Article

Factual Summary: The expiry date of the credit was 12 September 1998. The beneficiary presented the required documents to Issuer through Advising Bank on 11 September 1998. After receipt, Issuer gave notice of refusal to Advising Bank due to six discrepancies. Beneficiary re-presented, and Advising Bank forwarded the amended documents, which were received by Issuer on 21 September 1998. Issuer returned the documents to Advising Bank on 29 March 1999, with a notice of refusal on the ground of the expiration of the credit and the incompliance between documents and the credit.

Legal Analysis:

1. Governing Law:

UCP500 shall apply since the parties hereto agreed it was binding. The trial court erred in applying General Principles of the Civil Law of the People's Republic of China.

2. ICC Banking Commission opinions:

The appellate court noted that ICC Banking Commission opinions, although not the same as the UCP, could be used in adjudication, provided they do not conflict with compulsory law and in the absence of other applicable law, because of their general acceptance worldwide.

3. Expiration; Does Issuer's receipt of documents after the expiry date constitute a continuing performance under the credit? Shall the Issuer undertake obligation after the expiry date of the credit? ICC Banking Commission Opinion R331:

The appellate court indicated that in accordance with UCP500 Article 42(a), the expiry date shall be construed as the time when the effectiveness of the credit ceases. This view is supported by ICC Banking Commission Opinion R331, which states, "In case the credit has expired, the issuing bank has no obligation to check the documents under the requirements of UCP, as its liability and undertaking has ceased." Therefore, Issuer had fulfilled its obligations under credit by checking documents presented and giving refusal notice to Beneficiary within 7 banking days on the first presentation. As the credit was invalid after the expiry date, Issuer had no obligation or liability under the credit as to the re-presentation. The trial court erred in requiring Issuer to undertake the obligation under the credit on the ground that "the receipt of documents by the issuer after the expiry date constitutes a continuing performance."

4. Good faith:

The appellate court also noted that Issuer did not perform with good faith, as it had kept the documents for more than 6 months. However, Issuer's keeping the documents did not release the applicant's obligations to pay the contract price. Moreover, there is no causal link between Issuer's keeping the documents and Beneficiary's damages arising from failing to exchange settlement, because Beneficiary undertook the risk by making delivery with knowledge of the expiration.

Comment from DCW:

Provided the Issuer may keep the documents without Beneficiary's permission or contrary to its instructions, the court should have found that Issuer was free of liability under UCP500 Article 14(e) or by amending the documents.

[JS/LJ/ec]

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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.

* JIN Saibo is partner of Commerce & Finance Law Offices. He may be reached at: jinsaibo@tongshang.com. Assisted by LIANG Jiang.