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Factual Summary: To pay for the sale of Brazilian soybeans under a contract with Singaporean Seller/Beneficiary, Chinese Buyer/Applicant requested Issuer to issue a deferred LC at 90 days in favor of Seller/Beneficiary. After inspecting the soybeans after they arrived at the discharging port, Xiamen China Inspection and Quarantine Bureau (hereinafter referred as CIQ) found that the soybeans contained poisonous pesticide and then prohibited the import of the soybeans. Contending that the goods delivered were of little value, and Beneficiary conducted fraud on letter of credit, the Applicant applied for an order to suspend the payment under LC.

LC Fraud: In support of its applicant for the order of payment suspension, Applicant provided CIQ Health Certificate issued by Xiamen Entry-Exit Inspection and Quarantine Bureau of P.R. China on 22 April, 2004. Based on the CIQ certificate, the court found that the soybeans delivered by Beneficiary were of no value since they were not qualified as food material by containing poisonous pesticide, and therefore prohibited its import to China. Beneficiary was found to have committed fraud based on the evidence. The order of payment suspension was issued based on the fact that Issuer did not accept the draft, there was no bona fide third party in this LC transaction who has paid for the draft or documents, and there was no evidence showing access to the exemption of fraud exception.

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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, jinsaibo@tongshang.com. Assisted by FENG Jing.