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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2017 LC CASE SUMMARIES High People’s Court of Heilongjiang Province (2016) H. M. Z. Zi No.336
Provided by JIN Saibo, Beijing Jincheng Tongda & Neal Law Firm
Parties:
Procedural History:
The Intermediate Court brought a verdict in favor of the Plaintiff (Appellee) that 1. The Defendant II should pay the Plaintiff RMB 11,249,100.00 and interest within ten days of date of effect; 2. Defendant I (Appellant) and Defendant III should bear the joint responsibility for the Defendant II. Defendant I appealed.
Facts:
On Aug. 30, 2013, Defendant III signed a ZGE “Contract of Warranty for the Maximum Amount” with the Appellant, in which Defendant III agreed to give security for the issuance of L/C to Defendant II from Aug. 30, 2013 to Aug. 30, 2014. And the maximum amount for the security was RMB 303 million.
On Apr. 25, 2014, with the application of Defendant II, the Appellee issued a No. 2300140000000015 Domestic L/C in favor of the Appellant. The L/C stipulated that the Appellant has to deliver all the required documents under the L/C to get the payment.
Defendant I (Appellant), Defendant II and the Plaintiff (Appellee) signed a (2014) No. 002 “Tripartite Agreement”, which stipulated that Appellee might exercise the right of recourse to both Appellant and Defendant II if the negotiation payment can’t be reimbursed. On the same day, Appellee negotiate the L/C after charge the negotiation-interest.
Defendant II didn’t pay the negotiation principle and interest since Sep. 30, 2015, and Defendant III failed to perform the guarantee obligation. The amount that the Appellee couldn’t recover was RMB 11,818,304.46.
Article
Legal Analysis:
Legal Issue(s):
Legal Rule(s):
Sec. XXIX, Notice of the Supreme People’s Court on Printing and Distributing the “Provisions on Cause of Action for Civil Cases”: Dispute over letters of credit includes: 315. Disputes over entrusted issuance of letters of credit; 316. Disputes over issuance of letters of credit; 317. Disputes over negotiation of letters of credit; 318. Disputes over fraud in the use of letters of credit; 319. Disputes over financing by letters of credit; 320. Disputes over transfer of letters of credit.
Art. 24, Measures for Settlement by Domestic Letter of Credit: When the applicable law is a foreign law, the Court shall affirm when the law is: 1. is submitted by parties; 2. is provided by a central office that has a Judicial Assistance Agreement with China; 3. is provided by Embassy of China to that certain country; 4. is provided by Consulate of that country in China; 5. is provided by the Chinese or foreign expert. If the court still cannot affirm by using those 5 ways, mentioned before, Chinese law shall be applied.
Art. 30, Measures for Settlement by Domestic Letter of Credit: An issuing bank shall not be entitled to recourse against a negotiation bank or a beneficiary upon payment.
Item 2 of Art. 21, The Method of Charging for Litigation by the People’s Court: If parties make a request to reduce the disputed amount before the end of the court investigation, they should be refunded with the amount of the reduction.
Art. 17, The Method of Charging for Litigation by the People’s Court: For property cases, the litigation fee of the appeal procedure should be charged according to the disputed amount.
Art. 170, Civil Procedure Law of the People’s Republic of China: After trying a case on appeal, the people's court of second instance shall, in the light of the following situations, dispose of it accordingly: (1) if the facts were clearly ascertained and the law was correctly applied in the original judgment, the appeal shall be rejected in the form of judgment and the original judgment shall be affirmed.
Art. 334, Interpretations of the Supreme People’s Court on Certain Issues Concerning Application of the Civil Procedure Law of the People’s Republic of China: The Court of Second Instance could affirm the first instance judgement based on the Item 1, Para.1, Art. 170 of the “Civil Procedure Law of the People’s Republic of China” after adjudicating the flaw in fact-finding or procedure.
Disposition – for each legal issue:
The Court overruled the recognition of the nature and the amount of the case, and convicted the case was about L/C negotiation dispute and the disputed amount was RMB 11,818,304.46. The Court affirmed the Appellant should be responsible for the debt redemption to the Appellee.
Holding & Reasoning for each issue:
According to the Notice of the Supreme People’s Court on Printing and Distributing the “Provisions on Cause of Action for Civil Cases”, the Appellate was the issuing bank as well as the negotiation bank. Though the “Tripartite Agreement” didn’t say whether the Appellee was the issuing bank or the negotiation bank or both. For the reason that the Appellee initiated the lawsuit based on the “Tripartite Agreement” to get reimburse, the case should be characterized as L/C negotiation dispute.
According to the Art. 24 & Art. 30, Measures for Settlement by Domestic Letter of Credit, as the negotiation bank, the Appellee had the right of recourse to the Appellant. But as the issuing bank, the Appellee didn’t have the right. Whatsoever, the Appellee was the issuing bank and the negotiation bank, and the “Tripartite Agreement” said that the Appellee has the right of recourse to the Appellant. Though the content of the “Tripartite Agreement” was not conform with the Measures for Settlement by Domestic Letter of Credit, the departmental rules instead of mandatory provisions, so the “Tripartite Agreement” was effective. Though the Appellant said that the signature of the “Tripartite Agreement” was out of force, but the Appellant failed to meet with the burden to proof. So, the Court convicted that the Appellant should be responsible for the debt redemption to the Appellee.
According to the Method of Charging for Litigation by the People’s Court, and for the reason that the Appellee asked to reduce the amount of the case to RMB 11,818,304.46 during the first instance, the litigation fee should be reduced accordingly.
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