Forgot your password?
Please enter your email & we will send your password to you:
My Account:
Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2007 LC CASE SUMMARIES Civil Ruling (2006) Gan Li Zhong Zi No.43; Jiangxi High People's Court [China] Abstracted by JIN Saibo and SONG Wei of Zhonglun Law Firm *
Topics: Underlying Contract/Transaction; Master LC; Transferable LC; Independence; Arbitration; Lawsuit Involving Foreign Interests; Jurisdiction
Type of Lawsuit: Second Beneficiary/Final Seller sued First Beneficiary/Intermediate Seller and Transferring Bank for improperly effecting payment of goods and interest.
Parties: First Appellant/First Defendant/First Beneficiary/Intermediate Seller- Shanghai Ever International Corporation Limited
Second Appellant/Second Defendant/Transferring Bank- Industrial and Commercial Bank of China, Shanghai Branch
Appellee/Plaintiff/Second Beneficiary/Manufacturer- Hua Yi Electrical Appliance General Company
Buyer - Dubai Gulf Gate Economic Consultant Corporation
Underlying Transaction: Sales of Refrigerators.
LC: LC for US$138,384. Subject to UCP500.
Decision: Jiangxi High People's Court rejected the First and Second Appellant's appeal of Jurisdiction sustaining the original ruling of Jingdezhen Intermediate People's Court (Civil Ruling (2006) Jing Min Er Chu Zi No.5) that it had jurisdiction over the disputes with respect to both of the underlying transaction and the Transferable LC.
Rationale: The underlying contract performed by First Beneficiary/Intermediate Seller and Second Beneficiary/Final Seller is the contract of No. HYEIE-0415/04EVER without an arbitration clause, therefore the court had jurisdiction over the dispute. In addition, LC is a conditional guarantee of payment for the underlying transaction and the two related disputes regarding the underlying transaction as well as the LC transaction can be tried together. As a result, the trial court has the jurisdiction over the disputes of this case.
Prior History: Civil Ruling (2006) Jing Min Er Chu Zi No.5; Jingdezhen Intermediate People's Court. Hua Yi Electrical Appliance General Company sued Shanghai Ever International Corporation Limited and Industrial and Commercial Bank of China (Shanghai Branch) seeking a decision for effecting payment of goods as well as for compensating for loss of interests caused by Defendants' overdue payment. Jingdezhen Intermediate People's Court heard the case for first instance. In trial, both of First and Second Defendant raised their objection against the court's jurisdiction. This objection was rejected by the trial court. First and Second Defendants appealed.
Article
Factual Summary: Intermediate Seller and Buyer contracted for the sale of electric appliances including refrigerators. Tajikistan: Bank (Issuer) issued a Transferable LC (hereinafter referred to as "the Master LC") in favor of Intermediate Seller for US$138,384 nominating Transferring Bank to affect transfers.
In order to fulfill the contract, mentioned above, Intermediate Seller entered into a sales contract with Manufacturer for production of refrigerators. The content contained an arbitration clause providing that all disputes arising from it would be resolved by arbitration in China pursuant to the Arbitration Rules of China International Economic and Trade Arbitration Commission.
Based on the Master LC and at the application of Intermediate Seller, Transferring Bank advised a Transferred LC in favor of Manufacturer/Second Beneficiary. It stated: "We will effect payment to you only after we receive the proceeds from the issuing bank of the Master LC."
After shipping the goods, Manufacturer/Second Beneficiary submitted the required documents to Transferring Bank which forwarded them to the Issuer. However, the Issuer did not honor the Master LC which prevented the Transferring Bank from modifying payment to Second Beneficiary.
Subsequently, Second Beneficiary sued First Beneficiary/Intermediate Seller and Transferring Bank seeking payment as well as for loss.
Both First Beneficiary and Transferring Bank objected to the jurisdiction of the court, arguing that the trial court did not have jurisdiction over the case.
First Instance: Decision of Jingdezhen Intermediate People's Court
The trial court ruled that it had the authority to exercise jurisdiction over the case and rejected both of the objections raised by First and Second Defendant. It concluded that the underlying contract performed by Plaintiff and First Defendant was the one with the number of HYEIE-0415/04EVER which did not contain an arbitration clause. Therefore, the court had the jurisdiction over the underlying contract. Furthermore, it concluded that LC was a kind of guarantee for the underlying contact and in virtue of the co-litigation raised by Plaintiff to Second Defendant; it had the jurisdiction over the LC dispute concerning the underlying transaction.
Second Instance: Decision of Jiangxi High People's Court
In the proceedings of appeal, Second Defendant claimed its allegations as follows: (1) the underlying contract performed by Plaintiff and First Defendant was the one of No. HYEIE-0428/04EVER within which there was an effective and applicable arbitration clause, therefore the trial court did not have the jurisdiction over the underlying transaction; (2) in accordance with UCP500, LC was a separate transaction from the sales contract on which it was based that indicated its nature of independence, so the court could not exercise its jurisdiction over the LC dispute; (3) this was a lawsuit involving foreign interests in several aspects, as a result, the trial court did not have jurisdiction over such a foreign-related lawsuit.
The appellate court supported the conclusion of the trial court that the underlying contract performed by Plaintiff and First Defendant in trial was the contract with the number of HYEIE-0415/04EVER rather than the one of No. HYEIE-0428/04EVER, therefore the arbitration clause included in the latter one could not be applied and the trial court had jurisdiction over the dispute. In addition, LC was a conditional guarantee of payment issued by the bank to the beneficiary and the underlying transaction between Plaintiff and First Defendant as well as the LC transaction between Plaintiff and Second Defendant in trial were related disputes. As a result, the two related disputes could be tried together and the trial court had the jurisdiction over the disputes regarding the underlying transaction as well as the LC transaction.
To conclude, Jiangxi High People's Court rendered its final ruling as follows: The appeal is to be rejected and the original ruling sustained.
* JIN Saibo is partner of Tongshang Law Firm, assisted by FENG Jing and SONG Wei.
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.