Defendant-Appellant: Ha??erbin Hualong Traffic Construction Ltd.
Address: Youyi Road No. 392, Daoli District, Ha??erbin, Helongjiang Province.
Legal Representative: Han Shoude, president
Authorized Deputy: Zhang Shuwen, general manager
Authorized Attorney: Tao Zengtian, attorney-at-law of Xincheng Law Firm, Ha??erbin
Plaintiff-Appellee: Helongjiang Branch, China Bright Bank
Address: Diduan Street No. 8, Daoli District, Ha??erbin, Helongjiang Province
Responsible Person: Du Jianzhong, president of Helongjiang Branch
Authorized Deputy: Tang Zhiwei, clerk of Helongjiang Branch
Defendant in original instance: Helongjiang Technical Cooperation Group on International Engineering
Address: Youyi Road No. 392, Daoli District, Ha??erbin, Helongjiang Province.
Legal Representative: Han Shoude, president
Authorized Attorney: Tao Zengtian, attorney-at-law of Xincheng Law Firm, Ha??erbin
The applicant, Ha??erbin Hualong Traffic Construction Ltd., refuses to accept the 1998-He-Jing-Chu-Zi-30 civil judgement on the cases of controversy over recoursing imprest decided by Higher People??s Court of Helongjiang and appeals to this court. This Court has duly organized a collegial panel including the presiding judge Wangyun, the deputy judges Chen Jizhong and Qian Xiaocheng, and held a trial. Ren Xuefeng is the court clerk. The case has now come to a close. This court has affirmed the following facts:
On May 15, 1995, He??erbing Hualong Traffic Construction Ltd. (hereinafter referred to as Hualong Ltd.) applied Ha??erbin Branch of China Investment Bank (hereinafter referred to as Investment Bank) to issue a LC in order to purchase grabs made in South Korea. On May 18, Investment Bank issued a 540-day usance irrevocable documentary LC with the number of L/C3095025. The sum recorded on the LC is $1,540,000, and its beneficiary is South Korea Modern Co. The payment date is December 13, 1996. Both parties agreed that the above LC is a freely negotiable LC, and is subject to The Uniform Customs and Practice for Documentary Credits (1993 revision ICC Publication 500) and engage us in accordance with the terms thereof (hereinafter referred to as UCP500). On the same day, Helongjiang Technical Cooperation Group on International Engineering (hereinafter referred to as International Engineering Group) secured for the 80 percent of $1,540,000 recorded on the LC of Hualong Ltd., i.e.$1,232,000, by issuing an irrevocable contract of guaranty to Investment Bank. International Engineering Group promised to pay all money within the secured money absolutely in three days after receiving the written notification sent by Investment Bank on condition that Hualong Ltd. fails to pay the money recorded on the LC on time, and would like to compensate all damages caused by the liability for paying money on time and to pay the liquidated damages at the rate of 10 percent of secured money.
On June 1, 1995, Investment Bank modified the LC in answer to the request of Hualong Ltd., adding $231,000 to the sum recorded on the LC. Then, South Korean Modern Co. negotiated at Seoul Branch of Singapore Oversea Chinese Bank (hereinafter referred to as Seoul Branch). Investment Bank notified Hualong Ltd. as soon as receiving the documents for importing submitted by Seoul Branch on July 18, 1995, and accepted after Hualong Ltd. agreed to accept.
On July 27, 1996, Hualong Ltd. wrote to Investment Bank and requested not to pay South Korea Modern Co. because of the poor quality of its grabs. At the same time, Hualong Ltd. brought the litigation against Dalian Office of South Korea Modern Co. to Ha??erbin Intermediate People??s Court (hereinafter referred to as Intermediate Court), claiming attachment by blocking the capital recorded on the LC. Intermediate Court decided to block the above capital. After the payment date of the LC matured, Seoul Branch notified Investment Bank to pay the money recorded on the LC in the name of negotiating bank and demurred at the ruling made by Intermediate Court. Intermediate Court cancelled the block on February 17, 1998, and Investment Bank paid $1,771,000 recorded on the LC to Seoul Branch on March 2. On May 25, 1998, Investment Bank brought the litigation against Hualong Ltd. to the court of original instance when failing to recourse imprest, and claimed Hualong Ltd. to pay the imprest of $1,771,000 and the relevant interest of $77,924 from the date of paying the imprest to June 22, 1998 (counted at the four-of-ten-thousandth rate per day) and International Engineering Group to bear the joint and several guaranty liability of $1,232,000 and to pay the liquidated damages of $123,200.
The fact is affirmed that Investment Bank paid the interest of $134,704.32 for paying in delay to Seoul Branch on June 26, 1998.
It is also affirmed that, in term of Guang-Yin-Fa-1999-96 ?°Urgent Notice on Issues about State Exploitation Bank and China Bright Bank Transferring and Taking-over the Whole Assets, Debts and Branches of China Investment Bank?±, China Bright Bank takes over the whole assets, debts, 137 offices of twenty-nine branches and the management departments in Shanxi Province and Inner Mongolia Regional Autonomy which belong to China Investment Bank. China Bright Bank enjoys all creditor??s rights and bears all debts. The original Ha??erbin Branch of China Investment Bank is taken over by Helongjiang Branch of China Bright Bank (hereinafter referred to as Bright Bank).
Moreover, it is affirmed that, International Engineering Group dose not pay the charges for the second instance of this case though it has submitted the appeal petition to this court in the legal term for appeal. On May 17, 1999, this court notified International Engineering Group to pay the charges of ?¤83,510 for the second instance in 7 days by issuing the notification of 1999-Jing-Zhong-Zi-208, on which it is written that the appeal would be regarded to be withdrawn voluntarily in case the relevant charges are not paid on time. International Engineering Group did not pay the above charges on time, although it signed on the notification on May 28.
Helongjiang Higher People??s Court holds: The LC transaction is different from the contract of sales because the former is the transaction of documents independent of the latter which indicates the former cannot be influenced by the latter. Only if the documents conform to the LC, the issuing bank is obligate to pay in the stipulated term. It tallies with the normal custom about international settlement for Investment Bank to accept the documents for importing after examining the compliance between documents and terms of the LC and receiving the permission of Hualong Ltd. in accordance with UCP500. Investment Bank??s responsibility has been changed from those to the LC to the absolute payment to the documents till this time. Therefore, Hualong Ltd. should bear the liability for the interest damages to pay in delay because it neither conforms to the provisions of law nor tallies with the international custom for Hualong Ltd. to refuse the payment due to the quality questions of grabs, to request attachment by blocking the capital recorded on the LC. Hualong Ltd. is obligated to pay off the imprest for Investment Bank. The contract of guaranty issued by International Engineering Group is valid, for the declaration of will is true and conforms to the provisions of law. Thus, International Engineering Group is obligate to bear the joint and several liability for the debt of Hualong Ltd. within the secured sum and pay the liquidated damages. This Court hereby decided as follow pursuant to Article 4 and Article 108 of General Principles of Civil Law of the People??s Republic of China, and Clause 1 of Article 21 of Guaranty Law of the People??s Republic of China: 1. Hualong Ltd. shall pay Investment Bank the imprest of $1,771,000 and relevant interest of $77,924 (counted till June 22, 1998) in 10 days after the judge becomes in effective, and pay the damage of $134,704.52 for the interest arising from the delay payment and relevant interest counted from June 26, 1998. 2. International Engineering Group shall bear the joint and several liability for paying off within the secured sum of $1,232,000 and relevant interest, and pay the liquidated damages of $123,200. The cost of the case shall be borne by Hualong Ltd.
Hualong Ltd. refuses to accept the judgement of original instance and claims in the appeal petition that: 1. The obviously fraudulent will of South Korea Modern Co. results the economic damage in great sum to the appellant, which has been confirmed by the Merchandise Examination Bureau by issuing the certificate to demand for reimbursement. In term of relevant provisions in Fa-Jing-Fa-1989-12 document issued by the Supreme People??s Court on June 12, 1989, it is reasonable for the appellant to request to block the assets belonging to South Korea Modern Co., i.e. the money recorded on the LC, especial it is prescribed in the provisions to block the money gingerly instead of prohibitively. However, the court of original instance decides that the appellant??s request violates the law, which obviously is erroneous application of laws. 2. The ruling on blocking the money recorded on the LC made by Intermediate Court is valid and the appellee shall enforce the ruling. However, the ruling on attachment lasts 444 days that exceeds the term of payment recorded on the LC. In accordance with Article 17 of UCP500, the appellee shall not pay. On the contrary, in order to protect its own reputation, the appellee not only pays without special authorization but also compensates the so-called damages, which violates the international custom and shall bear all liability. 3. The court of original instance decides that the appellant shall pay the interest of $77,924 counted from the date of payment, i.e. March 2, 1998, to June 22, 1998, which is 110 days in total. So high interest is not prescribed in China, and is obviously unfair for the appellant to pay above interest. 4. On May 18, 1995, the appellant entrusts the appellee to modify the content of LC, in which the term of repair promised by the imported equipment is 2,880 working hours that are included in the 540-day usance term. Then, any matters appearing in the above course should be considered as the facts that the beneficiary breaches the LC. The appellee shall refuse to pay due to the beneficiary??s breach, which also is the important reason for the court to block the LC. Nevertheless, the appellee pays the money presumptuously without considering the modified content. Thus, the appellee shall bear the liability. It is unfair for the judgement of original instance to hold that the appellee shall not be investigated for its breach whereas International Engineering Group shall perform its promise for securing the payment. The appellant requests to withdraw the original judgement and dismiss all of the appellee??s claims, and the appellee shall bear the cost of this case.
Investment Bank alleges: 1. It is correct for the court of original instance to decide that Intermediate Court mistakenly blocks the capital recorded on L/C3095025. (1) The litigation against South Korea Modern Co. brought to Intermediate Court by the appellant is on the controversy over the quality of productions rather than swindling case; (2) The appellant partially cites the Fa-Jing-Fa-1989-12 document. It is said following the cited sentences that the people??s court shall not enforce the attachment in case that China Bank has accepted the bill of exchange because China Bank shall bear responsibility for absolute payment to the document instead of that to the usance credit. In this case, the appellee accepts the bill of exchange recorded on the LC on July 18, 1995, and its responsibility has been changed to the absolute payment to the document. 2. The appellee is not false to pay and compensate in the light of international custom after Intermediate Court quashes the attachment. No legal basis exists to support the appellant??s claim that the court should decide this case in accordance with UCP500 and it is force majeure, i.e. the ruling of attachment made by the court, that halts the implementation. 3. There is no relater between the LC and the trading controversyr existing between the appellant and South Korea Modern Co. In accordance with Article 3, Article 4 and Article 15 of UCP500, the LC is independent of the contract of sales or any other contract on which it bases. It is the documents rather than the goods, services or any other deeds involved in the documents that the bank deals with when operating the LC. In this case, the appellant claims that the beneficiary has accepted all modified content on the LC and confirmed the compliance between documents and terms of the credit after the appellee examines. As far as the issue that whether the content of the LC is enforced in practice, which has nothing to do with the LC, it cannot be the reason for the appellee refusing to pay for the LC. 4. Since the appellant dose not pay the relevant interest after being urged by the appellee many times, the interest should be counted from the day that the appellee is forced to pay the sum of $1,771,000 recorded on the LC to the day that the appellee brings the litigation, which is 110 days in total. In accordance with the state regulations on banking accounting, the above imprest shall be regarded as overdue loan whose interest is counted at the rate of four ten-thousandth per day. Thus, the so-called high interest does not exist. 5. Since the judgement of original instance decides the facts definitely and applies the laws correctly, Investment Bank claims to dismiss the appeal and affirm the judgement of first instance.
International Engineering Group alleges: 1. The guaranty is void due to its illegal form. In accordance with Article 13 of Guaranty Law of the People??s Republic of China, the guarantor and the creditor shall reach the contract of guaranty in written form. However, in this case, International Engineering Group only issues a deed of security, which obviously dose not conform to the above regulations and has no legal validity. The judgement of original instance mistakenly confirms an important fact by confusing the deed of security with the contract of guaranty. 2. Even if the deed of security is valid, International Engineering Group bears the guaranty liability only when the creditor refuse to perform the debt because the deed of security is general guaranty in the light of Guaranty Law. It is prescribed in Article 25 of Guaranty Law that the term of guaranty shall be six months counted from the date of expiration of the term for performing the principle debt in case the guarantor and the creditor dose not stipulate the term of guaranty for the contract of general guaranty. In the course of stipulated term of guaranty and the term of guaranty prescribed in the above article, the guarantor shall be exempted from the guaranty liability in case the creditor dose not bring the litigation or apply the arbitration against the debtor. Although the date of payment for the secured person, Hualong Ltd., is on December 13, 1996, the secured person dose not bring the litigation until June 22, 1998, which undoubtedly exceeds the prescribed term of guaranty. Therefore, the guaranty liability shall be exempted. 3. It is definitely prescribed in Guaranty Law of the People??s Republic of China that the guarantor of general guaranty is entitled to refuse to bear the guaranty liability to the creditor before the controversy over the principle contract has not been judged or arbitrated and the debt cannot be performed after mandatorily enforcing the debtor??s assets in term of law. Therefore, the guarantor is obligate to pay the debt for the debtor only when the debt cannot be performed after mandatorily enforcing the debtor??s assets. No breach of contract exists at all. Especially when the maximum quota of liquidated damages prescribed in laws is 5 percent, it lacks legal basis for the court of original instance to decide International Engineering Group to pay the liquidated damages at the rate of 10 percent. International Engineering Group claims to dismiss the second decision in the judgement of original instance and decide International Engineering Group is exempted from the joint and several liability for satisfaction and the liability for paying the liquidated damages.
This Court holds that Investment Bank brings the litigation to the court of original instance according to the agreement on requesting to issue the LC with Hualong Ltd., the guaranty relation with International Engineering Group and the fact of paying the sum recorded on the LC to the negotiating bank abroad.
It is definitely stipulated in the additional articles to the requisition for the LC that the LC involved in this case applies UCP500, which conforms not only to the true will of both parties but also to relevant provisions on the application of law of civil relation involved foreign elements in General Principles of Civil Law. Therefore, the jural relation of LC involved in this case shall apply the relevant provisions of UCP500, according to which the following facts are to be examined that whether Investment Bank accepts and pays in term of above international custom and is entitled the right to claim the imprest to the applicant for the credit, Hualong Ltd.
It is prescribed in Clause a of Article 3 of UCP500 that the LC is independent of the contract of sales and other contracts which would be the basis for the LC. Even if the LC cites any content of above contracts, the bank has nothing to do with above contract and shall not be obligated to the contracts. Thus, a bank shall not be enslaved to any demand for reimbursement or plea arising from existing relation between the applicant and the issuing bank or the beneficiary when the bank promises to accept and pay the bill of exchange, or to negotiate or perform any other obligation recorded on the LC. It is prescribed in Article 4 that all parties in the LC transaction deal with the bill of documents rather than the goods, services or any other deeds involved in above documents, which establishes the principle of independent abstract for the LC. The LC is an agreement existing between the issuing bank and the beneficiary and shall not be limited by the principle contract of sales after issuing though it bases on above contract. The validity of the principle that the jural relation between the issuing bank and the beneficiary is independent of the principle contract of sales is that the issuing is obligate to pay only if the beneficiary submits the bill of documents conforming to the LC, even if the goods recorded on above documents dose not tally with the stipulation on the principle contract of sales, or there is any stipulation different from the articles in the LC. In this case, Investment Bank accepts after receiving all required bill of documents submitted by Seoul Branch, the negotiating bank, examining the compliance between the documents and terms of the credit and obtaining the agreement of the applicant of LC, which tallies with relevant provision of UCP500 absolutely. In term of Issue 1 of Clause a of Article 14 of UCP 500 that the pointed bank, who has paid, has borne the liability for pay in delay, has accepted the bill of exchange or has negotiating, is obligate to pay, Investment Bank is obligate to pay to Seoul Branch and is entitled the right to be paid by the applicant of LC, Hualong Ltd., for the imprest. The facts shall not influence the issuing bank??s right to pay the sum recorded on the LC when the documents conform to terms of the credit and to request Hualong Ltd. to pay off that whether the LC has been modified and whether the beneficiary breaches the stipulation on quality on the LC. Therefore, the claim of Hualong Ltd. that Investment Bank shall engage itself to the LC and bear the liability for pay without authorization is unreasonable and cannot be supported by this court.
In the course of litigation, the reason for plea to refuse the payment that Hualong Ltd. always claims is that the beneficiary is false when reaching the principle contract of sales, which also is its leading reason for appeal. In the light of the principle of independent abstract for the LC, what the bank shall concern with is the bill of documents rather that the goods. Only if above documents conform to the stipulation of the LC apparently, the issuing bank shall pay and not engage itself to the principle transaction. It is not stipulated in UCP500 that whether the beneficiary shall be protected by the principle of independent abstract when it swindles. Some laws and court??s cases in the countries with Anglo-American law system admit the practice situations in the course of international business transaction shall be considered when applying the principle of independent abstract and exception shall be permitted under the special conditions, among which the main one is the beneficiary??s fraud, with the premise of confirming above principle. There are no definitely provisions in laws and regulations that are in force in China on the exception of fraud, which deduces prudent attitude in practice. Nevertheless, the appellant, Hualong Ltd., has never submit any undoubted evidence for its claim that the beneficiary swindles in the course of litigation, and the so-called fact for supporting the fraud actually is some issue on the quality of imported equipment, which is the controversy over quality in the course of performing the principle contract of sales and shall not influence the stipulated method for settling the LC. Therefore, this court decides to dismiss the reason for appeal brought forward by Hualong Ltd. that the beneficiary of the LC involved in this case swindles.
Before bringing this litigation, Hualong Ltd. had requested Intermediate Court to block the capital recorded on the LC involved in this case with the reason of quality controversy by taking the beneficiary of above LC as the party against whom as application is filed. Intermediate Court made the civil ruling that results in the capital recorded on the LC is blocked. Then, Intermediate Court withdraws above ruling. In its appeal petition, Hualong Ltd. claims that the attachment is valid and Investment Bank shall refuse to pay in term of the writ of attachment and Article 17 of UCP500 and bear the liability for paying without authorization. The claims mentioned above also have no factual and legal bases. Firstly, what is prescribed in Article 17 of UCP500 is that the issuing bank can refuse to pay under the condition of force majeure, which dose not exist in this case. Secondly, the LC is an independent promise made by the issuing bank to the beneficiary. In case the fraud cannot be detected from the appearance of the bill of documents and no other undoubted evidences indicate the existence of fraud, it can be thought that the applicant of the LC is not entitled with the right to restrict the bank??s payment. The facts in this case are that the usance LC applied to issue by Hualong Ltd. has been negotiated by Seoul Branch and the issuing band has accepted the bill of exchange recorded on the LC to the negotiating bank. Till now, Investment Bank??s obligation to the LC has changed into the obligation for absolute payment to the bill of documents. In accordance with the provisions in Summary of Symposium on Judgement of Economic Cases Involved Foreign, Hongkong or Macau Elements In Coastal Areas In China filed as Fa-Jing-Fa-1989-12 that was published on June 12, 1989, the people??s courts shall not block the capital recorded on the LC involved in this case. As a result, it is correct for the judgement of original instance that the requisition for attachment dose not conform to the international custom and Hualong Ltd. shall compensate the interest arising from the delay payment. In fact, the relation of rights and obligations to the bill of documents has existed between the issuing bank and the negotiating bank when Investment Bank accepts to the negotiating bank. The negotiating bank has become the bona fide holder and the issuing bank shall be obligate to pay. It is not in error for Investment Bank to pay the sum recorded on the LC to the negotiating bank after Intermediate Court withdraws the ruling of attachment. Investment Bank is entitled to request Hualong Ltd., the applicant of the LC, to pay off relevant money, including the sum recorded on the LC and other charges arising out of the delay payment.
Investment Bank paid the imprest of $1,771,000 recorded on the LC for Hualong Ltd., which shall be regarded as the overdue loan in term of the state regulations on banking accounting and the interest rate is four ten-thousandth per day. Therefore, it is correct for the court of original instance to decide that Hualong Ltd. shall pay the interest of $77,924 counted till June 22, 1998. No high interest rate claimed by the appellant exists. The reason for appeal claimed by the appellant lacks factual basis and cannot be supported by this court.
Although International Engineering Group brings the litigation to this court in the legal term for appeal, it dose not pay the cost for second instance in the prescribed term. In the light of Clause 2 of Article 13 of Measures for the People??s Court Charging the Cost of Litigation, it shall be regarded as to withdraw the appeal. It is prescribed in Article 35 in Some Rules on Issues of Reforming the Methods of Judging Civil and Economic Case, the second instance shall be dealt with within the parties?? claims and the appeal petition shall not be examined in case the parties dose not claim. Therefore, this court shall not examine the demur on the guaranty claimed by International Engineering Group in the course of second instance.
In sum, Investment Bank accepts and pays in accordance with the stipulated international custom and enjoys the right to request Huanlong Ltd. to pay off the imprest recorded on the LC and relevant charges due to delay payment. Since Bright Bank has wholly taken over Investment Bank, Hualong Ltd. shall pay off the debt involved in this case to Bright Bank. The appeal of Hualong Ltd. is unreasonable and shall be dismissed. The judgement of original instance that confirms facts definitely and applies the laws correctly shall be affirmed. This Court hereby decides as follow pursuant to Issue 1 of Clause 1 of Article 153 of Civil Procedure Law of the People??s Republic of China:
To dismiss the appeal and affirm the judgement of original instance.
The cost of the second instance of this case is ?¤83,510, and shall be borne by Hualong Ltd..
This judgement is final.
Presiding Judge: Wang Yun
Judge: Chen Jizhong
Deputy Judge: Qian Xiaochen
Date: July 5, 2001
Court Clerk : Ren Xufeng
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