Article

Factual Summary: The defendant, ICBC Zhejiang Branch (ICBC) issued a demand guarantee, on the application from Zhejiang Zhonggao Technology Ltd (Zhonggao), subject to URDG 758. The beneficiary of the demand guarantee was the plaintiff, Hyundai Heavy Industries Co (Hyundai). It was based on the sell of diesel generators contract between Zhonggao and the plaintiff. According to the terms and conditions of the guarantee, ICBC should pay Hyundai the amount not exceeding USD 6,648,010, within seven days after Hyundai demanded the payment. On 10April, 2014, ICBC received the demand and presentation documents from Hyundai via the advising bank, Korea Exchange Bank, and sent an acceptance notice. However, on 8 May 2014, ICBC refused to make the payment on the ground that the demand was non-complying. Hyundai argued that it had delivered diesel generators to Zhonggao relying on the demand guarantee. Therefore, the payment obligation of ICBC was irrevocable and should be strictly enforced. Hyundai asked ICBC to pay the amount under the demand guarantee and its interest immediately.

There were three issues in this case. First, whether the discrepancies relied upon by ICBC for its dishonor were valid. Second, whether the four notices of dishonor sent by ICBC constituted effective dishonor. Third, what effect the acceptance notice sent by ICBC would bring to the dishonor.

Decision of Zhejiang High People’s Court:

First Issue: According to Article 2, URDG 758, complying demand means a demand that meets the requirements of a complying presentation, which is in accordance with, “first, with the terms and conditions of that guarantee, second, these rules so far as consistent with those terms and conditions and, third, in the absence of a relevant provision in the guarantee or these rules, international standard demand guarantee practice.” In the present case, the guarantee issued by ICBC listed five specific documents for presentation and Hyundai has accepted such condition. The examination standard under Article 19, URDG 758 stated that the presentation should appear on its face to be a complying presentation. The documents presented by Hyundai were named bill of landing, rather than order bill of landing under the guarantee, which is a different category of bill of landing. Therefore it was appropriate for ICBC to find that the presentation was not complying.

Second Issue: Hyundai demanded the payment via Korea Exchange bank, and ICBC has sent its four notices of dishonor within its examination period. Because Hyundai has never amended bill of landing it presented, the discrepancies continued to exist. Therefore, the notices sent by ICBC constituted effective dishonor.

Third Issue: Based on Article 4, URC 522, “banks will not examine documents in order to obtain instructions”. Bank has no obligation to exam in collection transactions and bears no responsibility for the content, formality and authenticity of documents. Therefore, the document against acceptance sent by ICBC to Korea Exchange Bank should not be regarded as that ICBC had examined document and confirmed acceptance. Furthermore, collection transaction and independent guarantee are two different legal relationships, independence of independent guarantee also means that it is independent from bank’s other operational services. Therefore, ICBC is entitled to examine compliance according to terms and conditions under the guarantee. Hyundai cannot require ICBC to use its knowledge acquired in collection transaction to examine documents presented under demand guarantee.

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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.