Home Mr Old Man Q&A WHERE LC REQUIRES PRESENTATION OF A DOCUMENT TO BE ISSUED BY APPLICANT

WHERE LC REQUIRES PRESENTATION OF A DOCUMENT TO BE ISSUED BY APPLICANT

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A Co Tu ethnic woman in Tay Giang  – a mountainous district of Quang Nam, Vietnam

QUESTION

Dear Mr. Old Man,

I have some stuff  about an LC case that really needs your advice as follows:

My customer is an importer and the goods in this case is an acetylene-producing machine. My customer wants to ensure that they only make payment after the machine has been set up finish at their warehouse. So they required us to open LC with a document issued by themselves certifying that the goods has been set up finish at their warehouse as a required document under LC.

That LC already opened. The goods shipped on board on 2 Oct, 2016. The LC’s expiry date is 20 Oct, 2016 and the presentation period is 21 days after the shipment date.

However, now I realize that the above required document may cause some troubles: The importer only issues that document when they have received goods set up at their warehouse while the exporter can only present documents under this LC to their bank if they obtain from the importer that certificate. Otherwise, if the importer doesn’t have original documents, they cannot receive goods.

I see the conflicts in this case.

Please give me your  advice. Thank you for your help. This case is almost urgent so I’m waiting for your soonest respond.

Wish you all the best.

————

ANSWER

Hi,

ISBP 745 warns that an L/C or any amendment thereto should not require presentation of a document that is to be issued, signed or countersigned by the applicant. If, nevertheless, an L/C or amendment is issued including such a requirement, the beneficiary should consider the appropriateness of such a requirement and determine its ability to comply with it, or seek a suitable amendment.

I wonder why the beneficiary in question accept your L/C that requires presentation of a document (e.g., Commissioning Certificate) to be issued by the applicant. The beneficiary may bear the risk of non-compliance and hence non-payment if the applicant does not issue and send such a required document to him in time.

For importing transactions like this, it is common that the payment under the L/C would be divided into 2 or more payments.

For example:

A. First payment for 80% of the L/C amount value shall be available against the following documents:

1) Invoice

2) Original Bills of Lading

3) Certificate of Origin

B. Second payment for 20% of the L/C amount shall be available against, e.g., Commissioning Certificate issued by the applicant.

Back to your bank’s situation. Don’t worry! It is the beneficiary (and not the applicant) that worries about the payment. If the presented documents do not contain the document issued by the applicant, your bank can refuse and may approach the applicant for their waiver. If the applicant wishes to receive the goods, he may waive the discrepancy or negotiate  with the beneficiary to set up a new payment arrangement as in the above example.

Your bank can release the documents to the applicant to enable him to take delivery of the goods after receipt of  an authenticated swift message from the presenting bank instructing your bank to release the documents against such a new payment arrangement.

Kind regards,

Mr. Old Man

 

 

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