Note: In a complex transaction involving the sale of 70,000 wet metric tons of iron ore fines from India, Elite Brilliant Ltd. (Facilitator) arranged for Mineral Embassy (Supplier) to sell the goods to BST (HK) Ltd. (Initial Buyer) which, in turn, arranged to resell them to Rizhao Zhongrui Native Product Co. (Ultimate Buyer). Payment for both transactions was to be by LC. Standard Chartered Bank (Issuer) issued an LC in favor of Supplier on the application of Initial Buyer based in part on an LC issued at the request of Ultimate Buyer in favor of Initial Buyer, naming Issuer as Initial Buyer's Bank.

Facilitator was to be paid USD 3 per dry metric ton as provided under a reimbursement agreement. The "remarks" section of the agreement stipulated that payment would be tendered within 3 days of the presentation of "clean documents" as required by the LC. When documents were presented by Supplier, there was a discrepancy between the weight certificate and the quality certificate regarding the moisture content and weight. Attempts to correct the documents were made, but Issuer refused the corrected documents presented by Initial Buyer. In the meantime, the price of iron ore fines "had fallen drastically", and some payments were made and arbitration ensued.

Facilitator sought payment of USD 209,183.62 from Initial Buyer under the reimbursement agreement and when payment was refused, sued Initial Buyer. Initial Buyer counterclaimed against Facilitator for a loss of USD 1,977,729 under its new deal with Ultimate Buyer. Initial Buyer moved for summary judgment on the counterclaim and the Court of First Instance, Chu, J., denied the motion.

Initial Buyer contended that Facilitator had breached the reimbursement agreement by failing to provide clean documents and deliver the corrected certificates to Issuer. Facilitator argued that the reimbursement agreement limited the scope of "clean documents" to transport documents such as the B/L, and not the certificates. Facilitator supported this contention with language from the supply contract and broader reading of the "remarks" section of the reimbursement agreement on which Initial Buyer based its claim.

While Facilitator acknowledged that the documents contained discrepancies, it further claimed that Initial Buyer, in order to get the documents from Issuer for the Back-to-Back LC in accordance with UCP600 Article 16 (Discrepant Documents, Waiver and Notice), had agreed by email to waive the discrepancies if Facilitator sent the corrected certificates. Facilitator also noted that very often presentations under LCs contain discrepancies, which applicants frequently waive. Initial Buyer argued that it made no such waiver, which it claimed would have required a letter of indemnity or additional cash deposit that it could not afford to pay. However the Judge found there was no evidence that Issuer would require a letter or deposit.

The Judge found that Facilitator's defense on the waiver had merit, given the emails and surrounding circumstances, and raised credible trial issues which it should have leave to defend.



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.