Article

Topics: Jurisdiction; Forum Non Conviens; Independence Principle

Note: JTG Management Services Ltd. (Seller/Beneficiary), a Canadian lumber exporting company also referred to as Transpacific Trading Company Ltd. located in British Columbia, Canada, sold three shipments of lumber to a Chinese buyer, Nanjing Overseas Wood Co. Ltd. (Buyer/Applicant). At Buyer/Applicant’s request, Bank of Nanjing Co. Ltd. (Issuer) issued a commercial LC subject to UCP600 and advised through Royal Bank of Canada (Advising Bank) which then delivered the LC to Bank of Montreal (“Seller/Beneficiary’s Bank”). It undertook to pay Seller/Beneficiary an amount of up to USD 2,010,000 upon presentation of the required documents. When Seller/Beneficiary’s Bank presented the required documents to Issuer and demanded payment of USD 742,875.29 for the second of three shipments of lumber, Issuer refused to honor the drawing, alleging that there was a discrepancy between the volume of lumber, the packing list, and the invoice. Seller/Beneficiary revised the required documents and re-presented them to Issuer.

When Issuer gave no reason for not honoring the second demand and did not return the revised documents, Seller/Beneficiary sued Issuer in British Columbia, Canada for wrongful dishonor. Issuer moved to dismiss due to lack of jurisdiction. Its motion was denied by the British Columbia Supreme Court, Mainsonville, J. In an opinion by the British Columbia Court of Appeals, Kirkpatrick, J., the Judge concurred and dismissed the appeal affirming the denial of the motion.

The trial court reviewed the issue of territorial competence and whether Seller/Beneficiary had an arguable case that there was a real and substantial connection so that the Court in British Columbia could exercise territorial competence over the case under §10 of the Court Jurisdiction and Proceedings Transfer Act. The appellate court considered “in which jurisdiction should the dispute be decided – the one in which, it is alleged, the decision to breach the contract was made (China); or the one in which, it is alleged, the actual breach occurred (British Columbia)”and found that British Columbia is a better forum because “the obligations arising under the letter of credit were to be performed, to a substantial extent, in British Columbia.” Without Issuer’s further proof that China is the more appropriate forum, there was a presumption of territorial competence when there was an arguable case that the contractual obligations were, to a substantial extent, to be performed in British Columbia.

Additionally, Issuer raised the issue of forum non conveniens, and the burden was on Issuer to show why the court should decline to exercise its jurisdiction and displace the forum chosen by the other party. Since the decision based on forum non conveniens is a discretionary one, the court reasoned that “[i]n cases involving international commerce more than one forum may be appropriate for the determination of the dispute. In such circumstances, there exists a presumption in favour of the forum selected by the plaintiff.” And, because Issuer did not sufficiently establish that China is the clearly more appropriate forum for the dispute, the Judge concluded that the lower court did not err in granting British Columbia as the forum chosen by Seller/Beneficiary. The Judge dismissed the appeal because, even if Issuer operates only in China, “the proper law may be that of the location of the advising bank, where payment is made, or of the location where presentation is made.”

Legal Analysis:

Comment: This decision is a departure from widely accepted standards of LC jurisprudence. Mere advice of an LC by an issuer with no other connection to the forum is not thought to give rise to jurisdiction for the issuer. If there is no nominated bank, presentation can only be made to the issuer at the place of issuance. For the purpose of receiving documents under the LC, an advisory bank is not a nominated bank.

[GJL/ZTS]

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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.