Article

Note: Supplier, Collina International (Group) Co. Ltd., located in Hong Kong, and Buyer, Shanghai Collina International Medical Beauty Co. Ltd., located in Shanghai, were related companies. In order to pay for cosmetic equipment in U.S. dollars, Buyer had to obtain an LC covering their cost.

To obtain the LC, it approached an authorized importer and exporter, Shanghai Tongji Science & Technology Industrial Co., Ltd. (Applicant), which applied for an LC for US$401,620 issued by Shanghai Agricultural Bank in favor of Casil Clearing, Ltd., a creditor of Supplier. This arrangement was made to secure debts owed by Supplier.

Buyer sent a draft purchase contract to Applicant. Buyer's draft purchase contract listed Beneficiary as the seller and left the name of the buyer blank. Applicant revised that contract and named itself as the buyer. However, Beneficiary did not see either version of the contract until it was sued. Applicant dealt with the owner of Buyer and Supplier on all matters relating to the goods.

Supplier shipped the goods, but, because goods additional to those invoiced were included, the shipment was held up and eventually returned to Hong Kong. Although the shipping documents indicated that the goods were being returned to Beneficiary, Supplier actually received the goods.

During this time, Beneficiary presented documents and the LC was honored, even though Applicant informed Issuer that the shipment had been delayed.

Issuer charged Applicant, which paid and, in turn, demanded reimbursement from Buyer. Companies related to Buyer made partial payments to Applicant, but Buyer defaulted on the balance.

Applicant then sued Beneficiary for the balance paid on the LC. The trial court, Stone, J., entered judgment in favor of Applicant. On appeal, the High Court of the Hong Kong Special Administrative Region Court of Appeal, Rogers, V.P., reversed the judgment of the trial court.

Applicant argued that a contract arose when Beneficiary presented documents and received payment under the LC. In reviewing the trial court's conclusion that this act constituted acceptance of an offer to buy the goods, the appellate court ruled that "the existence of a letter of credit did not, of itself, dictate that there must have been an underlying contract between [Applicant] and [Beneficiary]."

Looking at surrounding circumstances, the appellate court noted that, "[a]t the very least it cannot be said that the submission of the invoice and other documents was consistent only with a contract between the plaintiff and the defendant being implied and inconsistent with there being no such contract."

[JEB/bso]

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