Note: To pay for the purchase of multi-crystalline solar modules from Solar Energy Technology Company (Seller), CEP Ltd. (Buyer) was to pay five percent of the contract value within seven days of the contract being signed by both parties and 95% of each delivery by an "irrevocable documentary LC". Buyer was required to issue the LCs at least 20 days prior to the delivery of each segment. Clause 7(a) of the contract also stipulated that "all of the terms... should be confirmed in writing by the Seller [before] Buyer applies to the bank for [LC]".

Subsequent to its agreement with Seller, Buyer entered a resale agreement with Sorgenia (Secondary Buyer) to resell the modules. Secondary Buyer opened an LC in favor of Buyer who then transferred the LC to Seller. Seller, however, rejected the transferred LC on the ground that it had never before accepted a transferrable LC. Buyer then promised to provide an LC directly to Seller but Seller required a draft LC at which time the delivery schedule, quantity and shipment details would be advised. Only after this information was forthcoming would the LC be obtained. Bound by the deadline for its sub-sale agreement, Buyer arranged for a direct sale between Seller and Secondary Buyer in lieu of the three party arrangements.

Seller then sued Buyer for breach of contract, seeking damages for lost profit from the transaction and the loss of future business with Secondary Seller. Seller applied for security for costs. The Court of First Instance, Chan, J., ruled that Buyer should post HKD 1.5 million as security.

The Judge considered the likelihood of success on the merits. Seller's defense relied upon the argument that they were not informed of the terms of the transferred LC. Seller claimed that under the agreement Buyer was required to inform it of the terms of the LC and receive Seller's approval before acquiring the LC. Buyer argued that they had informed Seller orally when Buyer's representative visited Seller's factory. Buyer also claimed that the oral communications were verified in an e-mail. Seller argued that since Buyer did not object to the oral communications or to the e-mail, Buyer was barred from demanding strict observance of clause 7(a). Later, in an amended reply, Buyer alleged that they had handed over two hard copies of the transferred LC to Seller's representative and that Seller's representative did not object.



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.