Legal Case Summaries

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Factual Summary: Woori Bank issued an LC for sight payment in favor of Beijing Xuanlian Food Co., Ltd.. The LC required, inter alia, the full set of original bills of lading marked clean on board, made out to Woori Bank and notifying the Applicant, and the original inspection certificate signed by Ms Choidaeja accompanied with a photocopy of her passport. The LC was subject to UCP. It further stated that COMFIRMATION: NO.

Beneficiary presented documents via Bank of China, Beijing Branch to Woori Bank before the LC expired. Bank of China, Beijing Branch then received from Woori Bank the Notice of Refusal stating that: “no vessel name was shown after ‘clean on board’ notation”. The next day, Bank of China, Beijing Branch sent a SWIFT message to Issuer, stating that the vessel name was not required to be shown after the “clean on board” notation, therefore the presentation was complying, and urged Issuer to pay. The following day, Bank of China, Beijing Branch, received a further SWIFT message from Issuer stating that it had been served an injunction order by a local court, prohibiting it from making payment under the LC. Issuer returned the documents but did not send the injunction order to Bank of China, Beijing Branch.

Beneficiary sued Woori Bank as Issuer and Bank of China, Beijing Branch as confirming bank for payment under the LC plus interest. Woori Bank did not attend the trial proceedings. Bank of China Beijing Branch argued that Bank of China Beijing Branch should not be liable for the payment or its interest because it was not a confirming bank or accepted the LC and it had acted properly in accordance with international practice and the instructions of Beneficiary. Issuer appealed to Beijing High People’s Court after Issuer was found liable for the payment and its interest by the trial court. Issuer argued that (1) Issuer was prohibited by the injunction order from making payment, which was in conformity with the provisions in the Provisions regarding LC fraud in the Supreme People’s Court on Some Issues in the Adjudication of Letter of Credit Related Cases”, and (2) the Applicant of the LC believed that Beneficiary supplied Applicant with dried bracken of poor quality, so there had been a fraud.

The decision of Beijing High People’s Court:

(1) The law applicable to the dispute should be Chinese law since all parties cited Chinese law. And UCP500 shall be applying since the LC was subject to UCP500.

(2) Bank of China Beijing Branch was not a confirming bank since the LC text showed that it did not authorize any bank to add confirmation, and Bank of China, Beijing Branch did not express its intention to add confirmation or charge for confirmation. Furthermore, Bank of China, Beijing Branch was an advising bank and had acted properly as an advising bank, and no loss was caused to Beneficiary by Bank of China, Beijing Branch. The court held that Bank of China, Beijing Branch should not be liable for the payment under LC or its interest.

(3) There was no valid discrepancy for the presentation since the LC did not required the goods to be shipped on board a named vessel.

(4) There was no evidence showing that there had been a fraud. Firstly, Applicant had confirmed the quality of the goods before the shipment was made and the second inspection made upon request of Applicant after the goods arrived in Korea was not agreed by both parties to the sales transaction, therefore was improper. Secondly, the contents on the documents were consistent with the goods and there was no fraud. Thirdly, the injunction order issued by Korean local court could not prevent Issuer from making payment to Beneficiary. The test for fraud exception should be a strict one and the court should only issue an injunction order where there is a material fraud. Issuer should pay against the complying presentation under the LC and the interest.

Beijing High People’s Court rejected Issuer’s application to add Applicant to the proceedings as the third party, on the ground that Applicant was not a third party with independent claim.

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.