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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2014 LC CASE SUMMARIES 2014 WL 7414 (CFI), [2014] HKEC 1436 [Hong Kong]
Topics: Compliance; Trade Terms
Type of Lawsuit: Beneficiary sued the Issuer for wrongful dishonor of LC.
Parties: Plaintiff/Beneficiary: Chiyoda Steel Co Ltd. (Counsel: Mr. C. Y. Li, SC, instructed by Fred Kan & Co.)
Defendant/Issuer: Bank of China (Hong Kong) (Counsel: Mr. Richard Khaw, instructed by K W Ng & Co)
Applicant: Cheongfuli (Hong Kong) Co. Ltd.
Advising Bank: Sumitomo Mitsui Banking Corporations (SMBC)
Underlying Transaction: Sale of steel deformed bars by Chiyoda of Japan to Shinwon and Co. Ltd. of Korea.
LC: Irrevocable commercial LC for JPY ¥ 161,757,648.00. Subject to UCP600.
Decision: The Court of First Impression, Poon, Deputy Judge in chambers, citing the English Court of Appeals case J. H. Rayner & Co. Ltd. v. Hambro's Bank Ltd. 1 KB 37 (1943), denied summary judgment to the Beneficiary, and dismissed Beneficiary's summons, and awarded costs to Issuer.
Rationale: Issuer must review documents presented in accordance with the terms of a LC for strict compliance with LC terms. A tender of documents requires the bank promptly to accept or reject them for strict compliance. It is impossible for a banker to be aware of the knowledge of customs and terms for every industry for which he issues a LC. For a banker to be imputed with the knowledge that "KSD3504 SD400" is a steel grade is too high a standard.
Article
Factual Summary: To pay for 3,000 metric tons of steel, Bank (Issuer), issued a commercial LC subject to UCP600 in favor of Seller/Beneficiary. The goods were described as "Deformed Bars, KSD3504 SD400." The LC required presentation of "Detailed packing list in 1 original and 1 copy showing steel grade, net weight and gross weight and packing: Mill's standard export packing. (emphasis added [in text of opinion])"
Beneficiary presented a packing list with columns for Description of Goods, Quantity, Bundles, Net Weight (MT), and Gross Weight (MT). The description of the goods in the packing list was "Deformed Bars KSD3504 SD400." Issuer refused to honor the LC, claiming that the packing list failed to show the steel grade.
Claiming that the description of the goods did reflect the steel grade, namely "KS" in the specification "Deformed Bars KSD3504 SD400," denotes the type of steel bar used, Beneficiary sued Issuer for wrongful dishonor and moved for summary judgment, which was denied.
Legal Analysis:
1. Document Presentation; Imputed Knowledge to Issuer; Strict Compliance
The packing list supplied by Applicant and presented by Beneficiary indicated that the supplied steel was "KSD3504 SD400" but did not indicate that this designation referred to the steel grade. Beneficiary demonstrated that denoting "KSD3504 SD400" on the packing list indicated the steel grade of the goods. At no point, however, was Issuer informed that the denotation indicated the steel grade, and even if Issuer had been so informed by Advising Bank, or the Beneficiary, the court noted that it had no duty to take that assertion "at its face value and to assume a risk of litigation with the Applicant."
The court stated that the Issuer must examine tendered documents to determine whether they appear on their face to comply with the presentation terms of the LC and noted the presented documents are expected to meet the standard of strict compliance with terms of the LC. It also stated that an issuer must promptly accept or reject the presented documents without conducting prolonged inquiry into their sufficiency.
The court stated that "In the present case, there is undisputed evidence that the steel grade has in fact been shown on the [packing list]. However, on the face of the [packing list] and other documents presented, there is nowhere saying that the description "KSD3504 SD400" actually stands for the steel grade." It stated that the question was "whether the bank should be expected [to know] the information required under the [LC] is shown on the document presented when it is not immediately apparent on the face of the document that it is."
Comments:
Question: What if the term "KSD 3504 SD400" appeared under a column in the packing list entitled "Steel Grade"?
[MJS]
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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.
This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.