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Note: China Construction Bank (Asia) Corp. Ltd. (Negotiating Bank) purchased three bills of exchange drawn under commercial LCs totaling USD 8,593,720 from C-Star Shipping Co. Ltd. and Kam Fung International Investment Ltd. (Beneficiaries) on the strength of Shanghai Pudong Development Bank Co. Ltd.’s (Issuer) acceptance of the bills. The LCs were issued in Nanjing and the conforming documents were to be presented in Nanjing. When Negotiating Bank presented Issuer with conforming documents, Issuer accepted the documents but informed Negotiating Bank that it could not disburse the funds as there was an injunction prohibiting payment. Negotiating Bank sued Issuer for wrongful dishonor.

The injunction prohibiting payment had been issued in a separate action in Jiangsu, People’s Republic of China in which Jiangyin Haigang International Logistics Co. Ltd. and Daluo Energy Resources & Material Co. Ltd. (Applicants) sued Beneficiaries for fraud and Negotiating Bank for bad faith. The Judge in that action found there was fraud by the Beneficiaries, but that Negotiating Bank had acted in good faith without knowledge of the fraud. The Jiangsu judge ruled that the LC could be honored due to Negotiating Bank’s good faith and the LCs independence from the underlying transaction. However, Applicants appealed that decision to the People’s Higher Court in Jiangsu and the injunction remained in effect pending resolution of the appeal.

Negotiating Bank then sued Issuer for reimbursement in Hong Kong. Issuer moved for the Hong Kong proceedings to be stayed under the doctrine of forum non conviens, since there was already litigation in process in China involving this matter. Issuer expressed concern that if the two courts issued conflicting orders regarding honoring the LC, it would be unable to comply with one of them. The Court of First Instance of the High Court, Mimmie Chan, J., ruled that the proceedings in Hong Kong would be stayed.

In considering the matter, the Judge noted that it was important to first decide if there were issues for trial. The Judge ruled that there were issues for trial as there was still a dispute over whether fraud occurred and whether Negotiating Bank acted in good faith. The Judge then considered whether Hong Kong was the appropriate forum for the proceedings. The Judge ruled that Hong Kong was not the appropriate forum as all of the evidentiary documents were in Jiangsu, many of the witnesses were in Mainland China and may have difficulty coming to Hong Kong, the court may have limited jurisdiction to compel witnesses, and there were already proceedings in Jiangsu that could lead to conflicting orders.

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