LC States all discrepancies acceptable

[vcraj71]

When LC states all discrepancies acceptable, is that lc expiry and lc overdrawn are also acceptable or not. await expert advice

regards
raj v c

[Navi]

Dear Friend,
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I have difficulty understanding the reason of such a clause in LC. It may blow up all the LC terms.
.
Next, expiry of LC is not a discrepancy. When LC expires, it becomes null and void and UCP not applies in this case. Overdrawn is another case to be thought because you cannot guess how much the LC be overdrawn.
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Finally, a clause such as "all discrepancies acceptable" is, in my opinion, unacceptable and unapplicable.
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Other comment appreciated.
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Regards

[nesarul]

Dear all,
I agreed with navi that L/C expired is not a discrepancy but non existence of credit.
But my point of view is that issuing bank can not detect discrepancy as L/C overdrawn, my logic behind it that it can be detect from the examination of invoice draft (if any)........
.
But despite all discrepancy acceptable, I think missing of any document can also be a discrepancy.
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.
regards
nesar

[shahriar]

Hi Raj

i also agree with both the opinions given. LC expired is not a valid discrepancy; even when "all discrepancy acceptable'' clause is there. rather presentation after 21 days of shipment is a discrepancy and this will be waived by this clause.

document missing is a discrepancy and a discrepancy is just discrepancy. so theoretically its also waived.

i think ''all discrepancy acceptable'' is not equivocal to ''document wont be examined.'' in my opinion a presentation must be examined in any case. (technically this idea may conflict with the above paragraph)

LC overdrawn is a discrepancy and will be waived by the said clause. but waiver of this discrepancy doesn't necessarily mean that issuing bank will pay the extra claim. as per article 18b, bank will only pay the LC value.

[Navi]

Hi Raj
LC overdrawn is a discrepancy and will be waived by the said clause. but waiver of this discrepancy doesn't necessarily mean that issuing bank will pay the extra claim. as per article 18b, bank will only pay the LC value.

Dear Shahriar,
If the Lc is issued with the a/m clause and docs presented with huge amount, lets say Lc $10.000.- but docs presented $100.000.-, will the beneficiary be funded $100.000.- or $10.000.-? By adding this clause, can the issung bank preclude himself and decide to reject documents in case of some discrepancies? or issuing bank bounded with that clause and cannot reject discrepant documents.
regards

[ajoy]

Dear Shahriar,
If the Lc is issued with the a/m clause and docs presented with huge amount, lets say Lc $10.000.- but docs presented $100.000.-, will the beneficiary be funded $100.000.- or $10.000.-? By adding this clause, can the issung bank preclude himself and decide to reject documents in case of some discrepancies? or issuing bank bounded with that clause and cannot reject discrepant documents.
regards

Well if I was the issuing bank and had already issued this LC then I would go with article 18 b as suggested by Shahriar. Although I am not sure how this would stand up in court dispute.

Does anyone know of a case where this clause ( all discrepancies accepted ) ended up in a court.

( Personally if I saw that clause in an LC I would ask the applicant why the clause is required and then find a solution to this issue. The key is not to tell the applicant why we cant issue an LC with such a clause but to also ask why the clause is required and then find a proper solution for the client's needs)

Just some random questions and thoughts related to this topic :

1) Why would an buyer apply for LC with this clause i.e agree with would be beneficiary to put in this clause in the LC?

The only situations I can think of is could be something like this.

a) The buyer and seller have excellent ongoing business relationship. Buyer suddenly needs supplies/goods out of ordinary schedule. Bene is willing to ship goods at short notice as soon as he recives the LC but is concerned that this is likely to result in a number of minor discrepancies and hence amendments and hence delayed payment. So applicant proposes to put this clause in LC.

b) Could be that the applicant is in a seller's market and has literally transcribed his commitment to bene to accept all discrepancies. In other words during negotiations the buyer promised the sller that they will accept all discrepancies. Now they have added it in thier clause.( this could be resoved) .

c) possibly the buyer or both the buyer and seller are new to the LC business and donot understand the consequences ( can be resolved by a little talking )

2) Why would an Issuing bank agree to put this clause in the LC ?

Again I am guessing only ...

Applicant to big for the ops staff. ( In crude words : the applicant .. dines with char=irman of issuing bank almost everyday..... ..etc ) Or clause not noticed by Staff when issuing the LC.

3) Would you confirm this LC?

This one no guesses.

I would not confirm period.

If the situation was as imagined in 1) i.e if the bene is so ready to ship the goods he wouldnot be worrued of the IB or country risk . So dont think you would have a confirmation request in the first place.

[Judith]

By including this clause, I think the issuing bank had an “insane” moment or caved into client pressure.

Nonetheless, I think LC Expiry is not a discrepancy. This is because the LC has ceased to exist and there is no obligation for the issuing bank to check documents, find discrepancies and waive them.

LC overdrawn is also technically not a discrepancy. Agree with Shahriar. The issuing bank can honour the documents up to the amount of the LC balance.

An LC is conditional, limited undertaking for a certain amount till a certain time. By including this clause, the IB has removed the “conditions” but this does not lessen the “limited undertaking for a certain amount till a certain time” bit.

Other comments welcome.

[ajoy]

Judith,

I think you have summarized perfectly.. Thanks.

[ldt5205]

Incredible!!!
Is there any bank issuing such a lc.
L/C expired is not a discrepancy but non existence of credit.
No protection will be gained!!!!

[MMM]

Dears

As long as long this clause satets on LC all discrepancies are accepetable except presentation after expiry date

MM
CDCS

[shahriar]

document missing is a discrepancy and a discrepancy is just discrepancy. so theoretically its also waived.

ok i found the following somewhere very reliable

To allow missing documents would allow the beneficiary to merely present a draft and claim payment, which cannot be correct. The condition includes the words "in the documents" referring to the fact that the stipulated documents must be presented.

though the clause is slightly different, i could see the basic. so brother nesar, you win!

[nesarul]

Dear shahriar,
I share with you my logic behind my posting [just for sharing with you to check whether my logic is in right track or not...]
When an issuing bank issues Documentary credit, it extend its irrevocable obligation towards other who will involve according to its instruction under a particular letter of credit transaction.
By mentioning such type of clause in the credit, Issuing bank eschews [emphasis added] is right to examine document for complying presentation at the time of issuance of credit [sub article 7(b)]
Still receiving whole set of documents is very much within its irrevocable right.
Consequently, If we forgo it [irrevocable right] what else remaining for us to discuss, thats why i uplift it.
,
emphasis on logic is far more important than win a single game...................
nesar