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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2010 LC CASE SUMMARIES Civil Judgment (2000) Jing Zhong Zi No.261 (Sup. People's Ct., 2000) [PRC]; Abstracted by JIN Saibo and YANG Dongqing*
Topics: Negotiating Bank; Surety-Bond; Stop Payment; Freeze; Forged Documents; Fraud; Marine Fraud.
Type of Lawsuit: Applicant sued Issuer in China for the refund of its deposit for issuance of the LC where Negotiating Bank had sued Issuer in France for reimbursement.
Parties: Plaintiff/Appellee/Applicant - Fujian Light Industrial Products Import& Export Group Co.
Defendant/Appellant/Issuer - Fujian Branch of Agricultural Bank of China (Business Department)
Defendant/Sub-branch of Issuer - Mawei Sub-branch of Fujian Branch of Agricultural Bank of China
Underlying Transaction: Sale of oil.
LC: Two commercial LCs for US$1,650,000 and US$l,551,000. Silent as to governing rules.
Decision: The PRC Supreme People's Court reversed the decision of the trial court that was in favor of Applicant.
Rationale: Applicant cannot get back the LC deposit from Issuer until its payment obligation is completely discharged.
Article
Factual Summary: Applicant gave deposits to Issuer for two LCs. Beneficiary then presented the required documents under the LCs to Issuer through Negotiating Bank. After examination, Issuer ascertained that they appeared, on their face, to be in compliance with the terms and conditions of the LCs. Later, Applicant found out that the documents presented by Beneficiary were forged. Applicant sued Beneficiary in China for marine fraud and the Xiamen Maritime Court froze payment under the two LCs. The trial court also ruled that Issuer's obligation under the LCs was discharged. Applicant then sued Issuer for its deposit under the LCs. In addition, the Negotiating Bank sued Issuer in France to claim reimbursement. The trial court ruled in favor of Applicant in light of the above-mentioned effective judgment made by Xiamen Maritime Court. Issuer appealed. The Supreme People's Court reversed.
Legal Analysis:
1. Reimbursement, Obligation to Nominated Banks: Does a Judgment Discharging Payment Obligation Proper When Issuer Remains Liable to the Negotiating Bank?
Issuer must reimburse the negotiating bank when the documents presented are in compliance with the terms and conditions of the LC, especially when Issuer has accepted the credits, which shows a definite undertaking to pay. Therefore, even if another court has made a judgment discharging Issuer's payment obligation because of Beneficiary's fraud, the Issuer's payment responsibility is not discharged. However, if Negotiating Bank loses the lawsuit against Issuer, Issuer must return the deposit.
2. Reimbursement: The deposit for the LC provided by Applicant to Issuer is a type of suretybond to guarantee that Issuer will be properly reimbursed. Issuer has the right to retain it and it cannot be refunded until Issuer's payment obligation is completely discharged.
[JS/YD/ny]
* JIN Saibo is partner of Commerce & Finance Law Offices, jinsaibo@tongshang.com. Assisted by YANG Dongqing. Niu Yue, J.D. Candidate 2012, George Mason University School of Law, assisted in the edits.
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