Type of Lawsuit: Beneficiary sued issuer for wrongful dishonor.

Parties: Plaintiff/Beneficiary- Bayer Polymers Company Limited (Counsel: Russell Coleman)

Defendant/ Issuer- Industrial and Commercial Bank of China, Hong Kong Branch (Counsel: Rimsky Yuen)

Applicant- Wuxi Joyray Import and Export Corporation Nominating Bank- Thai Farmer's Bank

Underlying Transaction: Sale of plastics.

LC: Commercial LC for US$ 275,400. Subject to UCP500.

Decision: The Court of First Instance, Stone J., granted judgment for the beneficiary.

Rationale: Where the evidence proves that the issuer released documents to the applicant, enabling it to obtain possession of the goods, it cannot resist payment on its LC even if the documents presented do not comply with the terms of the LC.

Factual Summary: To pay for the sale of plastics, Applicant obtained an LC in favor of the beneficiary. The LC required "courier 1/3 of the set of bills of lading to the issuer within four days of the departure of the vessel carrying the goods." This 1/3 B/L was to be presented separately from the other documents. Beneficiary shipped the goods and a bill of lading was issued.

The beneficiary claimed to have sent one original bill of lading based on documentation received from the freight forwarder to indicate that it was delivered. Later that day, the applicant used this original B/L to obtain the cargo from the carrier. In the action that followed, detailed testimony was received regarding the courier's system of ascertaining delivery. The issuer denied that it had received the B/L, introducing the testimony of the "Person in Charge of the International Clearing Department" of its local bank. It also introduced evidence of the state-owned post office express mail services branch which was the sole agent of the courier which stated that they had not delivered the B/L, but the issuer claimed that it had never been received.

When the remainder of the documents were sent, they were rejected for late presentation. While these documents were returned, the first B/L was not. The beneficiary sued the issuer for its violation of the UCP, notwithstanding the failure of the documents to comply. The court entered judgment for the beneficiary.

Legal Analysis:

1. Documents, Delivery: The court observed that the issue before it was one of fact as o whether the 1/3 B/L was delivered. The court indicated that the beneficiary had met its burden of proof of delivery.

It gave credence to the testimony of the beneficiary's witnesses, which it characterized as unremarkable and believable.

The court, however, indicated its difficulty in believing the issuer's witnesses. The issuer's manager "was not an impressive witness, although it may be that his obvious irritation at particular questions and uncomfortable and at times abrupt demeanour may have been the result of finding himself under some pressure, given that the bill of lading allegedly couriered to his department at his bank appears immediately to have found its way to the purchaser of the goods, which then had used it to obtain a delivery order and to obtain release of those same goods absent payment." In particular, the court found incredible the testimony that all post items were delivered to him while functioning as the Head of Department: "on his evidence he functioned equally as Head of Department and, in effect, as office postboy."

On "the balance of probabilities" and "with some reluctance," the court concluded that the 1/3 B/L was delivered to the issuer. In explaining its decision, the court noted that it was "difficult to believe" that the significance of its absence "was not earlier appreciated." It observed that "there is pointedly no mention anywhere, at least so far as I have been able to identify, of the non-receipt of the bill of lading, nor is the issue of the alleged 'discrepancies' further canvassed; indeed, unless lateness in itself constitutes the 'discrepancy' purportedly relied upon, such 'discrepancies' are nowhere identified, and there has been no discovery of any correspondence which reasonably may be thought to have come into existence between the bank and its customer, the applicant. So that, when viewed in the round, the prime deference point as to non-receipt of the original bill does not seem to have found a place in the contemporary correspondence."

Comment:The court does not provide an explanation of the basis of liability. If the B/L had been delivered and not.


The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.