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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2008 LC CASE SUMMARIES
Civil Judgment (2002); Jin Gao Min Si Zhong Zi No. 5; Tianjin High People's Court [China] Abstracted by JIN Saibo and CHEN Qianq*
Topics: Independence; Fraud Exception; Counterfeit Documents; Antedated Bill of Lading; Reasonable Time; Court Order Suspension of payment under LC (injunction); Criminal Offenses;
Type of Lawsuit: Beneficiary sued Issuer for wrongful dishonor.
Parties: Plaintiff/Respondent/Beneficiary - Beijing Shenglun International Trade Co., Ltd. Defendant/Appellant/Issuer - Industrial Bank of Korea
Underlying Transaction: Sale of frozen puffer fish.
LC: Irrevocable LC for US$72,450. Subject to UCP500.
Decision: The appellate court rejected the appeal of Issuer, and affirmed the decision of trial court in favor of Beneficiary.
Rationale: An issuer cannot excuse its obligation on the basis of LC Fraud unless it proves the existence of the fraud.
Article
Factual Summary: Issuer issued an irrevocable LC to the Beneficiary. Subsequently, the Issuer amended the LC three times with the consent of the Beneficiary. The presenting Bank of the Beneficiary mailed the full set of documents to Issuer. After receiving these documents, the Issuer neither paid nor dishonored them within 7 banking days. In response to a request from presenting Bank, Issuer replied that it would not make payment due to a Court Order of Freezing of the payment of LC (injunction). The Beneficiary sued the Issuer for wrongful dishonor. The trial court granted judgment for the Beneficiary. On appeal, affirmed.
Legal Analysis:
1. UCP500: The appellate court noted that the LC expressly provided that it was subject to UCP500. Therefore, it applied UCP500.
2. Independence: In accordance with UCP500 Article 3(a), UCP500 Article 4 and UCP500 Article 14(b), credits are independent from underlying transaction. Namely, the Issuer must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the credit. In this case, the Issuer did not indicate any discrepancy within 7 banking days after receiving the documents. Therefore, the court concluded that Issuer is obligated to pay as the dispute about the underlying transaction cannot justify dishonor.
3. Fraud of Credits: The appellate court noted that the Bill of Lading was signed by carrier, and appeared on its face to be complying with the terms and conditions of LC. There was no evidence to prove the documents were counterfeited. In addition, as to the consent of the buyer (applicant under LC) who issued the letter of guarantee to the carrier about the antedated bill of lading, based on the Evidence Rules and evidence of present case, it is more persuasive evidence to prove that the antedated BL is proved by the buyer before it is issue. Therefore, the court concluded that the Beneficiary had not committed an LC fraud. The appellate court further concluded the issuing bank apply to move the present case to the police department to initial criminal investigation is wrong and then the appeal court rejected the Issuer's application
[JS/CQ/ec]
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.
* JIN Saibo is partner of Commerce & Finance Law Offices. He may be reached at: jinsaibo@tongshang.com. Assisted by CHEN Qianq.