the documents in full or make payment by acceptance, but the collecting bank paid no attention to it. Furthermore, the principal was unwilling to solve the problem by legal means. The whereabouts of the payment is still unknown.
Analysis:
D/P (Documents against Payment) and D/A (Documents against Acceptance) are two types of collection. The latter is riskier than the former. Under D/A, the importer can obtain transport documents by which he can take delivery of the goods. If the importer fails to make payment at maturity, the exporter will lose both the goods and the money. In this case, the exporter should have realized the risk of changing D/P into D/A. According to UCR522, once the principal has given clear instructions, banks assume no responsibility for any consequence thus incurred. All is to be borne by the principal himself.
From this case, we can draw the following lessons:
1. Collection is based on commercial credit. That is to say, the bank does not assume primary liability to make payment, and whether the principal can obtain the payment depends on the credibility. Therefore, only when doing business with an importer of good reputation can the exporter choose payment by D/A.
2. Under collections, the transport documents should not be made out to order of the importer, but should be made out to order and blank endorsed to avoid the importer’s picking up the goods directly and facilitate the bank’s negotiation of the transport documents.
3. D/P is always a better choice than D/A. For substantial deals, a combination of D/P and D/A is recommended. Payment by collection should be avoided by all means in substantial export transactions.
【Case 13】Discrepancies in documents 1
A bank in Montreal, Canada opened an L/C to import textile products from China, the total amount was 63, 000 Canadian Dollars, the date of shipment was January 31, and the date of expiry was February 15. On January 8, the beneficiary presented a set of documents with the amount of 73, 467 Canadian Dollars. Apparently, this overcharge was caused by overfreight. Since the export company claimed to have obtained oral agreement of the importer about the overfreight, the negotiating bank sent the documents to the issuing bank for the settlement.
On January 13, the negotiating bank received a telegram from the issuing bank saying that the applicant refused to take up the documents for reasons of “disagreement between the documents and the L/C”. Nevertheless, should the beneficiary reduce the price by 60 cents per yard, thus cutting down the total amount to 64, 382 Canadian Dollars, the applicant would like to retire the bill.
On January 29, the export company expressed its reluctance to make the reduction and pointed out that the importer’s breach of faith.
February 23, the issuing bank said in its telegram that the applicant still refused to take up the documents, that because the discrepancy was created by beneficiary’s overfreight, all the risks should be assumed by the beneficiary, and that all the documents would be sent back to the negotiating bank if no instructions of handling were received before March 3.
On February 27, the negotiating bank telexed the issuing bank “the exporter is consulting the importer about this matter; please do not send back the documents.”
March 10, the issuing bank claimed that the importer would not bear the demurrage (which had already amounted to 3, 500 Canadian Dollars). The negotiating bank had to ask the issuing bank to take delivery of and warehouse the goods. The expenses of warehouse and insurance reached 6, 397 Canadian Dollars till June 6.
The importer insisted not to pay for reasons of the discrepancy, so did the issuing bank. In the end, the exporter had no other choice but to transfer the goods to another client on “consignment”, thus suffering a great loss.
Analysis:
It can be seen from this case that the fundamental condition of safe and timely settlement is to prepare the documents strictly in accordance with the provisions of the L/C. The so-called “promise” does not always count. The settlement of the L/C has no other basis than “the agreement between the documents and the L/C” and “the agreement among the documents”. Anyone who breaks this principle of “settlement against documents” will plunge into an awkward position.
In this case, the promise made by the importer actually is a “stool pigeon” – when the exporter has shipped the goods, the importer will corner the exporter into a price reduction. If that does not work, a threat of sending back the documents will follow. The issuing bank can only act accordingly because the documents presented do not correspond with the L/C.
In international business, it is necessary to get clear and reliable information about the business partner’s credit. One should never reckon on “accommodations” to ensure safe and due settlement. Under the payment method of L/C, the documents, rather than the actual conditions of the goods, are the only basis of payment. This case suggests that the exporter is sure to suffer from loss if he does not have a solid understanding of the basic principles of settlement by L/C.
【Case 14】Discrepancies in documents 2
On March 31, 1998, Company C in China applied to a bank in China for the establishment of an L/C in favor of Company N in New York, covering 5, 000 metric tons of polyethylene with the amount of USD3, 290, 000, partial shipment allowed, shipment not later than September 15, expiring on September 30.
On May 14, the negotiating bank in New York negotiated the documents of the first shipment under the L/C, totaling USD559, 797. On May 19, the issuing bank in China reimbursed the payment after checking the documents received. On July 5, the issuing bank received the documents of the second shipment amounting USD844, 108. While checking the documents, the issuing bank found that it was indicated in the packing list that each bag of polyethylene weighed “from 50 pounds to 55pounds”, which did not comply with the stipulation in the L/C that “each bag weighs 50 pounds or 55 pounds.” The applicant required the issuing bank to make refusal of payment for reasons of “disagreement between the documents and the L/C”. The issuing bank followed the instruction and telexed the negotiating bank stating that it would keep the documents and wait for the disposal.
The reason why the applicant made the requirement to refuse to pay lay in the inferior quality of the first shipment of polyethylene. At the time, the import company was negotiating with the export company for compensation; the discrepancy appeared in the documents just happened to be a sound reason for a refusal of payment that might enable the import company to take the initiative.
On August 20, the negotiating bank in New York telexed a request of “the actual reason for refusal of payment”. In reply, the issuing bank in China said the reason was that “the documents contain discrepancies.” On October 15, the American bank once again demanded the payment, and the issuing bank insisted not to pay for reasons of discrepancies.
In early November, the American export company sent its representative to China to negotiate with the Chinese import company. They admitted the inferiority of their product quality and decided to compensate with the payment for the second shipment of goods. The balance of USD70, 000 was to be remitted to the export company by the import company.
While showing objection to the compensation agreement, the negotiating bank authorized the issuing bank to hand over the documents to the import company. The payment problem was left to both the importer and the exporter. The issuing bank was discharged from obligations. In this way was the case concluded.
Analysis:
The issuing bank was fully justified in its refusal to make payment as it had found the disagreement between the L/C terms and the documents. According to international practice, the bank does not check the goods. All it has to do is to check the packing list with the L/C terms. Once finding any disagreement between the two, the bank has the right to make refusal of payment.
In this particular case, the real reason of the issuing bank’s refusal of payment was to provide the applicant with a means to urge the exporter to take the quality of the goods seriously. This turned out to be effective as it has won initiative for the importer and made the exporter admit the bad quality of the goods. It has also helped the importer to get the compensation.
Obviously, the negotiating bank had its own purpose in repeatedly asking for the actual reason for refusal of payment. Nevertheless, the issuing bank turned down the request with the reason of “disagreement between the documents and credit terms”, which was in conformity with the rules of UCP500 and totally unquestionable.
【Case 15】Discrepancies in documents 3
Bank N in London opened an L/C with the amount of USD193, 233; the date of payment was “45 days after the date of bill of lading”; both the date of shipment and the date of expiry was January 15. The L/C required 8 documents among which was the “Supplier’s certificate stating they have telexed openers within 24 hours of sailing date the vessel name gross and net weight and value of the consignment.”
On January 15, while receiving the documents presented by the exporter, the negotiating bank did not find the “Supplier’s Certificate” prescribed by the L/C but a copy of the “shipping notice” instead. Despite their different forms, the two kinds of documents played exactly the same role. The negotiating bank also thought that the shipping notice was even more direct and practical than the “Supplier’s Certificate”, so it sent the negotiated documents to the issuing bank for reimbursement.
On January 25, the issuing bank telexed its refusal of payment, stating, “Supplier’s Certificate re-telex to openers not presented.”
After contacting the beneficiary, the negotiating bank telexed the issuing bank “the copy of telex of beneficiary may certify they have telexed buyer after shipment.”
However, the issuing bank emphasized that the applicant refused to pay because of the discrepancy, and that it was difficult to contact the applicant who had gone abroad.
Later, investigation revealed that the real reason of the applicant’s protest was the falling price of the goods in London market. The applicant intended not to pick up the goods. To meet this end, the applicant colluded with the issuing bank to nitpick the documents.
The negotiating bank telexed the issuing bank again indicating that the copy of telex of shipping advice was the same with “Supplier’s Certificate”, and that this was a normal practice accepted by the applicant in former L/Cs.
The issuing bank insisted its refusal of payment because of the discrepancy. Since the L/C had already expired, a make-up of the “Supplier’s Certificate” was void. Considering the demurrage that would be incurred by the goods at the port, the export company was obliged to make a reduction of USD58, 000 and accept the payment terms of 45 days at usance to settle the dispute.
Analysis:
Evidently, the applicant of the credit deliberately made use of the immaterial “disagreement between the documents and the credit terms” to demand a low price. However, the beneficiary neither understood the principle of “dealing with documents only” nor dug into the rules of UCP500, providing the applicant with a proof and putting himself in a passive position.
Although the “Supplier’s Certificate” and the “Copy of Telex” are identical in function, they are two different documents in appearance. The issuing bank is only obligatory to make payment provided that the documents appear on the face to be in compliance with the credit terms and not obligatory to check the actual function of such documents. This is the principle that the banks involved in L/C business only deal with the documents and not with the facts, which should be fully understood by the trade firms engaged in international trade and the banks concerned.
Sometimes the importer and the issuing bank may tolerate discrepant documents. That is always because the market price of the imported goods goes up and promises profit, especially when there is an urgent demand of the goods. On the contrary, when the market is soft and the price goes down so much so that the importer will suffer a loss, the applicant will do whatever he can to find fault with the documents to defer payment or even refuse to retire the documents. The issuing bank can do nothing about it because UCP500 provides that as long as the documents do not conform to the terms of a credit or the documents do not agree with one another, refusal of payment is unavoidable regardless of the actual conditions of the goods. In L/C operations, the principles of “dealing with documents and not with goods” and “seeing that the documents appear on the face to be in agreement” are accepted internationally. In reality, only in this way can affairs be handled, otherwise the boundary of the banks’ responsibilities cannot be clearly defined.
【Case 16】Discrepancies in documents 4
May 7, 1996, F Bank in Hamburg, Germany opened an L/C, in favor of an export company in China, with the amount of USD96, 900, which described the goods as follows:
Men’s anoraks
Lot 1) 6000 Pieces ABGL 111
Lot 2) 6000 Pieces ABGL 112
The L/C also prescribed the documents should be sent to the issuing bank and the reimbursement to be claimed from F Bank’s branch in New York at the maturity.
On September 24, the beneficiary presented the negotiating bank with a set of documents that were sent, after no mistakes being found, to the issuing bank for reimbursement. Half a month later, the negotiating bank received a telex from the issuing bank in Germany saying that it refused to pay because the applicant were not willing to take up the documents due to the discrepancies shown on the invoice and the packing list.
After checking together with the beneficiary, the negotiating bank found that each document listed the quantity as required by the L/C except that the description of the total quantity did not include all the details of the specification, .
Men’s anoraks
400 cartons = 12000 Pcs. Abgl 111 (here “abgl 112” was left out)
The mistake was actually negligible, but the applicant stuck to it and refused to pay. Later it was learned that the applicant’s company was poorly running and facing bankruptcy, so it took advantage of the discrepancy to refuse to retire the bill.
Having contacted the export company, the negotiating bank had to return the reimbursement to the issuing bank together with USD2, 254 of interest for compensation. Finally, the issuing bank was authorized to hand over the documents to another importer.
Analysis:
The importer in this case was facing with bankruptcy and tried to make use of the discrepancy to refuse payment and transfer the risk. Therefore, the first thing in doing international trade is to make clear about the credit standing of the trading partner so as to avoid troubles.
To ensure the full agreement between the documents and the credit terms and the agreement between documents, the documentation in international trade must be treated with preciseness. In this case, there was no problem with the goods, but a minor mistake in a document has incurred damage.
【Case 17】Discrepancies in documents 5
On April 12, a bank in Hong Kong established an L/C with the amount of USD540, 000, date of shipment was August 15; date of expiry was August 30. The contract number listed in the L/C was “CN 1830325”.
On August 9, the beneficiary presented the documents on all of which a contract number of “CNI 830325” was printed. The beneficiary claimed that all their contracts began with “CNI” and that the issuing bank must have mistaken “CNI 830325” for “CN 183325”. The beneficiary believed that it should insist the original number and make out all the documents with the number “CNI 830325”. The negotiating bank did not take it seriously and sent the documents to the issuing bank for reimbursement. On the same day, the reimbursing bank, . the New York branch of the issuing bank credited the negotiating bank’s account with the payment of USD540, 000.
However, four days later the issuing bank telexed its refusal of payment, claiming “nonconformity between documents and terms of the credit”. Since there did exist such a discrepancy, the negotiating bank could do little to change the situation.
The agent in Hong Kong negotiated with the applicant for many times, the latter was convinced to accept the documents on September 14 but demanded a compensation of interest of USD6, .
Analysis:
According to UCP500, the documents must be in strict accordance with the credit terms. “If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents.” (UCP500 Article 14. b) When the beneficiary found that the contract number on the credit was mistaken, he should have asked for amendment immediately, or he should have furnished the documents as per the stipulation of the credit to avoid the refusal of payment because of “inconformity between documents and terms of the credit.”
The negotiating bank should have asked the beneficiary to revise the discrepancy when examining the documents, or should have asked the issuing bank to amend the contract number in the L/C, but it has listened to the beneficiary and believed that the applicant would “honestly” admit his mistake in the contract number and the issuing bank would also “honestly” admit that the credit carried a wrong contract number. However, with their grip on UCP500, the other side has refused to make payment and charged more than 6000 dollars for compensation of interest.
The loss of over USD6, 000 arising from a one-word discrepancy tells that the UCP provisions concerning documents must be fully comprehended so that troubles can be avoided.
【Case 18】Discrepancies in documents 6
An export company in China used to export red dates to Singapore. The L/C established by the bank in Singapore describes the goods as “Grade 3 Red Dates”. At the moment, “Grade 3 Red Dates” were out of stock. The exporter decided to ship “Grade 2” instead of “Grade 3” to meet the demand of the market. On the invoice marked “Grade 2 Red Dates, price as per Grade 3”.
The beneficiary had thought that the importer would not show any objection about this. However, on the contrary, the importer refused to make the payment because of “nonconformity between documents and terms of the credit”. What was more; the importer even demanded compensation for the loss caused by the exporter’s failure to ship according to the agreed specification.
Analysis:
UCP500 Article 37c reads, “The description of the goods in the commercial invoice must correspond with the description in the Credit.” Therefore, the name and description of the goods in the commercial invoice must fully agree with that in the credit, or the issuing bank will be offered a reason to refuse to pay.
The case clearly shows that the banks concerned in credit operations do not examine the actual conditions of the goods. Although the exporter had shipped goods better than those provided in the credit, the bank still followed the principle of “dealing with documents and not with the goods” and “seeing that documents appear on their face to be in compliance with the terms and conditions of the credit”. Small wonder the issuing bank refused to make payment
【Case 19】Dispute on partial shipment
An international trade company A concluded a deal to export peanut kernels to company B with the total quantity of 500 metric tons. The L/C provided as follows: “Shipment to be effected in five months: 80 tons in March; 120 tons in April; 140 tons in May; 110 tons in June; 50 tons in July. The shipment of each month should be delivered at one time from any Chinese port to London.”
After receiving the L/C, company A shipped 80 tons of goods at Tsingtao port on March 15, and another 120 tons at the same port, and received the payments smoothly. Owing to short supply of goods, on May 20 Company A only shipped tons of goods at Tsingtao port. However, company A found some supplies of the same quality from a company in Yantai, so it suggested that vessel “Hulin” sail to Yantai port to pick up these goods. Considering the idling of space, the carrier agreed to the suggestion and loaded tons of goods at Yantai. Therefore, when negotiating at the negotiation bank, company A surrendered two sets of B/L, one issued at Tsingtao on May 20 with the quantity of MT, the other issued at Yantai on May 28 with the quantity of MT. However, the issuing bank refused to accept the documents for the following discrepancies:
“1. The L/C provides 150 tons of shipment in May, partial shipment not allowed. However, you shipped tons at Tsingtao on May 20 and tons at Yantai on May 28, which is not in accordance with the L/C clause that prohibits partial shipment.
2. The L/C requires 140 tons of shipment in May. Nevertheless, the total amount of your two shipments in May is only tons, which is tons short, failing to meet the requirement of the L/C.
We have informed the applicant of the above discrepancies. The applicant does not accept the documents. Please let us know your opinion about how to handle the documents”.
Meanwhile, company A received from company B a telex saying: “Regarding peanut kernels under Contract , our end-user’s work has been held up for lack of materials due to your short delivery of May, which has caused a loss of USDxxxx. We will not make payment until you have compensated for the loss.”
Company A argued back as follows:
“Thank you for your telex of xxx. Regarding the short delivery, we hold that there is only % of shortage. The actual shipment in May is tons, accounting for % of 140 tons, the quantity of May provided by the L/C. According to our Contract No. xxxx, ‘seller has the option of delivering 5% more or less on the contract quantity.’ As our shipment in May is only % short, which is under 5%, we have not broken the contract. Please make payment on time.”
More than a month went past, instead of any reply from company B, company A received a telex from the issuing bank which read:
“For a long time we have been waiting for your opinion concerning the discrepant documents under Contract but received no response. We have contacted the applicant repeatedly, but they still refuse to accept the documents. Please let us have your disposal promptly.”
Company A replied as below:
“Regarding the so-called discrepant documents under Contract No. xxxx, we present our arguments as follows:
1. Although we shipped tons at Tsingtao and tons at Yantai, the two shipments were loaded on the same vessel to be received and unloaded together by the same consignee at the port of destination, therefore should be considered as one shipment.
2. The L/C provides that the 500 tons of goods should be shipped in five months separately. As factors such as hold capacity and packing conditions do not guarantee that each shipment would be made exactly as planned, certain allowance in quantity should be given. Moreover, the contract stipulates an allowance of 5%. Whether there is a short shipment or not depends on whether the total quantity of 500 tons has been met or not.
To sum up, our documents do not bear any discrepancies. You should accept the documents and make the payment immediately.”
The issuing bank insisted on its previous opinion:
“The L/C prohibits partial shipment while you shipped the goods in two lots: tons at Tsingtao on May 20 and tons at Yantai on May 28. In spite of the fact that the actual goods can be unloaded from the same vessel, shipments made at two different times are not in conformity with the stipulation of the L/C. With reference to UCP500 Article 4, ‘In Credit operations all parties concerned deal with documents and not with goods, services and/or other performances to which the documents may relate’. Therefore, we do not deal with the actual condition of the goods but with the agreement between the documents and the L/C. Your shipping the goods in two lots at two different ports does not comply with the L/C’s provision.
Regarding the L/C provision of 140 tons in May, you only shipped tons, tons short. The 5% more or less clause provided in the contract does not bind us. According to UCP Article 3, ‘Credits, by their nature, are separate transactions from the sales or other contract (s) on which they may be based and banks are in no way concerned with or bound by such contract (s), even if any reference whatsoever to such contract (s) is included in the Credit. Consequently, the undertaking of a bank to pay, accept and pay Draft (s) or negotiate and/or to fulfill any other obligation under the Credit, is not subject to claims or defenses by the Applicant resulting from his relationships with the Issuing Bank or the Beneficiary.’
You hold that “whether there is a short shipment or not depends on whether the total quantity of 500 tons has been met or not”. However, the L/C definitely stipulates that the shipment in May is 140 tons, partial shipment not allowed. Therefore, whether there is a short shipment depends on whether the 140 tons of shipment in May has been met or not. If the answer is no, there exists a short shipment.
According to the above-mentioned, your documents are discrepant indeed. The applicant is unwilling to accept them, so we are unable to make the payment.”
In the end, company A was forced to compensate for the loss of company B.
Analysis:
In terms of the case, it is completely a mistake for Company A to accept company B’s requirement of compensation because company A has done nothing wrong throughout the process. The statement that the documents are discrepant is groundless. It was an unusual mistake that Company A reconciled itself to the compensation.
The major cause of Company A’s loss lies in that it did not retort upon the issuing bank in time. When company B asked for compensation, it was proper for company A to hit back; but then company A should have done more than just waiting for company B’s payment. Company B delayed its reply to company A’s refutation as it knew that it was in the wrong. However, not until more than one month later, when the issuing bank telexed for the second time to press for a solution, did company A begin to negotiate with the issuing bank.
Company A did not understand the features of settlement under L/C terms. In light of UCP500, an L/C is a written undertaking issued by a bank (the issuing bank) to the seller (the beneficiary) at the request and in accordance with the instructions of the buyer (the applicant) to effect payment against the surrender of the stipulated documents complying with the terms and conditions of the credit. Therefore, under the payment terms of L/C, the issuing bank assumes the primary responsibility to effect payment. That is to say, the issuing bank is liable to disburse the full payment even if the applicant goes bankrupt. In this case, the issuing bank claimed that it could not effect payment because the applicant did not agree to pay. This is obviously not right. Unfortunately, even though the documents were perfectly correct, Company A failed to base its arguments on the terms of UCP500, thus failed to refute the issuing bank.
For the reason of goods supply, Company A shipped a part of the goods at Tsingtao, and the rest at Yantai. However, since the goods had been loaded onto the same vessel and the sailing line remained the same, the shipment should be considered as one in spite of different dates and places of shipment. UCP article provides that “transport documents which appear on their face to indicate that shipment has been made on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering partial shipments, even if the transport documents indicate different dates of shipment and/or different ports of loading, places of taking in charge, or dispatch.” Although company A shipped goods onto the same vessel at two different ports (Tsingtao and Yantai), the transport document should not be considered as covering partial shipment, according to the above-mentioned UCP clause. But Company A failed to quote UCP500 while arguing its case. On the contrary, the issuing bank defeated company A by making use of article 4 of UCP500 that “in Credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.”
Company A made a similar mistake concerning the short shipment. According to UCP500 Article , “unless a Credit stipulates that the quantity of the goods specified must not be exceeded or reduced, a tolerance of 5% more or 5% less will be permissible, always provided that the amount of the drawings does not exceed the amount of the Credit. This tolerance does not apply when the Credit stipulates the quantity in terms of a stated number of packing units or individual items.” Company A’s shipment was only % short, not exceeding 5%, which was permissible in relation to the said provision. But company A did not take advantage of this stipulation to retort, instead, it cited the 5% more or less clause of the contract, giving the issuing bank an opportunity to fight back with UCP500 article 3 that in Credit operations the issuing has nothing to do with the sales contract. Company A could not fight back and wrongfully agreed to make compensation.
In a word, company A lost the case mainly because it failed to have a thorough grasp of the articles of UCP500.
【Case 20】Is it a right decision?
Bank A in Norway opened L/C No. 7636 to purchase working gloves from China. After examining the documents presented by the export company, the negotiating bank found no mistake in these documents and sent them to the opening bank. Half a month later, the opening bank made a refusal of payment arguing that the size of the gloves shown on the documents was not in accordance with that in the original sales contract.
The truth is that the size specified in the original contract was “size 10 1-2”, but the L/C said “size 10”. For the sake of convenience, the export company did not ask for amendment but prepared the goods according to the contract but furnished the documents according to the requirement of the L/C.
In order to help the applicant make customs clearance, the beneficiary issued another invoice showing “size 10-1/2” and informed the applicant that the working gloves shipped were all of that size. In the end, the importer made the payment.
Analysis:
The beneficiary followed the international practice and managed to get the agreement between the credit terms and the documents. Although the size of the actual goods was not the same as the provision of the L/C, the bank was still justified in adhering to the principle of “dealing with documents not the goods”.
If the beneficiary had made out the documents as per the original sales contract after realizing the mistaken size in the L/C, there would have been disagreement between the credit terms and the documents. If the importer had refused to retire the documents with this reason, the issuing bank would have refused to make payment with strong confidence. Then the risk would have been transferred from the importer to the exporter.
Actually, the beneficiary should have immediately asked the importer to amend the L/C. While furnishing the documents according to the credit terms has precluded the risk of non-payment, it was improper and unadvisable for the exporter not to honor the contract and ensure the conformity between the goods and the documents.
【Case 21】The issuing bank refuses to make payment
A British company established an L/C amounting US$60, 280 through Bank P to import canned food from China. A bank in China negotiated the L/C on October 4, 2004 and then sent the documents to the issuing bank for reimbursement. On October 28, after receiving the documents, the issuing bank protested by a telegram saying “the beneficiary has not shipped the goods by two lots as stipulated in the contract.”
The negotiating bank checked the L/C but did not find the clause of partial shipment. In fact, there was an exact agreement between the L/C and the documents and among the documents themselves. In the telegram demanding payment, the negotiating bank claimed that banks should not get involved in the provisions of commercial contracts.
The issuing bank said in its telegram on November 24 that the applicant had already contacted the supplier (the beneficiary) for this problem and still refused to make the payment.
The negotiating bank sent a telegram to the issuing bank on November 27, restating that banks have nothing to do with the disputes arisen from the performance of the commercial contracts -- according to international practices the issuing bank must pay as long as the documents agree with the L/C and the documents agree with one another. The negotiating bank also demanded to preserve the claim of interest of the deferred payment.
The issuing bank made no response to the telegram. Then the negotiating bank invited Bank of China London Branch to negotiate with the issuing bank on behalf of it. The issuing bank paid on December 3, 2004.
The beneficiary pointed out that the original date of the imbursement was October 21, but the actual date of payment was December 3. According to the interest rate of the year and the days of delay, an interest of US$ should be paid by the issuing bank. With some efforts, the beneficiary finally received the interest from the issuing bank on January 29, 2005.
Analysis:
Although the sales contract did bear such a clause as shipment to be made in two lots, the established L/C did not show this provision. Therefore, the fact that the exporter shipped the goods in a lump does not justify the refusal of payment made by the issuing bank. It is a problem to be solved by both the exporter and the importer.
The issuing bank has broken the relevant provision of UCP500 with the refusal of payment based on the reason that “the beneficiary has not shipped the goods by two lots as stipulated in the contract.” What was even worse, the issuing bank deferred the payment time and again.
Even if the exporter would like to ship the goods according to the terms of the contract, they could not do so until they get the amendment of the L/C and the confirmation of all parties involved.
【Case 22】Damage caused by early shipment
An export company in China signed a sales contract on a large quantity of textile products with one of its regular customers in Africa. The contracted date of shipment was from December 1998 to June 1999. The shipment was to be effected in monthly equal lots. Payment was to be made by irrevocable L/C payable at 60 days time draft. The importer opened the L/C duly. The established L/C met all the terms of the contract except the shipping clause: “shipment not later than June 30, to be shipped in several shipments.”
In December 1998, the export company made the first shipment. Because there was ample supply of goods, and because of its eagerness to get the payment, the export company made use of the L/C clause and shipped the goods of the first quarter on Jan 30, 1999 and the goods of the second quarter before the end of February. After each shipment, the export company negotiated the documents at the negotiating bank. The negotiating bank sent the documents to the opening bank after scrutinizing them. The opening bank made the payment duly.
Upon receiving the shipping advice, the importer found that the quantity of the second and the third shipment did not agree with the terms of the contract. Meanwhile, the importer noticed the mistake in the L/C. The importer protested at local commercial institution of China that the exporter had broken the terms of shipment specified in the contract. After repeated negotiations, the export company accepted the condition that the payment of the second and the third shipment to be made four months later. The export company suffered a loss of 10% of the total value of the goods.
Analysis:
This case is obviously concerned with the disagreement between the L/C and the sales contract. Pursuant to international practice, once established, an L/C becomes an independent obligation free from the original commercial contract. The L/C in the case did not state that the goods must be shipped in monthly equal lots, so the exporter was justified in shipping the goods in two lots during January and February and claiming for reimbursement with presentation of the documents. Observed from L/C settlement provisions, it was completely reasonable for the exporter to claim for reimbursement while having managed to deliver the documents conforming to the terms of the L/C.
However, considering the contract relationship between the importer and the exporter, the exporter should have asked the importer and the issuing bank to amend the L/C instead of taking advantage of the shipping clause at variance with the original contract to ship the goods in advance. Strictly speaking, this conduct was “not bonafide” and harmful to the image of the exporter.
In terms of the immediate cause of the dispute, the importer, who did not realize the problem until the moment of receiving the shipping notice, was to take the primary responsibility for not having opened the L/C as per the original contract. Therefore, it was not reasonable for the importer to ask the exporter to defer the settlement.
The negotiation ended up with the exporter’s deferring the settlement of the second and the third lots for 4 months. In fact, this was inappropriate. Had the L/C terms fully conformed to the contract, the exporter would not have waited for so long to get the payment. Besides, the importer could not shirk responsibility for the mistake in the L/C. Thus, the exporter has overly compromised in this case.
【Case 23】“Gum” or “Gum Rosin”?
April 5, 1996, H Bank in Karachi opened L/C No. 602348 with the amount of £4, to import Rosin from China, payable at sight, date of shipment May 31, date of expiry June 15, ungraded rosin, packed in metal barrels, CFR Karachi.
On June 2, the export company presented the documents for negotiation. All items on the documents were found to be in accordance with the L/C except the name of the goods. The documents showed the name as “Gum Rosin” which corresponded with the one specified in the contract. The negotiating bank advised that the documents should be made out with the name “Rosin” as specified in the L/C, that the word “Gum” should not be added, or there would be a disagreement between the documents and the L/C. However, the export company insisted that the L/C was incomplete and the contract should be strictly followed. No dispute would arise because the import company was clear about this matter. Therefore, the negotiating bank gave up and sent the documents for settlement.
On June 15 (the expiry date), the issuing bank sent a telegram notifying its refusal of payment. The reason was “description of goods showing gum rosin instead of rosin, the documents not accepted.” Though the exporter argued with the importer more than once, the problem remained unsolved.
The issuing bank claimed in telegrams “credit openers definitely refuse to take up documents goods arrived port heavy demurrage incurred.” Up until now, the exporter was put in a passive position. The case ended up with the exporter cutting the price by 28% and paying $1, 080 of warehouse rent charges.
Analysis:
As provided in UCP500, “The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.” In this way, now that the credit used “Rosin” as the name of the goods, the documents presented for negotiation must conform to the description of the credit rather than the stipulation of the contract; otherwise, the documents would disagree with the credit terms. Alternatively, the exporter could have asked the importer to inform the bank to amend the L/C.
The exporter thought that since the original commercial contract specified the goods' name as “Gum Rosin”, then it was unnecessary to amend the L/C. As a result, the bank refused to make payment for the reason of “disagreement” between the documents and the credit terms”. UCP500 clearly defines the relationship between the credit and the contract: once the credit is established, it is not subject to the original contract. The importer’s refusal of payment was based on the relationship under the credit rather than the original contractual relationship.
Although the importer’s refusal of payment was well grounded, the ulterior motive was apparent. That is, the importer wanted to take advantage of pressure of the high warehouse rent to force the exporter to reduce the price. Observed from the credit relation between both parties, the importer’s way was not good and harmful to its image. One should be on guard against this type of business partner and try to avoid doing business with them or pay careful attention to every detail of the contract.
In spite of the importer’s ill intention, which led to the damage, the key point of the case lies in that the exporter has misunderstood the provisions of UCP500 and consequently dealt with the issue so hastily. This is an important lesson to be remembered.
【Case 24】A quantity clause with “about”
S Bank in Tabriz, Iran opened an L/C to import 48,000 yards of cotton print cloth from China, partial shipment not allowed. There was a word “about” before the quantity of 48, 000 yards.
Owing to insufficient stock, the beneficiary only shipped 45, 600 yards of print cloth. According to international practice, the word “about” used in connection with the quantity stated in the Credit is to be construed as allowing a difference not to exceed 10% more or 10% less than the quantity to which they refer. The delivery of 45, 600 yards was within this range (48, 000 – 48, 000×10% = 43200). The beneficiary presented the documents for negotiation and the negotiating bank sent these documents to the issuing bank after finding no mistakes in them.
After receiving the documents, the issuing bank claimed that the applicant refused to take up the documents because of the shortage. The applicant would not accept the documents and make the payment unless the beneficiary could ship the short-shipped goods . 2, 400 yards of print cloth within three weeks.
The beneficiary insisted that according to UCP500, the documents had been made out in accordance with the L/C. The case ended up with the applicant accepting the documents and paying for the goods.
Analysis:
The importer failed to give a tenable reason for its refusal to pay. The word “about” before the quantity of goods definitely indicated that the beneficiary was allowed, according to UCP500, to make a difference of 10% either way in the amounts actually shipped. The beneficiary did nothing blamable.
The L/C itself bore an ambiguous clause. If the importer did not allow partial shipment at all, they should not have added the word “about” to the quantity clause.
【Case 25】 Trap clause 1
On October 15, 1994, a bank in Britain opened an L/C with the amount of USD918, 000 to import 1, 800 metric tons of rice from China, allowing a tolerance of 5%, at the price of USD510/MT CIF Liverpool. According to the L/C, quality inspection certificate was to be issued by China Commodity Bureau in triplicate; inspection was to be made at the time of shipment; goods were to be insured at Insurance Company of China; loss if any, the compensation should be paid to Dobson &. Co. Ltd.
On October 25, the shipment was completed. Because the goods actually shipped was 3% more than the quantity indicated in the L/C, the amount shown on the invoice was USD945, 540, which exceeded the amount of the L/C by USD27, 540. The negotiating bank pointed out that was a discrepancy, and demanded that the documents be negotiated against beneficiary’s indemnity. As the shipment had already been made, it was impossible to revise the document, so that was the only way to claim for reimbursement. However, if the import company refused to pay, the export company must take the consequences all by itself.
The export company argued that since the L/C allowed a 5% of difference in quantity, the 3% of excess should not be considered as violation of the L/C. The excess amount of USD27, 540 could be collected by clean bill. The export company did not agree to negotiate the documents against beneficiary’s indemnity, because that equaled to waiving the L/C guarantee of payment.
On November 10, the issuing bank sent its refusal of payment, giving the reason of “nonconformity between documents and terms of the credit”: first, the insurance policy did not state, as stipulated in the L/C, the term that “loss if any, pay to Dobson. &. Co. Ltd”. Second, the issuing date of the quality inspection certificate was October 23 while the shipment date shown on the B/L was October 25; this was not in accordance with the stipulation in the L/C that “inspection should be made at the time of shipment”.
Receiving the telex, the export company immediately hit back: first, the insurance policy definitely stated Dobson. &. Co. Ltd as the insurant, . the claimant of the insurance policy, which served the purpose of the provision in the L/C. Second, the shipment began right after China Commodity Inspection Bureau inspected the goods on Oct 23, and ended two days later on Oct 25. Therefore, this practice, which served well the same purpose implied by the L/C, was not a contradiction to the stipulation therein.
The issuing bank said in its telex of November 18 that the bank’s responsibility was to examine all documents to ascertain whether they appear, on their face, to comply with the terms and conditions of the Credit, and that the bank had nothing to do with the actual business operation. The insurance policy, as it did not show the statement required by the credit, was certainly discrepant. The disagreement between the date of shipment and the issuing date of inspection certificate also fell into the scope of apparent discrepancies. Therefore, the documents were unacceptable.
Now the export company was unable to advance any further arguments to justify itself. In the end, the import company accepted the discrepant documents and made the payment after the export company had agreed to reduce the unit price by 20 cents, which incurred to itself a loss of USD37, 080.
Analysis:
The crux of the case lies in that the export company has failed to ask for amendment of the L/C as it had not noticed the ambiguous clause in the credit. Now that there was a 5% more or less clause for the quantity of the goods, there should have been a respective more or less clause for the amount of the credit. As the export company had not asked for amendment, it should not have shipped goods with an amount exceeding the L/C amount.
The export company was at a disadvantage because even if it had proposed that the import company pay the excess amount by collection, the latter could still have refused to pay for the reason of “disagreement between the documents and credit terms”.
Apparently, the import company found fault with the insurance policy to excuse its refusal of payment. With an ill intention, the import company colluded with the issuing bank to force the export company into reducing the price through refusal of payment. The export company should have made some investigation about the import company. Of course, the export company should also make self-examination for it has failed to follow the principle that “all parties concerned deal with documents and not with goods” and thus given the export company an opportunity that could be exploited.
To meet the requirement of the credit, the inspector should have stated on the certificate that “the goods are inspected at the time of shipment” or made out the certificate with the same date as that of the B/L. However, the export company overlooked this important detail and later could do nothing to make up for the mistake which cost ten of thousands of dollars. What a harrowing experience!
【Case 26】Trap clause 2
Company A. P opened an L/C through a bank in London. The L/C would expire in China on March 15. The latest date of shipment was February 28. All documents must reach the issuing bank 21 days after the date of shipment. The goods were to be insured by the People’s Insurance Company of China, insurance policy in duplicate.
On January 26, the exporter in China effected shipment and procured the B/L. As the spring festival was round the corner, and the expiry date of the L/C was as far as May 15, the exporter had not furnished the documents and presented them for negotiation until February 10.
On February 20, the issuing bank telexed its refusal of payment for the reason of nonconformity of the documents: first, the date of shipment was January 16, but the documents reached the issuing bank on February 18, which had violated the L/C stipulation that the documents must reach within 21 days after the date of shipment; second, certificate of insurance was presented instead of insurance policy, which was not in compliance with the L/C stipulation.
The exporter refuted as follows: according to UCP500 Article 43. a., the documents should not be presented later than 21 days after the date of shipment. The shipment was effected on January 26, and the documents were presented to the negotiating bank on February 10, the interval was only 15 days, less than 21 days and within the validity period of the L/C, which fully conformed to the L/C stipulations. Concerning the insurance certificate and the insurance policy, both had the same functions, only names were different. This should not be considered as a violation.
The issuing bank sent another telex saying: “The L/C provides that all the documents must reach the issuing bank within 21 days after the date of shipment, the meaning of this clause is different from UCP500 Article 43. a. Now that you have accepted the L/C, you should present the documents in conformity with this clause. Although the insurance certificate has the same function, they do not appear the same on the face, hence unacceptable to us.”
The exporter could not fight back. Finally, the exporter authorized a local agent to sell the goods at reduced prices and suffered heavy loss.
Analysis:
The crux of the case is how to understand the actual meaning of the credit clause. The statement that “all documents must reach the issuing bank within 21 days after the date of shipment” has virtually negated the clause “the L/C expires in China on May 15”. This means the L/C is valid upon the documents’ reaching the issuing bank only. There was also a time limit. The reason why the applicant used the number of 21 was to induce the exporter’s wrong judgment so that an excuse would be found to make refusal of payment. This kind of L/C clause is referred to as “trap clause”. Therefore, the exporter must be very careful when examining the credit.
The insurance policy is a formal insurance document and a formal contract between the insurer and the insurant. On the back of the insurance policy, there are detailed clauses which specify the rights and obligations of both parties. The insurance certificate is the simplified version of the insurance policy. Same effects as they may have, they are after all different. If the L/C asks for the insurance policy, then the insurance certificate cannot be used to replace it. If the L/C asks for the insurance certificate, the insurance policy can be used instead, but it is advised that the word “certificate” be added to it to prevent the importer from finding any discrepancy to refuse to make payment.
【Case 27】Whose fault is it?
A company in Philippine opened an L/C to import 40 metric tons of frozen grass carp from China on CFR Manila basis. The goods were to be shipped from Huangpu to Manila not later than July 10. The L/C demanded a full set of on board order bills of lading endorsed in blank and freight prepaid. There was also a special clause: “Shipping advice must be sent to the accountee by telex on or about the date of bill of lading. A copy of the telex must accompany the documents for negotiation.”
Shipping the goods on July 9 and obtaining B/L issued the same day, the Chinese export company presented the B/L together with other documents to the negotiating bank. The shipping advice was not sent to the importer until July 13.
On July 16, the importer sent the following message: the advice by telex was received on July 13, while the goods arrived at the port of destination on July 11. Because of the delay of the shipping advice, and because the bill of lading was made out to order, nobody went to take delivery when the goods arrived. Due to the hot weather, the goods have deteriorated, estimated damage exceeding 47%. The importer could only pay 53% of the full amount.
The Chinese export company telexed the importer, saying that although the importer had sustained a big loss, the export company was not responsible for it for the following reasons: first, the goods had passed CCIB’s inspection; second, under CFR terms, the exporter only bears the risks before the goods’ passing ship’s rail; third, the order bills of lading were made out according to the provision of the L/C, thus the consequence of non-delivery was to be taken by the importer.
In reply, the importer refused to pay for the reason of “disagreement between the documents and the credit terms” – the shipping notice by telex sent on July 13 was 5 days later than the date of the B/L date, which did not comply with the L/C stipulation.
The Chinese export company stated in its telex that the L/C provided that shipping advice was to be sent “on or about” the date of bill of lading. According to UCP500 Article 46 c, it was acceptable to send the shipping advice within 5 days around the date of bill of lading.
The importer claimed that UCP500 Article 46 c is only applicable to the date of shipment, not the date of shipping advice.
After careful study, the export company realized that under CFR terms the insurance is to be effected by the buyer. Nevertheless, they still had not informed the importer of the details when the goods arrived the port of destination, thus the importer was unable to insure the goods. The export company was to blame for this.
As both sides were somehow responsible, the case was concluded by a 20% price reduction.
Analysis:
The expression of “on or about” used in the clause about shipping advice by telex was very ambiguous and inexplicable. The word “about” may mean 10% more or less in amount, quantity or unit price. While applied to date, the word “about” means 5 days around the date of shipment. The application of the word to telex clause in the credit in this case is apparently mistaken. This is the crux of the case. It must be pointed out that the importer should take consequences caused by any ambiguous clause contained in the credit. In fact, the issuing bank has admitted in its telex that “on or about” can only be applied to define shipping date, not the sending of shipping advice by telex.
The importer claimed in his telex that above 47% of the goods had deteriorated, which implies that they have picked up the goods. In addition, this number was just estimation, not evidenced by any inspection report and thus, according to international practice, could not be taken as the basis of refusal of payment. Therefore, it is reasonable for the export company not to accept it.
Since the applicant and the issuing bank had taken delivery of the goods against documents and “inspected” the goods, then according to UCP500 Article 14 e, they were precluded from claiming that the documents did not comply with the terms and conditions of the credit. That is to say, practically, their refusal of payment was not tenable.
The export company’s mistake, of course, lay in the failure to send the shipping advice immediately after the shipment of the goods. Because under CFR terms, the importer must effect insurance by himself, or he will have to bear all the risks after goods’ passing ship’s rail alone. However, the export company sent the advice 5 days after the shipment, rendering the goods uninsured during the course of transportation. This was an obvious mistake of the exporter.
【Case 28】Silence amount to acceptance?
Company B in Singapore contracted with a native product export company in China to import hazelnut. The contract provided that the goods to be packed in wooden cases or plywood cases with lining of wax paper or parchment paper. On May 6, company B established an irrevocable L/C that stipulated that packing by plywood cases with lining of wax paper. The Chinese export company readied the goods for shipment following the credit terms.
On May 15, the importer sent an amendment of the L/C through the advising bank, changing the packing into wooden cases with lining of parchment paper. As the shipping date was drawing near, if the export company changed the packing of the goods ready for shipment into wooden cases, the loss would be large. Considering this, the export company ignored the amendment, went on to ship the goods, and conduct the negotiation. It was not until later that the export company advised the importer through the advising bank that they were unable to accept the amendment.
After receiving the documents and knowing that the exporter refused to accept the amendment, the importer in Singapore sent a telex to claim that the goods had been resold to another party who believed the goods were packed in wooden cases with lining of parchment paper. Moreover, this kind of packing was provided in the sales contract. The importer also maintained that the exporter‘s failure to inform the importer of his non-acceptance of the amendment should be considered as “silence amount to acceptance”, so the exporter’s non-acceptance expressed at the time of negotiation was invalid.
The export company pointed out to the importer that in light of UCP500 Article 9. d. III, “the terms of the original credit will remain in force for the beneficiary until the beneficiary communicates his acceptance of the amendment to the bank that advised such amendment”. The so-called “silence amount to acceptance” has been negated by such stipulation. In the end, the issuing bank made the payment.
Analysis:
According to UCP500 Article 9. d. I, “an irrevocable credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.” Part III of the same article says that “the terms of the original credit will remain in force for the beneficiary until the beneficiary communicates his acceptance of the amendment to the bank that advised such amendment”. Therefore, it was unquestionable for the exporter to refuse the amendment and ship the goods in accordance with the original credit terms.
Although reproachless in the light of L/C settlement operations, the exporter should have communicated his difficulties and reasons of the non-acceptance to the importer to avoid misunderstanding. On this account, it was unwise for the exporter not to have expressed his opinions in time
【Case 29】A promise made to be broken
In September 1999, a South Korea company opened an L/C through Bank C to buy cement from China. The L/C demanded a “Certificate of confirmation issued by Mr. Park Kyung Rea”. The beneficiary could not accept this provision and asked the applicant to cancel it. Later, through negotiation, both parties reached an agreement that the exporter should replace the certificate with quantity inspection certificate and quality inspection certificate.
Nevertheless, the amendment received by the beneficiary was not in conformity with the agreement. The original clause about the “Certificate of confirmation issued by Mr. Park” was not cancelled; on the contrary, two more document clauses had been added. But as the expiry date of the L/C was approaching, the goods had already been shipped. It was impossible to make further amendment. The exporter believed that the importer would carry out the agreement.
Acting on the exporter’s instruction, the negotiating bank sent the documents to the issuing bank and claimed reimbursement from the reimbursing bank. Soon the issuing bank sent a telex claiming that the applicant refused to make payment because the certificate issued by Mr. Park was missing. The issuing bank demanded the negotiating bank to refund the reimbursement and pay the interest incurred between the date of collection and the date of refund.
The exporter then contacted the importer in South Korea about this matter. However, the importer ignored knowing the fact of the refusal of payment and lied that all the problems were “bank affairs”. In fact, the importer was double-dealing. Because the local cement market grew weak, the importer refused to redeem the documents. Afterwards, the shipowner auctioned the goods to compensate himself for the freight and demurrage. The negotiating bank has also been forced to refund the reimbursement and the interest. The exporter has sustained heavy loss.
Analysis:
The importer in South Korea first has managed to get the exporter’s trust by lying, and then made use of the crucial point of inconformity between the documents and the credit terms to make refusal of payment. Thus, the crux of the case is that the exporter had little information about the credit standing of the importer and lacked alertness to the importer’s trick. In the end, the exporter was not only unable to get the payment of the goods, but also lost the goods which had been auctioned to pay for the expenses of overstocking a harbor.
There is another lesson to learn in this case. Finding that amendment had not cancelled the clause about certificate issued by Mr. Park, the exporter should have insisted on importer’s amending the L/C or furnished the documents strictly following the requirements of the credit to prevent the importer from making refusal of payment with the reason of inconformity between the documents and the credit terms. To collect payment safely and duly, the exporter can only seize the principle of “documents conform to credit terms and documents conform to one another”, rather than any promise made by the other side.
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