Home Uncategorized OVERDRAWN; WHETHER DRAFTS ARE PART OF THE DOCUMENTS REQUIRED UNDER L/C

OVERDRAWN; WHETHER DRAFTS ARE PART OF THE DOCUMENTS REQUIRED UNDER L/C

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________________________________________
QUERY FROM NHUNG OF VIB
Re: Overdrawn
________________________________________

Dear Mr. Duc,

My name’s Nhung, Trade processing officer from Vietnam International Bank, Hanoi, Vietnam.
I have been known about you for a long time through your blog. Your profound knowledge about trade finance is greatly admired.
Now, we’re facing with one case which makes us unable to decide they’re discrepancies or not and we want to seek your value opinion.

The details of case as following:
L/C’s stipulation:
32B: GBP14770,7
39B: NOT EXCEEDING
42C: DRAFT AT SIGHT FOR 70PCT OF INVOICE VALUE
42A: DRAWEE: VNIBVNVX
45A: GOODS AS PER SALE CONTRACT NO. 123.
TOTAL AMOUNT: GBP21,101.00
46A:
– NO REQUEST FOR DRAFT
– COMMERCIAL INVOICE SIGNED BY BEN IN 03 ORIGINALS
47A:
– ALL DRAFTS AND DOCUMENTS TO BE MADE IN ENGLISH AND QUOTING LC NO.
Docs presented not including draft and Commercial Invoice showing full amount of GBP21,101.00. However, coverring letter claimed for full amount of GBP21,101.00.
Questions:
1. Whether or not we can raise discrepancy: OVERDRAWN. If yes, which article of UCP we can refer to?
2. Whether or not Draft must be presented in both at sight L/C and acceptance L/C when Field 42A and 42C are filled and no request for Draft on field 46A?
3. In case drafts are stipulated as required documents in field 46A, whether or not draft must be presented accompany with other shipping docs? Whether docs checker must check draft under ULB? And whether bank can refuse the documents based on discrepancy(ies) stemming from drafts?

Looking for your soon reply and thanks very much for your kind support in advance.
Best regards and Merry Christmas to You!

Nhung Ha Thi Cam of VIB

________________________________________
COMMENT
Re: Overdrawn
________________________________________

Dear Nhung,

1. It’s a discrepancy: overdrawn. It’s true that there are no specific article exactly dealing with this issue. However, banks can refuse the documents if the claimed amount exceeds the amount of the L/C based on sub-article 30(b) “…the total amount of the drawings does not exceed the amount of the credit”.

2. Regarding the question as to whether or not drafts must be presented when Field 42A and 42C are filled but no request for Draft on field 46A, I wish to quote here my related comment in DCPRO Forum as below:

QUOTE

Drafts are required under the L/C available by negotiation (of sight draft) or under the L/C available by acceptance (of time draft).
There has been a common view among L/C experts that drafts are not part of documents required in Field 46A, therefore, discrepancies, if any, on drafts does not constitute good reason for the issuing bank to reject the documents. This view is also received the support from judges like David Steel of the English Commercial Court in connection with the CMB vs. CIC case.
However, there is also a contrary view that drafts are required by L/C (though not in Field 46A), hence, drafts presented must comply with L/C requirement.
In practice issuing banks often ignore discrepancies in sight drafts such as: draft missing L/C number, draft not endorsed or even draft not presented. However, if drafts (especially time drafts) contain discrepancies such as wrong tenor, wrong drawee, overdrawn… which may have an adverse legal implications for the issuing bank, it may request the presenter to re-present new drafts. This request does not release the issuing bank from the obligation to honour when the correct drafts are re-presented.

UNQUOTE

Conclusion:
Anyway, if required by the L/C under Field 42C or Field 46A, drafts must be presented to comply.

3. As said, there are divided views on whether or not drafts are treated as other documents required under L/C and whether or not discrepancies in drafts is ground for refusal. Normally, drafts are not required under Field 46A, however, if required under Field 46A, they will be examined in the same manner as other documents and based on ISBP’s guidance (para 43 – 56).

Best wishes for a Merry Christmas and a Happy new Year!

Mr. Old Man

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3 Comments

  1. ansaren

    May 6, 2011 at 3:05 am

    dear mr.old man,if drafts is mentioned in 42c, can be again mentioned as required documents in teh field 46.

    Reply

  2. mroldmanvcb

    May 6, 2011 at 6:05 am

    You can do so if you want, but I do not see the need for the draft to be mentioned again in F.46A. So, you are not encouraged to do so.

    Reply

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