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Note: Sinocore International Co (Beneficiary/Seller) and RBRG Trading Ltd.(Applicant/Buyer) contracted for the sale of steel coils produced by Beneficiary/Seller. Payment wasto be by commercial LC opened by Rabobank Nederland (Issuing Bank) which required shipment be made by the 31 July. Following formation of the contract, but prior to shipment, Applicant directed Issuing Bank to amend the LC to provide for shipment between the “20th to 30th July 2010” without having obtained the agreement of Beneficiary/Seller. Shipment was made on 6 July 2010 under genuine BL. Beneficiary/Seller, however, submitted an altered BL which showed the shipment date as 20 and 21 July, as if the amendment was in effect.

Before the instant case was brought, there were three legal actions related to this transaction. When it discovered the alterations, Applicant/Buyer petitioned the Court of Amsterdam for a temporary injunction restraining Issuing Bank from making payment, which was granted. Separately, Beneficiary/Seller sued Issuing Bank in a Chinese court seeking damages for failure to make payment which was dismissed. Beneficiary/Seller subsequently appealed, and the appeal was still pending at the time of the decision in the instant case. Applicant/Buyer additionally submitted the case to arbitration, seeking damages from Beneficiary/Seller for its breach of the amended LC. Seller/Beneficiary counterclaimed for breach of contract. Despite the existence of forgery, the Arbitrators decided that the LC should still be honored, since the amendment proposed by Applicant/Buyer was not in force because Beneficiary/Seller had not consented, and the unaltered BL had been sufficient.

Following arbitration under CIETAC protocols in the instant case, Beneficiary/Seller sued Applicant/Buyer to enforce the arbitration award in England. Applicant/Buyer counterclaimed, asking that the award be set aside on public policy grounds because Beneficiary/Seller’s claim was “based on . . . forged bills of lading.” The High Court of the Queen’s Bench, Commercial Court, Phillips, J., upheld the arbitration award and rejected the counterclaims.

The basis for the request by Applicant was that it would be contrary to public policy to honor the arbitration award. The Judge determined that in the present case the public policy argument against enforcing the contract was not sufficient to overturn the award on the basis that being “tainted” by fraud did not make the contract unenforceable, only voidable. The Judge also noted that in coming to this conclusion, he had relied on the underlying arbitration decision, as in circumstances where arbitrators had been presented information on an issue and had ruled on it, courts grant deference to that determination.

The Beneficiary/Seller stipulated in Court that damages it received under the arbitration would be subtracted from the potential damages available to Beneficiary in their pending case against Issuing Bank in Chinese court. The purpose of this undertaking was to prevent unjust enrichment of the Beneficiary/Seller, who otherwise could have potentially recovered damages in this case, as well as in the separate Chinese Proceedings.

[ARB]

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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.