International trade finance law
- In September 2015, B & Co. entered into a CIF sales contract with S Co. for the sale of 3,000 metric tonnes of Chinese Wheat bran pellets in bulk at US$200 per MT, delivery to be completed during the month of December 2015. The contract stipulated the following quality requirements: “Moisture max 13.5% – Protein Min 12.0% Ash Max 7.0% –Free from live and dead insects – Pellet’s diameter 6–12mm – Pellet’s length 20–30MM 2.Quantity: 3,000 M/T (10% M/L)” but did not mention any certification requirements. Payment was stipulated as at sight by irrevocable confirmed letter of credit. Nothing further was stated in the contract of sale as to the documents required but the contract stipulated that quality issues would be addressed by reduction in price and would not entitle the buyer to terminate the contract.
B & Co. instructed its bank in Liverpool, UK Bank, to open an irrevocable confirmed letter of credit in favour of S Co. in China in respect of the purchase and shipment to the United Kingdom of “3000 tonnes of Chinese Wheat bran pellets in bulk” for a maximum of US$600,000. The letter of credit was advised to S Co. through UK Bank’s correspondent in Shanghai, SA Bank, which also agreed to add its confirmation to the credit. The letter of credit was issued under the UCP 600 and available at the counters of SA Bank until January 11, 2016. It was payable at sight after checking and acceptance by SA Bank of the following documents, to be delivered within 15 days of Bill of Lading date.
The credit is payable against presentation of:
(i) a duly signed commercial invoice (in triplicate) clearly describing the goods (quality and quantity) and price;
(ii) a full set of clean on-board bills of lading evidencing shipment CIF from Shanghai to Morpeth/Birkenhead of 3,000 tonnes (More/Less 10%) of Chinese Wheat bran pellets by 31 December 2015 at the latest;
(iii) two stamped certificates of insurance covering carriage from port warehouse to port warehouse;
(iv) a certificate of origin issued by the local Shanghai Chamber of Commerce confirming that the wheat bran was grown and pellets produced in China and that they are 2015 produce; (v) a certificate of analysis issued by independent inspectors confirming that the wheat bran pellets have “Moisture max 13.5PCT – Protein Min 12.0PCT –Ash Max 7.0PCT – Fiber Max 12.0PCT –Free from live and dead insects – Pellet’s diameter 6–12mm – Pellet’s length 20–30MM”.
The pellets are shipped to the United Kingdom and S Co presents the documents required under the letter of credit to SA Bank on December 20th. SA Bank notices the following:
(i) the commercial invoice is not signed, and only two copies are tendered which refer to the goods simply as “Chinese wheat grain pellets”. The price is stated as US$540,000;
(ii) the bill of lading is for an amount of 2700 metric tonnes and it refers to the goods as “Wheat bran pellets”; it is marked “Freight fee paid” and dated December 10th but indicates goods were on board on 2 December; it stipulates the destination port as Birkenhead;
(iii) a policy of insurance has been tendered dated 12 December 2015 which is for an amount less than the amount of the credit;
(iv) the certificate of origin confirms that the wheat pellets were processed in China but not that the wheat was grown there or the year of their production, although the certificate of analysis (below) clearly states that the pellets are 2015 Chinese produce;
(v) the certificate of analysis was issued and signed by one inspector from the Agriculture Department of the University of Shanghai and confirms the specification of the pellets as per the credit, but B & Co. has notified UK Bank that ithas reason to believe that these figures may be inaccurate and therefore contain material misrepresentations. UK Bank has communicated this to SA Bank
SA Bank notes that although the invoice does not contain a full description of the goods, a compliant full description was given in the certificate of analysis.
Advise SA Bank ensuring that you:
- Give clear reasons for your recommendation whether SA Bank should accept the documents or not;
- Advise SA Bank of the consequences of accepting a non-complying presentation or rejecting a complying presentation (including a re-submission);
- Advise what assurances it should get from S Co; and
- Advise SA Bank as to the appropriate actions it should take (and why), including timeframes, should it decide to reject the presentation.
In giving your advice you may assume that English law will apply to all aspects of the relationships.