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Interpretation of the Supreme People’s Court
[2005] No. 13
Provisions of the Supreme People’s
Court on Some Issues Concerning the Trial of Cases of Disputes over Letter
of Credit
According to the General Principles of the Civil Law of the People’s
Republic of China, Contract Law of the People’s
Republic of China, Guaranty Law of the People’s Republic of China and Civil
Procedural Law of the People’s Republic of
China, and in light of the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce
and other relevant international practices, and by taking into consideration
the adjudication practices, these Provisions are
formulated to address some issues concerning the trial of
cases of disputes over letter of credit.
Article 1 For the purposes of these Provisions,
the term “case of dispute over the letter of credit” shall mean the
case of dispute arising in the links such as issuance, notification,
revision, revocation, confirmation, negotiation
and acceptance of letter of credit.
Article 2 When the people’s court hears a case
of dispute over letter of credit, if any stipulation is made by the
parties concerned that the relevant international practices or other
provisions should be applicable in the case of dispute
over letter of credit, such stipulation shall prevail; if no stipulation is
made by the parties concerned, the Uniform
Customs and Practice for Documentary Credits of the International Chamber of
Commerce and other relevant
international practices shall be applicable to the case.
Article 3 These Provisions shall apply to the
arrearage disputes between an applicant for the issuance of a letter of
credit (hereinafter referred to as the applicant) and the issuing bank which
arise from the application for the issuance
of a letter of credit, disputes between an entrusting party and the
entrusted party which arise from the entrustment for
the issuance of a letter of credit, disputes over the guarantor’s provision
of a guaranty for the application for
the issuance of a letter of credit, or for the issuance of a letter of
credit upon entrustment, as well as the disputes
over the financing under a letter of credit.
Article 4 The relevant laws of the People’s
Republic of China shall be applicable to the arrearage disputes arising from
the
application for the issuance of a letter of credit, disputes arising from
the entrustment for the issuance of a letter of
credit, disputes arising from the guaranty therefore as well as the disputes
over the financing under a letter of credit,
unless the parties to a foreign-related contract stipulate otherwise for the
application of law.
Article 5 After the issuing bank makes a
commitment on the payment or acceptance of a letter of credit or performance
of
other obligations under the letter of credit, the issuing bank shall perform
the payment obligation within the time limit as
specified in the letter of credit as long as the documents conform to the
clauses of the letter of credit and the
documents conform to each other on the surface. If a party concerned
initiates a protest for the reason of the basic
transaction between the applicant and the beneficiary, the people’s court
shall not support it, except under the
circumstances as prescribed in Article 8 of these Provisions.
Article 6 When the people’s court needs to check
the
documents in hearing the case of dispute over the letter of
credit, it shall comply with the relevant applicable
international practices or other provisions as stipulated by
the parties concerned. If the parties concerned fail to make
any stipulation, it shall, in accordance with the Uniform
Customs and Practice for Documentary Credits and other
relevant standards provided for by the International Chamber
of Commerce, determine whether or not the documents conform to
the clauses of the letter of credit and whether or not the
documents conform to each other on the surface.
If the documents under a letter of credit do not completely
conform to the clauses of the letter of credit, and the
documents do not completely conform to each other on the
surface, but there is no discrepancy between them, the
people’s court shall not deem that any discrepancy has
constituted.
Article 7 An issuing bank shall have the right and obligation
to check the documents independently. It shall have the right
to decide, on its own initiative, whether or not the documents
conform to the clauses of the letter of credit and whether or
not the documents conform to each other on the surface, and
whether to accept or reject the discrepancies between the
documents and clauses of the letter of credit or between the
documents.
After the issuing bank finds that there is a discrepancy
under the letter of credit, it may, on its own initiative,
decide whether or not to contact the applicant to accept the
discrepancy. The applicant’s decision of whether or not to
accept the discrepancy will not have any influence on the
issuing bank’s final decision of whether or not to accept the
discrepancy unless the issuing bank and the applicant have
stipulated otherwise.
If the issuing bank clearly expresses to the beneficiary its
acceptance of the discrepancy, it shall bear the payment
obligation.
If the issuing bank refuses to accept the discrepancy and if
the beneficiary requests the issuing bank to bear the payment
obligation the under the letter of credit on the grounds that
the applicant has accepted the discrepancy, the people’s court
shall not support the request.
Article 8 The letter of credit fraud shall be determined as
constituted under any of the following circumstances:
(1) The beneficiary forges documents or provides documents
containing false information;
(2) The beneficiary maliciously refuses to deliver the goods,
or delivers goods of no value;
(3) The beneficiary provides false documents by colluding
with the applicant or a third party and there isn’t any true
basic transaction; or
(4) Other circumstances under which letter of credit fraud is
conducted.
Article 9 If the applicant, issuing bank or any other
interested party finds any of the circumstances as prescribed
in Article 8 of these Provisions, and believes that
irremediable losses will be caused to it, it may file an
application with the competent people’s court for suspending
the payment under the letter of credit.
Article 10 If the people’s court maintains the occurrence of
the letter of credit fraud, it shall make a ruling on
suspending the payment or a judgment on terminating the
payment under the letter of credit, except for any of the
following circumstances:
(1) The nominee or entrusting party of the issuing bank, in
bona fide, has made the payment according to the instructions
of the issuing bank;
(2) The issuing bank or the nominee or entrusting party
thereof, in bona fide, has honored the instrument under the
letter of credit;
(3) The confirming bank, in bona fide, has performed the
payment obligation; or
(4) The negotiating bank, in bona fide, has negotiated the
payment.
Article 11 Where a party concerned files an application for
suspending the payment under the letter of credit before it
initiates legal proceedings, and if the following conditions
are met, the people’s court shall accept the application:
(1) The people’s court that accepts the application has the
jurisdiction over the case of dispute over the letter of
credit;
(2) The evidential materials presented by the applicant prove
the existence of any of the circumstances as prescribed in
Article 8 of these Provisions;
(3) If no measure is taken to suspend the payment under the
letter of credit, the legitimate rights and interests of the
applicant will be damaged beyond remedy;
(4) A reliable and full guaranty has been provided by the
applicant; and
(5) None of the circumstances as mentioned in Article 10 of
these Provisions exists.
A party concerned shall satisfy the conditions as prescribed
in Items (2) through (5) of the preceding paragraph if it, in
the court action, applies for suspending the payment under the
letter of credit.
Article 12 The people’s court should make a ruling within 48
hours after accepting the application for suspending the
payment under the letter of credit. Such a ruling, if made by
the people’s court, shall be executed at once.
The people’s court shall state the applicant, the party
against whom the application is filed and the third party in
the ruling on suspending the payment under the letter of
credit.
Article 13 Where a party concerned has any objections to the
ruling made by the people’s court on suspending the payment
under the letter of credit, it may apply for reconsideration
to the people’s court at the next higher level within 10 days
from the day when the ruling is served. The people’s court at
the next higher level shall make a ruling within 10 days as of
the date of receipt of the reconsideration application.
The original ruling shall not be suspended from execution
during the period of reconsideration.
Article 14 In the course of hearing a letter-of-credit fraud
case, the peoples’ court may, where necessary, put on trial
the dispute over letter of credit together with the dispute
over the basic transaction.
Where a party concerned initiates legal proceedings for basic
transaction fraud, it may list the issuing bank, negotiating
bank or other interested parties, which are involved in the
case for the legal relationship with the letter of credit, as
third parties. The third parties may apply for participating
in the lawsuit. The people’s court may also notify them to
participate in the lawsuit.
Article 15 In case the people’s court, through
substantial
trial, determines that a letter of credit fraud is constituted
and that none of the circumstances as prescribed in Article 10
of these Provisions exists, it shall make a judgment on
terminating the payment under the letter of credit.
Article 16 In case the guarantor makes the
request of
exempting it from the guarantee obligations on the grounds
that the issuing bank or the applicant accepts discrepancies
without getting the consent of the guarantor, it shall not be
supported by the people’s court, unless it is otherwise
stipulated in the guaranty contract.
Article 17 In case the applicant and the issuing
bank revises
the letter of credit without getting the consent of the
guarantor, the guarantor shall only assume the guarantee
obligations on the basis of the time limit and scope as
stipulated in the original guaranty contract or provided for
by the law, unless it is otherwise stipulated in the guaranty
contract.
Article 18 These Provisions shall go into effect
as of
January 1, 2006.
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