Article

Note: Standard Holdings (Seller) had a standing agreement to supply Standard Kitchen (Buyer) with goods. When Buyer failed to pay for the goods that had been supplied by Seller, Seller refused to make any subsequent deliveries. To induce further deliveries, Buyer caused an LC to be issued by the Industrial and Commercial Bank of China (Issuer) on the application of Fuji Decoration and Engineering Co Ltd (Applicant) in favor of Seller/Beneficiary. The LC was in the amount of HK$1,233,681.00 and contained the following terms:

1. Local delivery to the Applicant latest: 10 October 2007;

2. All documents must reach ICBC's counter within 21 days after the date of receipt of goods but within the validity of the LC;

3. Documents included a Cargo Receipt signed by the authorized signatories of the Applicant.

Pursuant to the LC, Seller/Beneficiary delivered goods to Buyer. Applicant faxed Seller/Beneficiary a copy of the cargo receipt for this shipment, but refused to deliver the original Cargo Receipt to Beneficiary for presentment to Issuer. Unable to claim on the LC without the original, Seller/ Beneficiary sued Applicant for the loss of HK$1,223,681. The Court of First Instance, Fung, J., struck the original Statement of Claim, but granted leave to file an Amended Statement of Claim within six weeks.

Seller/Beneficiary alleged that it was induced to make delivery to Buyer because of the LC obtained by Applicant, and that Applicant should be held liable for damages resulting from Applicant's failure to deliver it the original Cargo Receipt to enable it to make a compliant presentation.

Applicant argued that there was not strict compliance with the LC terms which was the fault of the Beneficiary, not of the Applicant, and that Applicant could not be held responsible for this. The court could not find "anything vexatious, frivolous or abusive on the part of the [Beneficiary]" and so, even though the material facts and causes of action pled were lacking, declined to dismiss the case.

Comment:

This case is an apt illustration of the damages to a beneficiary of acting under an LC containing an applicant controlled condition. If so, it should be held to account against the applicant/buyer.

[JEB/krp]

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