Article

Factual Summary: In order to obtain necessary financing from Chinese banks for its factory construction, equipment purchase and operating capital, Borrower was required to provide a Standby LC (Standby) as security for repayment accordingly, it signed a financing guarantee agreement with the Issuer, providing that Issuer would issue standby in an amount of no more than USD $6,500,000. The Agreement provided that it was subject to English law.

On Applicant's request under the Agreement, Issuer issued a one-month Standby in the amount of US$6,500,000 payable to Beneficiary if it was subsequently requested. The standby provided that: when the beneficiary, during the Oct 18, 1999 to November 25, 1999, shows Issuer (1) a copy of the billhead requesting the Issuer to pay the total amount no more than US$6,500,000 upon demand at sight in accordance with Standby LC, and (2) a certificated signed by two authorized officials of Beneficiary stating that Applicant has failed to fulfill the obligation to pay the principal, interests and legal fees as prescribed in the loan agreement, Issuer shall reasonably honor all documents in conformity with the Standby at any time from the release day of the Standby LC to the expiry day. The Standby was subject to UCP500.

Subsequently, Beneficiary sent a beneficiary's certificate attached with instructions for payment to Issuer, requesting Issuer to pay the total amount of US$4,899,669.72 within the specified time. The Beneficiary's certificate complied with the terms of the Standby. Upon receiving the certificate, Issuer sent a letter to Applicant, stating that Issuer had received a demand from Beneficiary and requesting Applicant to confirm the instruction for payment. The letter also required Applicant to pay Issuer US$4,899,669.72 in immediately available funds.

Issuer subsequently paid the Beneficiary US$4,899,669.72 and Applicant paid the Issuer the commitment fee of US$157,99 for the unused part of the guaranteed financing and US$8,125 as the operation fee. The Issuer paid part of the Issuing Charges of the Standby LC, with remaining unpaid amount of US$5,563.94.

After repeated demands by Issuer, Applicant failed to reimburse Issuer. Issuer sued Applicant for reimbursement. The trial court ruled in favor of Issuer.

Legal Analysis:

Applicable Law, Conflict of Law; Law, Applicable: The Agreement provided that the applicable law was English law and the Agreement should be interpreted under English law. According the General Principles of the Civil Law of the People's Republic of China, parties involved in a contract with foreign elements can choose the applicable law to resolve disputes over the contract. Under English law, parties of the contract have the right to choose the applicable law of the contract. English law can be applied through their choice. If the loan contract or the guarantee provides that the contract shall apply the English law, then English law shall be applied as the substantive law to decide the case. Therefore, parties in this case have the right to choose English law as the proper law applicable to the Agreement.

Breach of Contract: Under English law, if it is proven that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents. L'Estrange v F Graucob Ltd [1934] 2 KB 394. In this case, both parties should perform in accordance with the Agreement. The Issuer issued the Standby and paid Beneficiary upon demand. However, Applicant did not reimburse Issuer, which constituted the breach of contract.

Reimbursement: Under English law, if the guarantor provides the guarantee upon the debtor's demand, the guarantor has an implied contractual right to get reimbursed for the amount paid by the guarantor to the creditor. A party of the contract is entitled to reimbursement if the party pays or takes the responsibility based on the request or authorization of the other party, the duty to reimbursement is implied in the request or authorization.

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