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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2007 LC CASE SUMMARIES Civil Judgment (2004); Yi Zhong Min Chu Zi No. 105; Tianjin First Intermediate People's Court [China] Abstracted by JIN Saibo and HUANG Xiaojing*
Topics: Issuing Bank and Transferee Beneficiary; Discrepancies; Dishonor; Credit Fraud; Fraud Exception; Jurisdiction; UCP500; UCP500 Article13(b); UCP500 Article14(d)(i); Seven Banking Days; Independence
Type of Lawsuit: Transferee Beneficiary sued Issuer for wrongful dishonor.
Parties: Plaintiff/Transferee Beneficiary- Dalian Zhongken Yuanxin International Trade Co.
Defendant/Issuer- Shinhan Bank (Korea)
Advising Bank- Xinhan Bank (Tianjin Branch)
Underlying Transaction: Sale of sport suits.
LC: Irrevocable Transferable LC for US$555,000. Silent as to governing rules.
Decision: The Tianjin First Intermediate People's Court ruled in favor of Transferee Beneficiary for US$555,000, plus interest and losses.
Rationale: In accordance with UCP500 Article 13 and UCP500 Article 14, if Issuer decides to refuse documents, it must inform Transferee Beneficiary to that effect and state the discrepancies no later than the close of the seventh banking day following the day of receipt of the documents. Otherwise, it shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit and is obligated pay.
Article
Factual Summary: Bank issued an irrevocable transferable LC and Beneficiary subsequently transferred it to Transferee Beneficiary. Following delivery of the goods, Transferee Beneficiary presented documents to Issuer through another bank. Issuer did not claim any discrepancies within the period of seven banking days but failed to pay. Transferee Beneficiary sued Issuer for wrongful dishonor. The Tianjin First Intermediate People's Court granted judgment for the Transferee Beneficiary.
Legal Analysis:
1. Jurisdiction: Issuer, a Korean bank, claimed that the Tianjin Branch of Xinhan Bank which advised the LC was not a "representative institution" of it and therefore the Chinese trial court had no jurisdiction. The trial court rejected this argument, holding that although Issuer was not located in China, it had assets to be seized in Tianjin. In accordance with Chinese law, the trial court therefore had jurisdiction.
2. Choice of Law: Although the LC was silent as to governing rules, both parties expressly agreed to be bound by UCP500 during performance under the LC and the trial process. As to the responsibilities arising from failing to pay the credit, since there is no relative binding regulation in UCP500, the laws of China shall be applicable.
3. UCP500; UCP500 Article 13(b); UCP500 Article14 (d)i; Seven Banking Days: Issuer received documents on 29 October 2004 and cited discrepancies on 12 November 2004, and namely, it informed Transferee Beneficiary to reject the documents later than the close of the seventh banking day following the day of receipt of the documents. In accordance with UCP500 Article 13(b) and UCP500 Article14 (d)(i), it shall be precluded from claiming discrepancies and is obligated pay.
4. Credit Fraud, Fraud Exception: Issuer claimed Transferee Beneficiary had committed credit fraud and that the fraud exception should apply. Court rejected this argument and contended that information provided by a party not directly related to issuance of the B/L should not be accepted as evidence.
5. Independence Principle: According to UCP500, credits are separate from the underlying transaction. Consequently, evidence dealing with quality and quantity of goods was rejected by the court.
[JS/ec]
* JIN Saibo is partner of Tongshang Law Firm, assisted by HUANG Xiaojing of Zhonglun Law Firm.
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