Article

Factual Summary: The Plaintiff entered into a sell of polycarbonate products contract with Huahong Guandian Co.,Ltd (Huahong). Under the application of Huahong, the Defendant issued a transferable, irrevocable LC subject to UCP600, which the Plaintiff is the beneficiary. Later, after examination, the Defendant found six discrepancies in the negotiation documents presented by the Plaintiff. In the notice of acceptance sent to Huahong, the Defendant asked Huahong whether it would agree to negotiate. In its reply, Huahong stated that “agree to negotiate and pay by expiration date”. Nevertheless, the Defendant refused to honor, relying on Article 16, UCP600, and has sent its dishonor notice to the advising bank. The Defendant also returned all the documents back to the advising bank, but the original copy of the bill of landing No. 105 was missing. And Huahong has taken delivery of goods under the bill of landing No. 105. The Plaintiff demanded the Defendant to make the payment immediately, plus the interests.

There were two issues. First, whether the decision procedure to dishonor by the Defendant was in accordance with UCP600. Second, whether the missing bill of landing would effect the validity of decision of dishonor.

Decision of Wuhan Intermediate People’s Court:

First Issue: According to Article 16(a) UCP600, when the issuing bank determines that a presentation does not comply, it may refuse to honor or negotiate. And in Article 16(b), when an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This means, the negotiating bank has the discretion to decide whether to contact the payee and whether the payee would waive the discrepancies. The statement made by the payee, Huahong, that it would “waive the discrepancies and agree to negotiate” does not affect the refusal made by the negotiating bank. Given the facts that discrepancies included bill of landing were blank, 1/3 of the original copies of bill of landings were missing, and all the other circumstances, the risk has dramatically increased. The refusal made by the defendant was in accordance with the practice listed under Article 16(b), Article 16(c), Article 16(d) of UCP600. Therefore, the refusal to honor made by the Defendant based on the discrepancies would be supported by the Court.

Second Issue: The Plaintiff cited Article 16(f) of UCP600, and argued that the missing page of original documents would preclude the Defendant from claiming that the documents do not constitute a complying presentation. However, the Court pointed out the prerequisite of applying Article 16(f), which is “if an issuing bank fails to act in accordance with the provision of this article”. However, the Defendant has acted in accordance with Article 16, Article 16(f) should not be applicable. In addition, although there was on missing page of original documents returned to the advising bank, it should be noted that goods under the bill of landing No. 105 had already be taken delivery even before the Defendant received the negotiation documents. The bill of landing No. 105 returned by the Defendant was factually meaningless. And the possibility that such abnormality was the conspiracy between the Plaintiff and Huahong cannot be excluded. Therefore, the missing of original page in the bill of landing was not a basis for the Defendant to fulfill its negotiation obligation.

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