Forgot your password?
Please enter your email & we will send your password to you:
My Account:
Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2016 LC CASE SUMMARIES Civil Ruling (2014) Lu Min Si Zhong Zi No.151 Shandong High People’s Court [China]
Abstracted by BAI Shuhai
Prior History: Dalian Futai Food Co., Ltd v. China Citic Bank Civil Judgment (2005) Yan Min San Chu Zi No.212, Yantai Intermediate People’s Court, Shandong Province [China]
Topics: Applicable Law New LC Provisions of PRC; New LC Provisions of PRC; LC Rules Article 2; Transferable L/C; Dishonor.
Type of Lawsuit: The Second Beneficiary sued Transferring Bank for changing and deleting the terms of the credit without authorization.
Parties: Appellant/Defendant/Transferring Bank – China Citic Bank, Yantai Branch
Appellee/Plaintiff/Second Beneficiary/Seller – Dalian Futai Food Co., Ltd (“Futai”)
First Beneficiary/Buyer – Yantai Licheng Aquatic Product Co.,Ltd (“Licheng”)
Issuing Bank – Syd Bank
Underlying
Transaction: Purchase of codfish.
LC: LCs for USD 40,560 and USD 42,750. Subject to UCP600.
Decision: Yantai Intermediate People’s Court ruled that the transferring bank infringed the second beneficiary’s right of claiming proceeds under LC by deleting the terms of LC without authorization. The transferring bank should compensate for loss and interest incurred accordingly. Shandong High People’s Court affirmed the judgment of the trail court.
Rationale: The Trial Court held that: Article 2 of Provisions of the Supreme People's Court on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit stipulates: “When the people's court hears a case of disputes over letter of credit, if any stipulation is made by the parties concerned on applying the relevant international practices or other provisions that should be applicable to such case, this stipulation shall prevail; if no stipulation is made by the parties concerned, the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce and other relevant international practices shall be applied to it.” Citic Bank should be legally bound by UCP600 for UCP600 is applicable.
As to the issue whether Citic Bank has any fault in deleting 47B of the two LCs and assume compensation liability. According to Article 10(A) of UCP600:“Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of issuing bank, the confirming bank, if any, and the beneficiary.” Citic Bank failed to submit any evidence proving there existed an agreement between issuing bank and the first beneficiary on changing 47B of the two LCs. Citic Bank should accurately reflect the terms and conditions of the credit. Citic Bank’s delete action causes Futai fail to claim the amount under the two LC. So Citic Bank should assume compensation liability.
Shandong High People’s Court affirmed the judgment of the trail court.
Article
Factual Summary: On 28 January 2008, Licheng placed an order with Futai for a batch of codfish, which was delivered by Futai to Licheng’s Finland client and Russia Client. To pay for the sale of codfish under contracts between Licheng and it’s clients, Syd Bank issued two transferable LCs subject to the UCP600 in favor of Licheng. Advising bank is Citic Bank.
In both LCs, there was an additional condition stipulated in 47B: Syd bank should be advised at the moment the credit is transferred. After applicant present good clearance certification issued by Russia Veterinary Bureau in English to Syd bank at least three banking days before the expiry date, we will pay as instructed. The bank will deliver the documents to applicant. The documents won’t be returned to presenter in case of refusal to honour.
According to the application of Licheng, the first beneficiary, Citic Bank issued two transferred LCs in favor of Futai, the second beneficiary. In the two transferred LCs, the additional condition as stipulated in 47B was deleted. In June, 2008, Futai presented the documents to Agricultural Bank of China, Dalian Branch (“Agricultural Bank”) for negotiation. In August 2008, the Agricultural Bank presented the documents to issuing bank for payment. The issuing bank refused to pay because the presentation failed to comply with the 47B of the LC: “After applicant present good clearance certification issued by Russia Veterinary Bureau in English to Syd bank at least three banking days before the expiry date, we will pay as instructed.” Futai failed to presented the clearance certification issued by Russia Veterinary Bureau in English in that the content of 47B was deleted in the two transferred LCs, thereby causing issuing bank refusing to pay the amount under the LC. So Futai sued transferring bank for changing and deleting the terms of the credit without authorization. Citic Bank argued that it deleted the 47B of LC as instructed by the first beneficiary and should not be responsible for the loss. It is also argued by Citic Bank that the agreement between first beneficiary and Citic Bank should be complied when the UCP600 is applied because UCP600 is international conventions rather than law and has no legally binding power.
COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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.