DCW Updates
DCW Monthly: December 2024
We’re thrilled to share the newest edition of DCW’s premium monthly content. This month’s highlights include: * Five
DCW Feature
Australia and New Zealand Banking Group Ltd. Manila Branch v. China National Electric Engineering Co., Ltd. & Bank of Jiangsu [2023]
Disputes over Independent Guarantee Fraud, Independent Guarantee Payment, and Improper Dishonor
Civil Judgment of First Instance and Final Instance on 24 August 2023, Second International Commercial Court of the Supreme People’s Court of the PRC[[1]]
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Australia and New Zealand Banking Group Ltd. Manila Branch v. China National Electric Engineering Co., Ltd. & Bank of Jiangsu
Case Number: (2020) Zui Gao Fa Shang Chu No. 2
Case Number: (2020) Zui Gao Fa Shang Chu No. 3
Type of Lawsuit: Disputes over Independent Guarantee Fraud, Independent Guarantee Payment, and Improper Dishonor.
Topics: PRC Independent Guarantee Provisions; Jin Saibo; Classification of Standby LC; China; Chinese Law; ISP98; ISP98 Rule 1.01; ISP98 Official Commentary; Legal Application of Standby LCs; Counter Standby; Independent Guarantee; Complying Demand; Independent Guarantee Fraud; Injunction; Wrongful Dishonor; Interest and Costs for Wrongful Dishonor; PRC LC Rules; UCP600; URDG758; DOCDEX; Philippines; ANZ Bank; Bank of Jiangsu
Parties:
• Standby LC Issuer – Australia and New Zealand Banking Group Ltd. Manila Branch (ANZ, Manila Branch)
• LC Advising Bank – Australia and New Zealand Banking Group Ltd. Shanghai Branch (ANZ, Shanghai Branch)
• Counter Standby LC Issuer – Bank of Jiangsu
• Local Branch – Bank of Jiangsu, Beijing Branch
• Standby LC Applicant – China National Electric Engineering Co., Ltd.
• Standby LC Beneficiary – D.M. CONSUNJI.INC. (Consunji)
Underlying Transaction: Subcontracting Contract for Philippine Engineering Project.
LC: Standby Letter of Credit for USD 22,979,687.50. Subject to ISP98 and the law of the Philippines. Counter Standby Letter of Credit for USD 22,979,687.50. Subject to ISP98 and the Provisions of Supreme People's Court on Several Issues Relating to the Hearing of Disputes over Independent Letter of Guarantee (PRC Independent Guarantee Provisions).
Judges: Chief Judge: Shen Hongyu, Judges: Xi Xiangyang, Sun Xiangzhuang, Yu Xiaohan, Guo Zaiyu.
Decision:
• Case No. 2: The court found that the demands of ANZ, Manila Branch under the Counter Standby LC did not constitute fraud and ruled in favor of ANZ, Manila Branch.
• Case No. 3: The court found that the payment obligation of Bank of Jiangsu had not been terminated and Bank of Jiangsu should pay ANZ, Manila Branch USD 6 million and interest under the Counter Standby LC.
Rationale:
• Case No. 2: Since the evidence of fraud by ANZ, Manila Branch under the Counter Standby LC did not meet the “excluding reasonable doubt” standard as stipulated in Article 20 of the PRC Independent Guarantee Provisions, the demands of ANZ, Manila Branch did not constitute fraud.
• Case No. 3: Since the demands of ANZ, Manila Branch did not constitute fraud, the payment obligation of Bank of Jiangsu was not terminated. Bank of Jiangsu should pay ANZ, Manila Branch USD 6 million under the Counter Standby LC and interest.
Case Number: (2020) Zui Gao Fa Shang Chu No. 2
Case Number: (2020) Zui Gao Fa Shang Chu No. 3
Type of Lawsuit: Disputes over Independent Guarantee Fraud, Independent Guarantee Payment, and Improper Dishonor.
Topics: PRC Independent Guarantee Provisions; Jin Saibo; Classification of Standby LC; China; Chinese Law; ISP98; ISP98 Rule 1.01; ISP98 Official Commentary; Legal Application of Standby LCs; Counter Standby; Independent Guarantee; Complying Demand; Independent Guarantee Fraud; Injunction; Wrongful Dishonor; Interest and Costs for Wrongful Dishonor; PRC LC Rules; UCP600; URDG758; DOCDEX; Philippines; ANZ Bank; Bank of Jiangsu
Parties:
• Standby LC Issuer – Australia and New Zealand Banking Group Ltd. Manila Branch (ANZ, Manila Branch)
• LC Advising Bank – Australia and New Zealand Banking Group Ltd. Shanghai Branch (ANZ, Shanghai Branch)
• Counter Standby LC Issuer – Bank of Jiangsu
• Local Branch – Bank of Jiangsu, Beijing Branch
• Standby LC Applicant – China National Electric Engineering Co., Ltd.
• Standby LC Beneficiary – D.M. CONSUNJI.INC. (Consunji)
Underlying Transaction: Subcontracting Contract for Philippine Engineering Project.
LC: Standby Letter of Credit for USD 22,979,687.50. Subject to ISP98 and the law of the Philippines. Counter Standby Letter of Credit for USD 22,979,687.50. Subject to ISP98 and the Provisions of Supreme People's Court on Several Issues Relating to the Hearing of Disputes over Independent Letter of Guarantee (PRC Independent Guarantee Provisions).
Judges: Chief Judge: Shen Hongyu, Judges: Xi Xiangyang, Sun Xiangzhuang, Yu Xiaohan, Guo Zaiyu.
Decision:
• Case No. 2: The court found that the demands of ANZ, Manila Branch under the Counter Standby LC did not constitute fraud and ruled in favor of ANZ, Manila Branch.
• Case No. 3: The court found that the payment obligation of Bank of Jiangsu had not been terminated and Bank of Jiangsu should pay ANZ, Manila Branch USD 6 million and interest under the Counter Standby LC.
Rationale:
• Case No. 2: Since the evidence of fraud by ANZ, Manila Branch under the Counter Standby LC did not meet the “excluding reasonable doubt” standard as stipulated in Article 20 of the PRC Independent Guarantee Provisions, the demands of ANZ, Manila Branch did not constitute fraud.
• Case No. 3: Since the demands of ANZ, Manila Branch did not constitute fraud, the payment obligation of Bank of Jiangsu was not terminated. Bank of Jiangsu should pay ANZ, Manila Branch USD 6 million under the Counter Standby LC and interest.
Factual Summary:
(Facts of Case No. 2 and Case No. 3 are identical)
1.1 Signing and Performance of the Underlying Contract
On 22 December 2011, China National Electric Engineering Co. (China Electric) entered into a subcontract with D.M. Consunji, Inc., the main contractor, to work on a project for Southwest Luzon Power. China Electric was responsible for equipment and design, while Consunji handled civil engineering. The contract was worth USD 229,796,875 and China Electric was required to provide a performance guarantee amounting to 10% of the contract value.
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Cases Referenced:
• Ping An Bank Co., Ltd. v. Huishang Bank Co., Ltd. [2020] [2019] Wan 01 Min Chu No. 2479 [PR China]
• Ping An Bank Co., Ltd. v. Huishang Bank Co., Ltd. [2020] [2019] Wan 01 Min Chu No. 2479 [PR China]