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Note: Transpacific Trading Company Ltd. (Seller/ Beneficiary), a Canadian lumber exporting company and predecessor of plaintiff, JTG Management Services Ltd. located in British Columbia, Canada, agreed to sell three shipments of lumber from Canada to a Chinese buyer, Nanjing Overseas Wood Company Ltd. (Buyer/Applicant). At Buyer/Applicant's request, Bank of Nanjing Co. Ltd. (Issuer) issued a commercial letter of credit subject to UCP600 in the amount of USD 742,875.29, in favor of Seller/ Beneficiary. The LC "did not contain either a forum selection or a choice of law provision," but it provided that payment would be available upon "presentation of the required documents ... through [Bank of Montreal]" ("Seller/Beneficiary's Bank"), the "advise through" bank, or through Issuer's advising bank in Canada, the Royal Bank of Canada (Advising Bank).

After a dispute over the underlying contract was resolved in a Chinese court, Seller/Beneficiary requested payment from Beneficiary's Bank for the second and third shipments of lumber by presenting documents to Issuer in China. Issuer refused to honor the LC, alleging that the documents did not list the same volume of lumber as provided in the LC. Seller/Beneficiary revised the documents and made a second presentation to Issuer. However, Issuer neither honored the credit nor returned the documents, alleging that they were still discrepant. Seller/Beneficiary sued Issuer in British Columbia, Canada for wrongful dishonor. Issuer moved to dismiss the case for lack of territorial jurisdiction. The British Columbia Supreme Court, Mainsonville, J., denied Issuer's motion.

Issuer argued that the court lacked jurisdiction because Issuer and Buyer/Applicant were both based in China, the refusal of documents occurred in China, and the dispute over the underlying contract was resolved in a Chinese court. The Judge, however, ruled that there was presumptive territorial competence to hear the case because, under s. 10(h) of the Court Jurisdiction and Proceedings Transfer Act, the contractual obligations at issue were, to a substantial extent, performed within the court's jurisdiction, as "[t]he advising bank was in British Columbia, the advise-through bank was in British Columbia, and negotiation and receipt of payment were to take place at a bank in British Columbia." The LC stipulated that "the place of expiry of the letter of credit was Canada; presentation was to take place through [Seller/Beneficiary's Bank] in Canada; negotiation and payment on the letter of credit was available with "any bank" and, without limiting the generality of the foregoing, was available through the [Advising Bank] at branches ... which included Vancouver." Even if the presumption of territorial jurisdiction were not established, the Judge, citing Canadian jurisprudence, found that the facts of the case created "a real and substantial connection to British Columbia," which Issuer had yet to refute. The Judge stated that the proper law of the contract could determine territorial competence. Referring to Canadian Conflict of Laws, the Judge noted: "the proper law is likely to be that of the advising or confirming bank where payment is to be made under the letter of credit."

Issuer also argued that the court should dismiss Seller/Beneficiary's case on the ground of forum non conveniens, asserting that the majority of witnesses "potentially required at trial" were in China, such as employees of Issuer, Buyer/Applicant, or the Chinese port authorities, who would require translators to give affidavits. Issuer also argued that the Chinese courts partially reviewed the matter in the dispute over the underlying contract, and that the court should avoid multiple proceedings. The Judge rejected Issuer's argument, considering eleven separate factors under s. 11(2) of the Court Jurisdiction and Proceedings Transfer Act. With regard to convenience for witnesses, the court noted that Seller/Beneficiary's four identified witnesses were employees of the Seller/Beneficiary and Seller/Beneficiary's Bank, and that most of Issuer's identified witnesses were fluent in English and required no translation. Further, the Judge noted that Issuer would have its proposed witnesses testify on the underlying contractual dispute, which, under the autonomy principle, had no bearing on a suit for wrongful dishonor.

Comment:

In the absence of a choice of law or forum clause, a straight credit such as the one in this case is subject to the law of the Issuer at the place of issuance, namely China. This is no indication that there was a confirmation nor any indication of any other contact with British Columbia apart from other provinces in Canada; or, indeed, locations in North America.

[KCM/JL/mjb]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.