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PENALTY FOR LATE SHIPMENT

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QUERY FROM N.

Dear Mr. Old Man,

Pls help me with the following case. In fact, It’s so complicated that I can’t get my clear idea about this case. Hope for your soonest reply. And thank you very much.

LC shows latest shipment date as 25 December and state:
“ IF B/L DATE IS LATER THAN THE LATEST SHIPPING DATE, DELAY PENALTY SHOULD BE DEDUCTED FROM GROSS INVOICE VALUE BASED ON 0.1 PCT PER DAY”.

BL presented shows shipment date as 1 January. (Shipment is therefore late by 7 days).

The invoices submitted show a deduction of the delay penalty amount for 7 days.

Since the delay penalty amount has been deducted from the gross invoice amount, should we still quote the discrepancy “LATE SHIPMENT” ?

Best regards,
N.
—————————–

ANSWER

Hi,

It's not easy to say if it is a discrepancy or not. There must be divided opinions.

And my view may be debatable:

It is not a discrepancy.

By stating that delay penalty is to be deducted from the gross invoice… if B/L date is later than the latest shipment date, the issuing bank implies that late shipment is acceptable but subject to delay penalty.

The applicant bears the risk of any ambiguity in its instruction to issue or amend a credit.

Best regards,
Mr. Old Man

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3 Comments

  1. nguyenminhdung

    April 28, 2011 at 12:04 pm

    Dear Mr.Oldman,I am a admirer of your works. I learn a lot of and imporve my knowledge from cases posting in your blog.Now I have a case that really need to be advised by a expert like you. As the amount under this guarantee is rather big so we need very carefully. Pls kindly make your comment if the content of the Guarantee is complete or not. Are there any unresonable clauses in this Guarantee? Actually, I do not find any mistake here.Because my customer has to answer the Guarantee is ok not not for the issuance of the Guarantor, pls help me in the soonest time if you can. I don't know how to send a message to you so I post my question at this comment box and hope it does not troulbe you.Thank you very much for your kind assistance and sorry for any inconvinience caused.Nguyenminhdung.—-ADVANCE PAYMENT GUARANTEE GUARANTEE NO. DATE OF ISSUE PRINCIPAL:Chinese Company, Shanghai, ChinaBENEFICIARY: Vietnamese Company.GUARANTOR: Shanghai Bank, ChinaWE (THE GUARANTOR) HAVE BEEN INFORMED THAT Chinese Company, Shanghai, China,(hereinafter called “THE PRINCIPAL”),HAS ENTERED INTO CONTRACT NO. 01/VN-CN DATED Jan 9th, 2011 WITH YOU FOR THE SUPPLY OF DESIGN, EQUIPMENTS, TECHNICAL AND SERVICES FURTHERMORE, WE UNDERSTAND THAT, ACCORDING TO THE CONDITIONS OF THE CONTRACT,AN ADVANCE PAYMENT IN THE SUM OF USD6,000,000.00(SAY:…………..ONLY) IS TO BE MADE AGAINST AN ADVANCE PAYMENT GUARANTEE.AT THE REQUEST OF THE PRINCIPAL, WE HEREBY IRREVOCABLY UNDERTAKE TO PAY YOU AN AMOUNT NOT EXCEEDING IN TOTAL OF USD 6,000,000.00 (SAY in words: ………) AFTER RECEIPT BY US OF YOUR FIRST DEMAND IN WRITING STATING :1)THE NUMBER AND DATE OF OUR GUARANTEE UNDER WHICH YOUR CLAIM IS MADE AND 2)THE AMOUNT YOU CLAIM AND 3)THAT THE PRINCIPAL IS IN BREACH OF HIS OBLIGATION(S) UNDER THE CONTRACT CONDITIONS; AND4) THE RESPECT IN WHICH THE PRINCIPAL IS IN BREACH;AND5)THAT YOU HAVE FULFILLED YOUR OBLIGATION(S)IN ACCORDANCE WITH THE CONTRACT AND THUS THE PRINCIPAL CAN NEITHER ASCRIBE THE BREACH OF HIS OWN OBLIGATIONS TO THE BENEFICIARY NOR EXEMPT HIMSELF FROM THE OBLIGATIONS THEREOF. FOR THE PURPOSE OF INDENTIFICATION YOUR WRITTEN STATEMENT MUST BE DULY SIGNED AND PRESENTED THROUGH YOUR LOCAL BANK AND YOUR SIGNATURE(S) ON THE DEMAND IN WRITING MUST BE VERIFIED AND AUTHENTICATED BY THE PRESENTING BANK WHICH MUST CONFIRM TO THIS EFFECT THROUGH AUTHENTICATED SWIFT( OR TESTED TELEX) MESSAGE TO US. THIS LETTER OF GUARANTEE SHALL BECOME EFFECTIVE AS FROM THE DATE WHEN THE PRINCIPAL IS IN RECEIPT FROM THE BENEFICIARY OF THE ADVANCE PAYMENT REFERRED TO ABOVE ON HIS ACCOUNT NO.457332222222222 WITH US. THE GUARANTEE AMOUNT SHALL BE AUTOMATICALLY REDUCED BY 20% PERCENT OF THE INVOICE VALUE OF EACH SHIPMENT UPON EACH SHIPMENT OF THE GOODS.THE SHIPMENT OF THE GOODS IS EVIDENCED BY PRESENTATION TO US BY THE PRINCIPAL OF ORIGINAL(S) OF THE CORRESPONDING INVOICE AND THE BILL OF LADING WHICH SHALL BE ACCEPTED AS CONCLUSIVE EVIDENCE THAT OUR LIABILITY UNDER THIS GUARANTEE HAS BEEN REDUCED. THIS GUARANTEE SHALL EXPIRE UPON THE LAST SHIPMENT MEANING THE BENEFICIARY RECEIVE ALL GOODS UNDER THE SAID CONTRACT. THE STATEMENT WHICH ISSUED BY THE BENEFICIARY CONFIRMING THAT ALL THE GOODS WAS RECEIVED BY THEM SHALL BE ACCEPTED AS CONCLUSIVE EVIDENCE THAT OUR GUARANTEE HAS EXPIRE.ANY DEMAND FOR PAYMENT AND DOCUMENTS REQUIRED UNDER THIS GUARNATEE MUST BE RECEIVED BY US BEFORE ITS EXPIRY AT OUR ADDRESS STATED ABOVE. THIS GUARANTEE IS SUBJECT TO URDG 758/ICC.

    Reply

  2. mroldmanvcb

    April 28, 2011 at 10:04 pm

    Hi,To tell the truth, I have never come across a transaction where the buyer is required to pay in advance for such a huge amount of money. So, a precaution is needed. KYC – Know Your Customer is very important. For high risk and great value transactions, caution is recommended when dealing with a new customer. You should make credit inquiries on your customer through your bank to know if he is financially able to supply with such a huge quantity of goods. It is worth spending a little money and time to avoid risks.Back to your question as to whether the terms and conditions of the guarantee are OK, I agree with you that it appears quite OK. However, I am not quite comfortable with the clause “THE GUARANTEE AMOUNT SHALL BE AUTOMATICALLY REDUCED BY 20% PERCENT OF THE INVOICE VALUE OF EACH SHIPMENT UPON EACH SHIPMENT OF THE GOODS.THE SHIPMENT OF THE GOODS IS EVIDENCED BY PRESENTATION TO US BY THE PRINCIPAL OF ORIGINAL(S) OF THE CORRESPONDING INVOICE AND THE BILL OF LADING WHICH SHALL BE ACCEPTED AS CONCLUSIVE EVIDENCE THAT OUR LIABILITY UNDER THIS GUARANTEE HAS BEEN REDUCED”.The guarantor’s liabilities under the guarantee shall be reduced upon presentation by the principal of originals of the invoice and the bill of lading. Who knows what happens if the principal is to present forged documents while no shipments are made? So, once again, Know Your Customer or you’ll be exposed to the risk of fraud.Why don’t you agree with the seller that you’ll pay by L/C?Good luck.Best regards,Mr. Old Man

    Reply

  3. anonymous

    April 29, 2011 at 9:04 am

    Anonymous writes:Thank you very much for your valuable soon reply. I will take your advise at my very high attention.

    Reply

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