Article

Note: In order to purchase a quantity of rosewood, Shen Fat Furniture (Applicant) caused an LC to be issued by Dah Sing Bank (Issuer) in the amount of US$545,454.56 in favor of an intermediary (Beneficiary) and also made a cash deposit of US$116,805 to Beneficiary.

Applicant purchased rosewood, but instead received cheap timber logs worth only a fraction of the value of rosewood. Beneficiary purchased the wood from a supplier, but did not check the wood before Applicant received it. When Applicant discovered the cheaper wood, it sued Beneficiary and Beneficiary's Principal along with two other parties and obtained an ex parte Mareva injunction to stop Issuer from honoring the LC.

At the subsequent hearing, the Court of First Instance, Deputy High Court Carlson, J., lifted the injunction for Beneficiary's Principal only, and recognized that the ex parte injunction was too broad, stating, "there ought to be some injunctive restraint placed upon [Beneficiary's Principal] in relation to the proceeds of the letter of credit, given the bank's, at present, unbending position that it will pay out once the injunction goes. I suspect, in these circumstances, that a specific limited injunction should be put in place, rather than an undertaking, the terms of which I will gladly hear counsel on."

Beneficiary's Principal had argued that it was not responsible for the fraud, but rather that it had been defrauded too and acted to mitigate Applicant's losses. In order to mitigate Applicant's losses, Beneficiary's Principal had requested Issuer stop payment on the LC, but the bank refused and indicated that it planned to honor the LC once the court lifted the injunction. In a separate action in Vietnam, Beneficiary and Beneficiary's Principal sued the fraudulent supplier.

[JEB/dep]

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.