Article

Note: Unable to obtain a commercial LC to pay for the purchase of fabric, Daily Fine Industrial, Ltd. (Buyer) arranged with Profit Winning (Surety) for it to obtain one. Buyer paid HK$ 650,000 to Surety to cause it to apply to Bank of China (Issuer) for issuance of an LC in the amount of US$ 82,141.50 in favor of Lai Tak Enterprises, Ltd. (Seller/ Beneficiary).

Apparently, the LC required documents to be cosigned or provided by Buyer which Buyer had not delivered despite several requests. As a result, Beneficiary was unable to draw on the LC. Buyer had complained regarding quality and Seller sent replacement fabric. Two years later, Seller demanded payment from Buyer. Buyer offered to pay 25% of the amount due by installments. Rejecting this offer, Seller sued Buyer for breach of contract by non payment.

The Hong Kong District Court, Kwan, J., gave judgment in favor of Seller.

(1) The Judge rejected Buyer's argument that re won a novation of the contract, under which Surety replaced Buyer as the counter-party. The Judge stated that such an event was inherently impossible without Seller having agreed to a change of parties, a fact which Seller denied.

(2) The Judge noted that the Buyer had sent unsigned copies of the cargo receipt and inspection certificate to Seller, who was thus unable to claim payment from Issuer as required under the LC.

(3) Buyer also argued that the failure of the Seller/ Beneficiary to draw on the LC constituted laches and discharged Buyer from its obligation on grounds that the LC was conditional payment. The Judge observed that the LC was a conditional payment, and not an absolute payment that discharged Buyer from its obligation to pay. As a conditional form of payment, Seller/Beneficiary would be required to first seek payment from the Issuer. However, since the requisite documents had not been made available, Seller/ Beneficiary could not claim payment from Issuer.

[JEB/jsc]

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