Article

Prior History: Bo Hu Development Co. v. Suen Kwai Kam, [2001] 1020 HKCU 1 (Court of First Instance) [Hong Kong], abstracted at 2002 Annual Survey 214.

Note: Applicant, Bo Hu Development Company Limited, entered into agreement with Factor, 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 Applicant would forfeit the thirty percent as compensation to Factor in the event of failure of 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 and refused to perform.

Claiming that Beneficiary had failed to comply with the LC terms, Factor retained the deposit. Applicant sued 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 contending 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. On appeal, the Hong Kong Special Administrative Region Court of Appeal, Mayo, J., reduced judgment in favor of the Factor to the three percent commission only and Applicant was found to be entitled to the return of its deposit, thirty percent of the face amount of the LC.

Applicant had contended that he was unaware of both the forfeiture and the refusal of the Issuer to amend the LC. He had alleged that on two occasions Factor had assured him that amendments would be possible, provided that Applicant bore the costs. The trial court, however, had 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.

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