Article

Factual Summary: Issuing Bank issued a commercial LC through Advising Bank. When its presentation was refused by Issuer, Beneficiary sued the Issuer and Adviser in the Jiangsu High People's Court. Issuing Bank challenged the court's jurisdiction, arguing that the special procedures for foreign-related cases under the Civil Procedure Law of People's Republic of China ("CPL") should apply as the dispute fit into the definition of foreign-related case under the CPL. The challenge was based on Article 243 of the CPL that stipulates the choosing of forums in foreign-related cases. The issuing bank argued that, since (1) the subject matter of the dispute was outside the territory of P.R China, (2) it has no representative entities in P.R China and (3) the acceptance and payment of the LC and the draft there under was made in Hong Kong, i.e. the place of conclusion and performance of the contract was Hong Kong, the court has no jurisdiction according to Article 243 of the CPL. The court decided the challenge was groundless and overruled it.

Legal Analysis:

1. UCP500: The court ruled that, since the LC stipulated that it was subject to UCP500, UCP500 would be the basis for the addressing of the dispute.

2. Contract; UCP500, Article 2: The court reasoned that LC definition provided in UCP500, Article 2 shows that an LC is a bank's promise to pay on condition that the beneficiary presents documents in compliance with its terms. It concluded that, therefore, the LC is a special contract, i.e LC contract. The court also referred to the ICC Guide to Documentary Credit Operations for the UCP500, which it regarded as clarifying the contractual nature of LC transactions.

3. Place of Performance; Jurisdiction: The court ruled that the beneficiary's documentary presentation and the Issuer's payment under the LC are both performance of the LC contract. It concluded that the location of the beneficiary, when it presented the documents through the adviser, constituted such a place of performance, thus rendering the court's jurisdiction over the case proper, according to the CPL provisions regarding foreign-related cases.

Comments by Jin Saibo:

1. The Jiangsu High People's Court treated the LC as contract and accordingly decided on the jurisdiction, which is very special.

2. The Jiangsu High People's Court was apparently misled by the translation in the Chinese version of the UCP500 it referred to. The Chinese version that the court cited in its decision translated the term "arrangement" in UCP500, Article 2 into "agreement", leading it to treat the relationship between issuing bank and the beneficiary as of a contractual nature.

3. It is noteworthy that in its decision the court referred to the ICC Guide to Documentary Credit Operations for the UCP500, which does not constitute an official publication of the ICC Commission on Banking technique and Practice. The court was incorrect in referring to the publication as authoritative.

4. Nonetheless, it is no surprise that a Chinese court treated an LC as contract as such a perspective has not been uncommon in continental law.

[JS/ees]

*Mr. Jin, a partner of Beijing Yiwen Law Firm PRC., is known throughout the world for his work in the evolution and harmonization of China LC law with international standards. His email is jinsaibo@sina.com.

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.