Legal Case Summaries

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Factual Summary: Tangshan Harbor Huifeng Energy Ltd (Huifeng), the seller, entered a sell of coal contract with Guangzhou Zhongtie Ltd (Zhongtie). It has been agreed that the buyer would apply to Bank of Communication for an irrevocable and non-transferable LC at sight for RMB 30,000,000, and Huifeng should be the beneficiary. On 21 July 2014, Bank of Communication Tangshan Branch (BoC Tangshan) received the LC issued by Bank of Communication Guangzhou Branch (BoC Guangzhou), and asked Huifeng to pick up the LC. On 31 July 2014, Huifeng presented relevant documents to BoC Tangshan. Boc Tangshan found that there were two discrepancies : (1) unit price on Receipts was not in accordance with the LC, (2) late packing. After its communication with Huifeng, Huifeng promised that it would take any risk and responsibility of the above discrepancies. After receiving and examining documents from BoC Tangshan, BoC Guangzhou notified such discrepancies to Zhongtie and asked whether it would waive discrepancies on 4 August 2014. Zhongtie instructed BoC Guangzhou to dishonor the payment, held documents and wait for its further instruction. On 5 August 2014, BoC Guangzhou notified BoC Tangshan that it would dishonor payment due to non-complying presentation. On 15 September, BoC Tangshan sent BoC Guangzhou a telegraph, stating rebuttal of discrepancies. Later, BoC Guangzhou replied that rebuttal was invalid and the LC has been expired.

In the meanwhile, Zhongtie had resold coal to Dongguan Jiulong Ltd (Jiulong) under another a sell of coal contract, and Jiulong had taken delivery of goods. Huifeng demand payment from BoC Guangzhou and BoC Tangshan, yet neither of the banks has made its payment.

There were two issues in this case. First, whether the documents presented by Huifeng were not in accordance with the terms and conditions of the LC. Second, whether Boc Guangzhou has released documents by sending duplicated copies of documents presented by Huifeng. Furthermore, whether such action would nullify its right to claim non-complying presentation, making its dishonor invalid.

Decision of Hebei High People’s Court: As to the first issue, the court ruled that there were discrepancies. On the documents presented by Huifeng, the name of cargo stated coal slack, which was clearly not in accordance with bituminous coal stated in the LC. Furthermore, despite the difference in names, the meaning of coal slack is not equivalent to bituminous coal.

As to the second issue, both parties agreed that BoC Guangzhou should deliver duplicated copies of documents presented by Huifeng to Zhongtie after it discovered discrepancies. But Huifeng pointed out that BoC Guangzhou failed to redact invoice codes, making Zhongtie able to deduct tax under the LC transaction, and therefore BoC has released documents. Article 27 of Measures for Settlement by Domestic Letter of Credit (1997) states that “ within five (5) business days from the date following the date of receipt of the proof of entrusted payment collection, documents and the notice of document submission posted by the negotiation bank, or the proof of entrusted payment collection, the original LC, the original LC modification form, documents and the LC negotiation/entrusted payment collection application posted by the deposit bank of the beneficiary, an issuing bank shall verify the prima facie conformity of the documents to the terms and conditions of the LC. Where the same is found to be consistent, the issuing bank shall collect relevant funds from the account of the applicant as payment to the beneficiary for LC of payment at sight, or send to the negotiation bank or the beneficiary a confirmation of payment at maturity, and collect relevant funds from the account of the applicant as payment to the negotiation bank or the beneficiary for deferred payment LC. Upon payment, an issuing bank shall specify on the reverse side of the original LC the date of payment, business serial number, increment, amount of payment, balance of the LC and name of the issuing bank, affix thereto the business seal, and deliver to the applicant the notice of coming documents of LC with relevant documents”. Only the delivery of original coming documents listed under LC constitute release. Therefore the duplicated copies sent by BoC Guangzhou was no release.

There was no casual link between the fact that Huifeng has lost its goods due to the resell by Zhongtie, and the fact that BoC Guangzhou sent duplicated copies of documents to Zhongtie. BoC Guangzhou should not be held liable. Huifeng can claim its right to payment under the sell of coal contract signed with Zhongtie.

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.