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Note: Ask Re Ltd. (Applicant/Buyer) agreed to purchase (+/- 10%) 10,000 metric tons of tapioca chips from Grain Mineral Resources PTE Ltd. (Beneficiary/Seller) for delivery to a port in China. . After negotiated changes, the price was USD 283 per metric tonne CFR A purchase order (PO) was subsequently issued which required the issuance of a commercial LC. As a result, Applicant/Buyer caused the issuance of the LC by Industrial and Commercial Bank of China (Issuer) in Beneficiary/Seller’s favor. The LC stipulated a number of conditions that were not included in the PO.

The goods were loaded on 13 January 2012 and the Gongenbill was issued on 15 January 2012 but discharge was delayed due to the Chinese New Year. On 27 January 2012, Beneficiary/Seller then presented documents to its bank, Raiffeisen International AG, Singapore (RBI), which requested that Issuer negotiate the LC and waive certain discrepancies. Since the documents were necessary for customs clearance, Buyer/Applicant refused to waive the discrepancies and Issuer dishonored the presentation. Eventually the contract was terminated and Beneficiary/Seller sold the cargo to another buyer and counterclaimed for “loss of price” and other damages. The Judge observed that the price of tapioca chips was falling at that time.

Applicant/Buyer sued Seller/Beneficiary to recover lost profits and the.

The Hong Kong Court of First Instance, Honorable Mr. Recorder Houghton, ruled in favor of the Applicant/Buyer and concluded that the LC was binding, the terms of which “were agreed between the parties” and that the Beneficiary/Seller was in repudiatory breach of the Agreement. [¶ 44]

The Recorder decided that the central issue in the case was whether the Seller had agreed to provide the documents under the LC that were not contained in the agreement but were present in the LC.

Applicant/Buyer contended that the Beneficiary/Seller: had failed to deliver original certificates required for payment under the LC; fraudulently misrepresented that it had delivered these documents; and failed to present documents that conform to the requirements of the LC. Beneficiary/Seller asserted that the Applicant/Buyer: failed to cause the issuance of an LC that conformed to the requirements of the PO; refused to accept documents that conformed to the PO; refused to require Issuer to negotiate and waive discrepancies; and failed to acquire a proper import license.

The Recorder noted that Beneficiary/Seller “was informed of [the LC’s] terms” and “did not thereafter reject the terms”. [¶ 44] He concluded that although Beneficiary/Seller did not expressly accept the LC, it did so through its conduct. For example, the cargo was loaded and shipped after the LC was issued and documents purportedly in compliance with the LC were presented. Therefore, the LC and its requirements that were not included in the PO were binding on the parties. The Recorder stated that “it is simply a matter of commercial common sense that, had there been an issue in regard to the terms of the L/C, it would have been expected to have been raised at the earliest opportunity.” [¶38]

The Recorder further ruled that the Beneficiary/Seller was in repudiatory breach of the Agreement by failing to provide the Applicant/Buyer with original certificates even though the Applicant/Buyer did “affirm the contract and extend time for performance” after the Seller/Beneficiary provided it with discrepant documents, but “the continuing failure to deliver after the extended time for performance expired was … a breach by the [Beneficiary/Seller], a consequence of which the [Applicant/Buyer] could not discharge the cargo.” [¶ 54]

The Court also ruled that the Beneficiary/Seller breached an implied term of the Agreement where parties rely on documents “known of believed to be genuine” because it “intended to mislead [RBI]” by providing it with a Beneficiary Certificate and DHL Air Waybill. [¶ 63] Beneficiary/Seller essentially indicated to RBI that the original set of certificates required by the LC had been sent to the Applicant by providing the DHL Air Waybill without actually having mailed the documents to the Applicant/Buyer.

EXCERPTS OF THE TERMS OF THE LETTER OF CREDIT FROM THE OPINION:[¶ 8 – 10]

[It] provided an expiry date of 12 February 2012, and stated that the following documents were required for payment under the L/C:

(a) a photocopy of Phytosanitary Certificate issued by Government Authority, showing "to order" as the declared name and address of consignee;

(b) a photocopy of a Fumigation Certificate issued by the Vietnam Ministry of Agriculture Authority in Vietnam;

(c) a photocopy of Certificate of Origin (Form E) issued by government authority; and

(d) a Beneficiary's Certificate certifying that 1 original and 3 copies each of the above certificates had been dispatched to the Plaintiff by courier within 5 days of the shipment date.

9. The L/C stipulated the following conditions which were not contained in the PO:

(a) "Except draft, invoice, beneficiary's certificate for consent of amendment(s) and shipment advice, if any, all documents must not show", among other things, "bank chop, name of any bank and name of any party except issuer";

(b) "Unless otherwise L/C specified, all documents except drafts and invoice must not be addressed to any particular party".

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10. It was also specified that all documents were required to be presented within 12 days after shipment, but within the validity period of the L/C.

* Ramsey R. SALEEBY served as Assistant Counsel for the Institute of International Banking Law and Practice. Mr. SALEEBY is currently General Counsel for Armantek. LLC.

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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 the ICC or Coastline Solutions.