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Note: To facilitate its purchase of rolled steel coils, RBRG Trading (UK) Ltd. (Buyer/Applicant) obtained a USD 12,616,000 commercial letter of credit subject to UCP600 from Rabobank, Netherlands (Issuer) in favor of Sinocore International Company Limited (Seller/Beneficiary). Pursuant to the contract, the China International Economic and Trade Arbitration Commission (CIETAC) would arbitrate any disputes “under Chinese law, in Chinese, in China.” Prior to shipment, and at the request of Buyer/Applicant, Issuer “purported to issue an amendment to the letter of credit” changing the shipment period from “July 2010 at the latest” to “20th to 30th July 2010” without the consent of Seller/Beneficiary. The goods were loaded, shipped and Seller/Beneficiary “sent a shipping advice to [Buyer/Applicant] which stated that the date of the bills of lading was 6 July 2010.” Subsequently, Seller/Beneficiary, through its collecting bank, submitted forged B/Ls showing shipment dates 20-21 July, as if the amendment was effective.

Prior to the instant case, the parties pursued three separate lawsuits. When it discovered the forged B/Ls, Buyer/Applicant sued for and obtained a temporary injunction in the Court of Amsterdam to restrain Issuer from honoring the presentation. Separately, Seller/Beneficiary sued Issuer in a Chinese court seeking damages for wrongful dishonor. The Chinese proceedings were dismissed on the basis that the presented B/Ls were fraudulent. Seller/Beneficiary’s appeal from that judgment was pending at the time of the instant decision. Additionally, Buyer/Applicant submitted the case to CIETAC for arbitration, arguing that Seller/Beneficiary breached the inspection clause. Seller/Beneficiary counterclaimed arguing Buyer/Applicant was in breach through its attempted amendment. The arbitration tribunal ruled in favor of Seller/Beneficiary rejecting the argument that it breached the inspection clause and deceived Buyer/Applicant because Seller/Beneficiary forwarded an accurate shipping advice on 6 July. The tribunal concluded that “the fundamental cause of the termination of the Sale Contract and [Seller/Beneficiary]’s failure to obtain payment was the non-conforming letter of credit tendered by [Buyer/Applicant] following amendments to which [Seller/Beneficiary] did not agree.”

Seller/Beneficiary thereafter sought to enforce the CIETAC award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The trial court upheld the award and Buyer/Applicant appealed. The Court of Appeal, Hamblen, Irwin and Lewison, JJ., affirmed.

Buyer/Applicant argued that the appellate court should decline to enforce the award based on public policy considerations, primarily pointing to Seller/Beneficiary’s presentation of forged B/Ls. The appellate court began noting the “strong public policy in support of enforcement.” The appellate court held that there exists “no public policy to refuse to enforce an award based on a contract during the course of the performance of which there has been a failed attempt at fraud.” As nothing in the performance of the underlying contract involved “any illegality under Chinese or English law”, the appellate court affirmed the enforcement of the award and concluded that “[h]ad [Buyer/Applicant] at any material time indicated a preparedness to adhere to the original letter of credit terms, conforming bills of lading could and no doubt would have been presented.”

[MJK]

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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.