Article

Factual Summary: On behalf Buyer, who was unable to apply for an LC directly under applicable foreign exchange regulations, Applicant obtained two LCs to cover the sale of laptop computers. The LCs required presentation of a cargo receipt issued by an entity named "Fortune System". The parties agreed that the computers would be delivered in July 1998 with Beneficiary giving 60 days credit with payment thus being made by LC in September 1998.

Seller delivered the first installment to an address to which it had been directed in exchange for stamped and signed cargo receipts. The balances were subsequently delivered to the requested officer of Fortune System in exchange for cargo receipts. When the cargo receipts were checked prior to presentation, however, it was discover that the LC numbers had been switched. Where Fortune System's principal was contracted, he indicated that he was traveling and authorized Beneficiary to have a chop made and to correct the documents. Seller then presented documents which were delivered on Thursday, 1 October 1998. On Monday, 5 October 1998, Issuer asked Applicant to waive discrepancies which it refused to do so on Wednesday, 7 October and on Friday, 9 October, the Issuer refused the presentation. Beneficiary sought and obtained a DOCDEX opinion in its favor, and when Issuer continued to refuse to pay, brought this action for wrongful dishonor. Applicant was joined and sought relief from Beneficiary for breach of the underlying contract and obtained an injunction in a separate proceeding in the PRC having alleged fraud. The trial court entered judgment in favor of Beneficiary against Issuer and dismissed Applicant's counterclaim against Beneficiary.

Legal Analysis:

1. Forged Cargo Receipts: Finding that Beneficiary acted with authority in correcting the cargo receipts, the court rejected Applicant's claim that Beneficiary had committed fraud.

2. Discrepancy: Although Issuer had asserted six discrepancies in its notice of refusal, it relied on only one at trial, namely "THE CHOP OF FORTUNE SYSTEM IN CARGO RECEIPT SHOWING DELETION WITHOUT AUTHENTICATION". Both the heading and signature of the cargo receipt bore the name "Fortune Systems" with the "S" deleted in order to make the name appear as "Fortune System". The deletion, however, was not authenticated, the shop having been located by the correction of the LC numbers. The Issuer called the court's attention to ISBP ¶¶ 9 and 12. Beneficiary contended that, even had the "S" remained, the document would not have been discrepant and that the added chop in any event authenticated the deleted "S". Noting that one of the three receipts did not leave an "S" to be excised and that the chops were identical, the court concluded that, taken together, the three documents were issued by the same issuer on whose behalf the chop was added. The court stated "I fail to see why such a single authorised signature now should be castigated as insufficient; the authorised signature appears within the confines of the rectangular chop, and I do not consider that the deletion of the 'S' required separate authentication." It concluded that only material corrections required authentication, nothing that the DOCDEX Panel also concluded that the authentication was sufficient. The court also ruled that the presence of the "S" itself would not have been a discrepancy.

3. Reasonable Time; Notice of Refusal, Timely; UCP500 Article 14(e); Preclusion: Beneficiary argued that the notice of refusal was not given within a reasonable time in that five days was excessive for examining the documents especially in light of the pending expiration of the credit, the closure of the bank for four days due to a national holiday in the interim, and the fact that the discrepancies were initially identified on the same day as receipt. The court's attention was also called to the period between the decision to refuse the documents and the time when the message was sent out. The court noted that since the documents were not discrepant, it was not necessary to determine if Issuer delayed in alerting Beneficiary of the Documents rejection. However, the judge noted that were the issue material, "as a matter of fact I should not have found, on the evidence before me, that in this case the bank had fallen foul of Articles 13(b) and 14(d)(i) of the UCP 500." Moreover, the judge reiterated his ruling in Koninklijke Sphinx BV v. Rabobank Nederland [2004 HKCU LEXIS 437 (Hong Kong)] that UCP500 Article 13 time limits do not fall within the preclusion rule of UCP500 Article 14(e) and that "the only timing issue that could trigger the preclusionary effect of Article 14 is the failure to give notice of a decision to reject presentation in accordance with Article 14(d)(i), that is 'without delay but no later than the close of the seventh banking day following the day of receipt of the documents.'"

4. Independence: Issuer argued that since Beneficiary was required to give notice to it that the authentication on the cargo receipt was added by its employees acting with the authorization of the company that was to sign the cargo receipt and should have provided the bank with proof of its authorization, its actions were materially misleading. Noting his conclusions that the Beneficiary had acted with the authorization of the company that was to sign the cargo receipt in authenticating the corrections, the judge indicated that there was no need for the bank to be given notice of the agency. "The bank deals solely in documents. On the face of those documents there was compliance with the terms of the credit, and that, in my judgment, is the end of this particular story."

[JEB/rlf]

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