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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1998 LC CASE SUMMARIES 1998 HKC LEXIS 795; 1998 HKCU 1 (26 May 1998)
Topics:
Negotiation; Recourse; Duty Not to Impair a Security.
Type of Lawsuit:
Negotiating bank sued beneficiary for recourse on documents negotiated
Parties:
Plaintiff/Negotiating Bank- Bank of Credit and Commerce Hong Kong (Counsel: John Bleach instructed by Messrs Johnson, Stokes &Masters).
Defendant/Beneficiary- Overseas Trading Co. (Counsel: Nicholas Pirie and Rodney Tam instructed by Messrs Leo KW Lok & Co)
Issuing Bank- PT Pacific Bank
Underlying Transaction:
LC:
Silent as to type of LC and as to governing rules.
Decision:
The High Court of the Hong Kong Special Administrative Region Court of First Instance, Findlay, J., entered judgement for the negotiating bank.
Rationale:
The beneficiary provided no adequate defense to justify its refusal to pay as required by the original agreement.
Article
Factual Summary:
The beneficiary of a letter of credit entered into an agreement with the negotiating bank to negotiate certain documents under the LC. The agreement between the parties provided that if the negotiating bank was not paid then it could have recourse to the defendant. When the documents were not honored by the issuer, the negotiating bank brought an action against the beneficiary for recourse after it refused to return the funds.
Legal Analysis:
1. Negotiation: Recourse:The court ruled that as provided for in the parties' agreement, the negotiating bank was entitled to recourse. It found the testimony of the beneficiary "totally unworthy of belief" and "contrary to the probabilities and the contemporaneous events".
2. Duty Not to Impair Security:The court acknowledged that there is a "general duty on a person holding a security for payment of a debt to protect that security." This duty exists where there is "some form of property to which the creditor is entitled to have recourse for the payment of the debt if the debtor defaults so that one could describe the debt as se cured." The court observed however that this proposition does not apply to a document such as a bill of exchange.
©1999 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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.