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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2016 LC CASE SUMMARIES
Abstracted by ZHANG Zheng
Topics: Domestic LC Negation; General Finance Arrangement
Type of Lawsuit: Bank sued Applicant and Beneficiary.
Parties: Plaintiff/Issuing Bank/Negotiating Bank – China Construction Bank Corporation Limited by Shares Harbin Development Zone Branch;
Defendant/Applicant – Heihe Jiacheng Trade Ltd.
Defendant/Beneficiary – Qing’an Disheng Mining Ltd.
LC: Domestic LC for RMB 14,998,800, with the same bank serving as issuing and negotiation bank.
Decision: A domestic LC transaction with one bank serving as the issuing bank and negotiation bank simultaneously was a general finance in a form of LC.
Rationale: Since in a LC transaction the negotiation bank and the issuing bank should not be the same, while in the case the Bank simultaneously served as both. And since in a LC transaction the negotiation bank enjoys the right to recourse against the beneficiary but the issuing bank does not, while in the case the Three Party Contract provided the Bank could seek recourse against both the applicant and the beneficiary, the transaction in the case was not an LC negotiation transaction but a general finance in a form of LC. Thus according to the Three-Party Agreement, Jiacheng and Disheng should be jointly and severally liable for the reimbursement to the Bank.
Article
Factual Summary:
China Construction Bank Corporation Limited by Shares Harbin Development Zone Branch (the Bank) entered into a contract with Heihe Jiacheng Trade Limited (Jiacheng), in accordance with which the Bank is to issue an LC at the application of Jiacheng to a beneficiary. Jiacheng consented to provide cash collateral for the issuance of the LC, which is detainable, and to pay a high penalty interest where it fails to reimburse the Bank. At the application of Jiacheng, the Bank issued an LC to the beneficiary, a Qing’an Disheng Mining Ltd. (Disheng), who then presented the documents under the LC to the Bank for negotiation. The Bank negotiated the documents and released money to Disheng. Apart from the above, the Bank, Jiacheng and Disheng entered into a three-party agreement, which provided that the bank has the right to seek recourse from either Jiacheng or Disheng should it not get reimbursement. When Jiacheng failed in fully reimbursing the Bank, the Bank, after detaining the cash collateral, sought further remedies in the Intermediate Court.
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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.