PROCLAMATION OF THE SUPREME PEOPLE'S COURT OF PRC The Provisions of the Supreme People's Court on Some Issues in the Adjudication of Letter-of-Credit-related Cases, adopted at the 1368th Meeting of the Adjudication Committee of the Supreme People's Court on October 24th, 2005, is hereby promulgated and shall become effective as of January 1st, 2006. November 14th, 2005
Provisions of the Supreme People’s Court on Some Issues in the Adjudication of Letter-of-Credit-related Cases
(Judicial Interpretation No. [2005]13. Adopted at the 1368th Meeting of the Adjudication Committee of the Supreme People’s Court on October 24th, 2005) These provisions are hereby formulated to provide guidance on issues in the adjudication of letter-of-credit-related(L/C-related) cases in accordance with the General Principles of the Civil Law of the People's Republic of China, Contract Law of the People's Republic of China , Guarantee Law of the People's Republic of China and Civil Procedural Law of the People's Republic of China, as well as by referring to relevant international practices, particularly those as reflected in the Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce, and in consideration of the adjudicative practices in China. Article 1 The L/C-related cases as referred to in these provisions are those involving disputes arising in such letter of credit(L/C) transactions as L/C issuance, advice, amendment, revocation,confirmation, negotiation, reimbursement and etc.. Article 2 In the adjudication of L/C-related cases before a People's Court, where the parties have agreed on the application of any international customs, usages, practices or any other rules, such as agreed on shall be applicable. Absent such agreement, the Uniform Customs and Practice for Documentary Credits as formulated by the International Chamber of Commerce or other relevant international customs, usages and practices shall be applicable. Article 3 The provisions shall also be applied to: (I) any repayment disputes between applicant and issuing bank arising out of L/C application and issuance; (II) any disputes between principal and trustee/agent where the latter applies on behalf of the principal for L/C issuance; (III) any disputes over a guarantee for the application for L/C issuance or for the entrustment pursuant to which trustee/agent applies for L/C issuance on behalf of the principal; (IV) any disputes over financing under an L/C. Article 4 Unless the parties to a foreign-related contract have agreed otherwise, the relevant laws of the People's Republic of China shall be applicable to the disputes as referred to in Article 3. Article 5 After making an undertaking of payment, acceptance or performance of other obligations under an L/C, the issuing bank shall pay within the period stipulated in the L/C provided that the documents are, on the face, in compliance with the terms and conditions of the L/C and consistent with one another. Any defenses based on the underlying transactions between applicant and beneficiary will not be accepted by the People's Court, unless as otherwise provided in Article 8. Article 6 Where a dispute concerns the examination of documents presented under an L/C, the relevant international customs, usages and practices or any other rules as agreed by the parties shall be applied. Absent such standards as agreed, determination shall be made as to whether the documents are on the face in compliance with the terms and conditions of the L/C and consistent with one another according to the Uniform Customs and Practice for Documentary Credits and other relevant standards as formulated by the International Chamber of Commerce. Documents which do not appear on their face to be in full compliance with the terms and conditions of the L/C or to be all consistent with one another shall not be considered discrepant if no ambiguity is thence caused. Article 7 The issuing bank has the right and obligation to examine documents by itself and may determine in its sole judgment whether the documents are, on the face, in compliance with the terms andconditions of the L/C and consistent with one another, and decide in its sole judgment whether or not to accept the discrepant documents. Upon determining that the documents are discrepant, the issuing bank may in its sole judgment decide whether or not to seek a waiver of the discrepancies from the applicant, and is not bound by the applicant's decision in this regard, unless otherwise agreed between issuing bank and applicant. The issuing bank is obliged to honor the L/C if it has expressly informed the beneficiary of its acceptance of the discrepancies. When the issuing bank refuses to accept the discrepancies, the beneficiary's claim on the issuing bank to honor the L/C on the grounds that the applicant has waived the discrepancies will not be upheld by the People's Court. Article 8 Any of the following circumstances shall be considered to constitute L/C fraud: (I) The beneficiary has forged or incorporated false contents in any of the presented documents; (II) The beneficiary, in bad faith, delivers no goods or delivers goods of no value; (III) The beneficiary, in conspiracy with the applicant or any third party(ies), presents documents while no real underlying transactions exist; (IV) Other circumstances where fraud under an L/C may be found. Article 9 The applicant, issuing bank or any other stakeholder(s) may apply for an order to suspend payment under an L/C from a competent People's Court when it discovers any of the circumstances stipulated in Article 8 and determines that the payment will cause irreparable damage to its interests. Article 10 Upon determining that L/C fraud exists, the People's Court shall render an order to suspend or judgment to terminate payment under the L/C, except in any of the following circumstances: (I) A party nominated or authorized by the issuing bank has made payment in good faith according to the issuing bank’s instructions; (II) The issuing bank or a party nominated or authorized by it has accepted the draft under the L/C in good faith; (III) The confirming bank has paid in good faith; (IV) The negotiating bank has negotiated in good faith. Article 11 Application for suspension of L/C payment filed by a party prior to initiating a suit shall be accepted by the People's Court, provided that the following conditions are met: (I) The Court which accepts the application has jurisdiction over the dispute on which the application is based; (II) The evidence provided by the applying party demonstrates the existence of any of the circumstances stipulated in Article 8; (III) The applying party's legal rights and interests would be irreparably damaged if payment under the L/C were not suspended; (IV) The applying party has provided reliable and sufficient security; (V) No circumstances stipulated in Article 10 exist. Application for suspension of payment under an L/C during the proceeding of a suit shall meet the conditions as set up in sub-paragraphs (II), (III), (IV) and (V) of this Article in order to be accepted. Article 12 Once accepting an application for suspension of payment under an L/C, the People's Court must render an order within 48 hours, and the order to suspend payment under the L/C shall be executed immediately. The order to suspend payment under an L/C should identify the applying party, applied party and any third party(ies). Article 13 A party objecting to an order to suspend payment under an L/C may apply for review by the People's Court one level up within 10 days of the service of the order, and the reviewing Court shall render its order within 10 days of receipt of the review application. During the review period, the execution of the original order shall proceed. Article 14 In adjudicating cases involving L/C fraud, the People's Court may try the L/C dispute and any dispute(s) over the underlying transaction in the same proceeding, where necessary. When a party sues on the grounds of underlying transaction fraud, it may list as a third party to the proceeding the issuing bank, negotiating bank or any other stakeholder(s) in the L/C transactions who is concerned with the dispute. Such concerned party(ies) may apply for participation in the proceeding as a third party, while the People's Court may advise such party(ies) to participate too. Article 15 Upon determination through substantive trial that L/C fraud is established and none of the circumstances stipulated in Article 10 is present, a judgment shall be made to terminate payment under the L/C. Article 16 Unless otherwise stipulated in the guarantee contract, the guarantor's submission that its guarantee obligation is discharged on the grounds that the issuing bank or applicant has accepted discrepancies without its approval will not be upheld by the People's Court. Article 17 Unless otherwise stipulated in the guarantee contract, the guarantor is only liable for the period and within the scope as set in the original guarantee contract or as stipulated by law if an L/C is amended without its approval. Article 18 The provisions shall become effective as of January 1st, 2006. TRANSLATORS' DISCLAIMER This translation, being the only one done with the authorization of the Supreme People's Court of P. R. China, is completed under the auspices of ICC CHINA. However, the Chinese version is the sole official version with legal force, whereas this English version is for information only. Neither ICC CHINA, nor the Supreme People's Court of P. R. China nor the translators guarantee the accuracy or completeness of the translation, nor shall any of them be held liable to any party for any loss in reliance on the translation. This translation is finalized by Wang Yun, Li Haifeng, Gao Xiaoli and Gao Jie on the basis of draft prepared by Xu Jun, Jia Hao, Ma Shen, Jiang Xu, Wei Zhiyu