Article

Note: Applicant, Bo Hu Development Company

Limited, entered into agreement with Factor, Suen Kwai Kam and Golden Kingdom FarEast Limited, to establish a commercial LC for US$ 324,690.19 in favor of the Supplier, Maoming Lidren Chemical Industry Company Limited, relating to a contract to purchase lubricant additive. Factor required that applicant pay a three percent commission on the LC and advance thirty percent of the face amount of the LC. The agreement provided that the applicant would forfeit the thirty percent as compensation to the factor in the event of failure of the beneficiary to comply with the LC. Accordingly, Applicant deposited HK$ 754,905.00, thirty percent of US$ 324,690.19. Factor then arranged to have the LC issued for the account of Applicant by Sin Wah Bank. The supplier requested that the LC be amended to correct several errors. Applicant asked Factor to make the amendments but Factor refused. Since the LC was not amended, the Supplier rejected it. Claiming that the beneficiary had failed to comply with the LC terms, Factor retained the deposit.

Applicant sued the Factor and its principal, Suen Kwai Kam, to recover the deposit, claiming not to have been informed of the amendment process for the LC and Factor's discretion and contended that it should not owe Factor anything. The High Court of the Hong Kong Special Administrative Region Court of First Instance, Toh, J., entered judgment for Factor. Applicant contended that he was unaware of both the forfeiture and the refusal of the issuer to amend the LC. He alleged that on two occasions Factor had assured him that amendments would be possible, provided that Applicant bore the costs. The court, however, noted that Factor had sent documents outlining the nature of the documentary LC to Applicant. "On that form were written some Chinese characters which said in effect that after confirmation by him, applicant could not ask factor to amend the terms of the Letter of Credit." Applicant had attached his company chop, and had faxed the document back to the Factor, before the LC was issued. The trial court stated: "From my observation of applicant when he was giving evidence, it was clear that he was not overtly concerned about the terms of the Letter of Credit applications. He agreed he did not check the contents of the various documents faxed to him by factor on the basis that he felt that factor would not cheat him. This is hardly a way to do business and it is incredible that a man who claims himself to be a reasonable and prudent businessman would do business in such a manner it was not through any fault of the Defendants that the supplier in Singapore rejected the Letter of Credit that had been issued."

Comment: Applicant was right to be suspicious.

The judge obviously is not engaged in business. The harsh remarks belittling the Applicant reveal a misunderstanding of the pressures to get arrangements into place and the everyday nature of LC amendments. The refusal in advance of a bank to amend a commercial LC sounds fishy. Especially when added to the application form by handwritten character. While Applicant should be held to his contracts, he should not be held to a contract to scam him. This one sounds very suspicious. The "damages" are severely disproportionate to the loss and no commercial reason is given for the refusal in advance of amendments.

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