LATE DELIVERY PENALTY CLAUSE

A corner of Hoi An Ancient Town Market

QUESTION

Dear Mr. Old Man,

We need your comment on the following case:

A credit issued by our bank states in Field 47A as follows:

“Late shipment is acceptable but subject to a penalty of 2.5% for every 7 days (odd days less than seven days is considered as seven days). The total amount of penalty shall not exceed 10% of the total value of the goods involved in the late shipment and shall be deducted from the amount claimed”.

The presented bill of lading shows shipment was late for 8 days. However, the presented draft is drawn for full invoice value.

We have asked the applicant to calculate the penalty amount to be deducted from the amount claimed. However, the applicant has refused to do so saying that it’s our responsibility.

Please let us know whether our bank or the applicant is responsible for calculation of the penalty amount for late shipment. We are very confused about this issue.

Thank you very much in advance.

Best regards,

MXX

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ANSWER

Hi,

The applicant is defined in UCP 600 as the party on whose request the credit is issued. However, he is not considered to be a party to the credit. Any amendment to or cancellation of the credit is not subject to the approval of the applicant but to that of the issuing bank, the confirming bank (if any) and the beneficiary. Therefore, in theory, the applicant was correct in saying that it is your bank’s responsibility to calculate the penalty amount.

Kind regards,

Mr. Old Man