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Note: Huihuang Industrial Co Ltd (Seller/Beneficiary) agreed to sell 1,200 LCD television sets to Sonex TV Appliances Pvt Ltd (Buyer/Applicant) and ship them to India for USD 125,750. The letter of credit provided in Field No 46A that “Inspection certificate issued by Beneficiary. Entire materials will be dispatched after final inspection by Mr Sanjay Hazra.”

To pay, Buyer/Applicant obtained a commercial letter of credit subject to the UCP600 from Allahabad Bank (Issuer) for USD 125,750 in favor of Seller/Beneficiary.

The goods were shipped to India addressed to Buyer/Applicant on 7 January 2013. Subsequently, Seller/Beneficiary presented documents under the letter of credit through Standard Chartered Bank Ltd. in Shenzhen, China (Presenting Bank). The documents were received by Issuer on 29 December 2012. On 10 January 2013, “[Issuer] issued a notice of default to [Presenting Bank] that there was discrepancy in that [Issuer] was informed by [Buyer/Applicant] the shipment of the goods was without the knowledge and inspection of Sanjay Hazra, so there was non-compliance with Field No 46A clause 5 of the letter of credit.” Buyer/Applicant had provided Issuer with an email received from Mr. Hazra in which he denied having any knowledge of the shipment and stating that he had not inspected the goods for onward shipment. Buyer/Applicant “also received an email from handling agents dated 21 January 2013, which it forwarded to [Issuer], stating that the original bill of lading had not been surrendered at the port of loading office.” The TV sets were delivered to India.

In a prior action, Buyer/Applicant had sued Seller/Beneficiary, Presenting Bank, and Issuer in the High Court of Kolkata, India to prevent payment under the letter of credit and to enjoin Issuer from making payment on the letter of credit. It alleged that Seller/Beneficiary had failed to provide the original bill of lading and did not comply with the inspection provision of the letter of credit. The High Court of Kolkata refused to enjoin payment on the letter of credit and ordered payment by the Issuer to a Receiver and ordered that after the goods passed inspection, Receiver was to pay Seller/Beneficiary. The Judge stated, “I am of the opinion that the Court has only to see whether the terms and conditions of the Letter of Credit have been complied with. If the requirement was with regard to the bill of lading, the Court had to see, whether the original bill of lading had been lodged with the bank. It appears that such is the case here. In my opinion, it is not for the Court to probe further and see whether the importer would be able to obtain delivery of goods on the basis of the original bill of lading. If he cannot and a further bill of lading is necessary as appears to be the case here, then there is fault on the part of the seller for which there is an independent remedy. The Court should not stop payment of the Letter of Credit for this reason.”

On appeal, the Indian civil appellate court ruled that there was no reason to appoint a Receiver and ordered the funds to be paid to Seller/Beneficiary subject to inspection of the goods. The funds were to be paid and held by Seller/Beneficiary. However, no inspection had occurred and the funds were not released. It appeared that the original bill of lading could not be surrendered because Issuer had delivered it to Receiver.

While the Indian proceedings were taking place, Seller/Beneficiary sued Issuer in the PRC to secure payment on the letter of credit. Acting without knowledge of the Kolkata proceedings, the PRC court issued a judgment in favor of Seller/Beneficiary. The PRC Court concluded that Issuer’s refusal to honor the letter of credit was a breach of contract. Issuer was ordered to pay Seller/Beneficiary the sum of the letter of credit, but Seller/Beneficiary was unable to enforce the judgment because Issuer had no assets in the PRC.

In the instant case, Seller/Beneficiary sued Issuer in Hong Kong for wrongful dishonor in 2015. Seller/Beneficiary also sought to have the judgment of the Chinese court enforced by the Hong Kong court. Issuer moved to dismiss the Hong Kong proceedings. The Court of First Instance of the High Court of Hong Kong Administrative Region, Saunders, J., dismissed the Seller/Beneficiary’s complaint. On appeal, Court of Appeal of the High Court of Hong Kong Administrative Region, Hon Kwan JA, dismissed the appeal with costs of HKD 151,171 awarded to Issuer.

The Court of First Instance found that the action brought before the High Court of Kolkata involved the same letter of credit issue that was raised in the case at hand. Therefore, the trial court ruled that, under the doctrine of res judicata, the Hong Kong proceedings on the letter of credit were an abuse of power, and should not be actionable. The Court also held that any issues dealing with the inspection of the goods should be addressed by the Kolkata court.

Seller/Beneficiary also argued that the Chinese judgment should be enforced. However, the Hong Kong court ruled that the judgment could not be enforced for two reasons. First, because it was contrary to public policy as an abuse of process in Hong Kong. Second, the Hong Kong court noted that the earliest ruling will be upheld when there are multiple rulings on an issue.

On appeal, Seller/Beneficiary raised several issues with the Hong Kong Court of First Instance’s judgment. Seller/Beneficiary first claimed that the trial Judge failed to consider that the orders in the Indian suit were obtained fraudulently and therefore not subject to res judicata. Seller/Beneficiary produced an email from Sanjay Hazra stating that he did not send the email used in the Kolkata proceedings, and Issuer did not put forward evidence to rebut this. However, Buyer/Applicant denied using the allegedly false email in the Kolkata Court.

The Hong Kong appellate court ruled that this was “not even a prima facie case that the judgments were obtained by fraud.” The appellate court concluded that the Judge for the High Court of Kolkata was aware that the original bill of lading was issued by a forwarder instead of the carrier and declined to question whether the original bill of lading would have to be surrendered to be replaced by a carrier issued bill of lading.

Seller/Beneficiary also claimed that Judge Saunders made a number of factual errors. These errors included the Judge’s statements that the letter of credit proceeds had been paid to Seller/Beneficiary and were being held on fixed deposit. Seller/Beneficiary argued that, because the proceeds remained with Receiver, the judgment of the High Court of Kolkata remained an empty judgment. Seller/Beneficiary also claimed that the Hong Kong trial Judge used incorrect dates for the issuance of the Chinese judgment, and therefore constituted an abuse of process.

The Hong Kong Court of Appeal ruled that any factual errors made by the Hong Kong trial court “should [not] make any significant difference to the material findings of the judge on res judicata.”

Comment: The opinion states that the presentation was received by Issuer on Saturday 29 December 2012 and that the dishonor notice was sent on Thursday 10 January 2013. The chronology suggests that more than five banking days had passed in between.

Under UCP600 Article 14, the first day to count would be the first banking day following the day (UCP600 Article 14 does not say ‘the banking day following the banking day of receipt’). Therefore, the day of receipt is Sunday 30 December and the first day to count is the first banking day after Sunday. Therefore, Day 1 is probably Monday 31 December if the bank was open. If it was closed on Tuesday, 1 January, the dates would be:

Day 2 Wednesday 2 January

Day 3 Thursday 3 January

Day 4 Friday 4 January

Day 5 Monday 7 January

The point was not raised in the case.

[CEF]

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