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Note: In connection with Able Engineering Co.'s (Contractor) conditional acceptance of a contract with Widevelop Ltd. (Sub-Contractor) to design a "ball catching fence" subject to the approval of a government architect, Contractor tendered a deposit to Sub-Contractor. The conditional acceptance also required Contractor to provide two standby letters of credit in favor of Sub-Contractor within two weeks. Contractor did not do so within two weeks after the conditional acceptance, maintaining that it was not required to open the letters of credit until government approval had been obtained. When approval was not obtained in four months, Sub-Contractor refused to respond to further correspondence or enquiries until the standbys were issued.

Contractor sued Sub-Contractor to recover the deposit. Sub-Contractor counterclaimed, alleging that Contractor had breached the contract by failing to issue the letters of credit within 14 days. The High Court of the Hong Kong Special Administrative Region Court of First Instance, Burrell, J., granted judgment for Contractor and dismissed SubContractor's counterclaim.

After concluding that the acceptance was conditional, the Judge stated that "[Contractor] was under no such obligation [to issue letters of credit] until the condition precedent had been satisfied. The [Sub-Contractor]'s submission that it would not actually have received any money by the issuance of the letters of credit, merely a guarantee of payment, therefore [Contractor] should have issued them, is not the point."

The Judge further stated that "[t]he same argument would have also applied even if [Contractor] had, in fact, issued the two letters of credit. Until the condition had been fulfilled any payment or act in furtherance of the parties' commercial relationship was reversible under the principle of restitution."

Comment:

While the Judge used the word "issue" here, "open" is more proper because contractor is the applicant, rather than the issuer.

[JEB/njh]

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