Jan 2010 DCW Issue

Published in partnership with BAFT-IFSA

January 2010Volume 14, Number 1

20 FEATUREIIIIIn This Issue...

■■■■■ 3 UPDATES: BAFT-IFSA Seeksto Impact Trade Finance Reform;A First: English Court DecidesUCP600 Case; URDG 758Programmes Held in Asia;Confidence & Concern: Two Viewsof Dubai; Non-Operative Guarantees Used inBogus Sugar Deals; ICC Offers RecommendationsConcerning Piracy Problem; Banks Asked toReduce LC-Related Fees; Philippines Widens LCIssuance Options; New York Offers PropertyOwners Lower LC Fees; Cornèr Banca Latest toOpt for MIT’s CREDOC Software; UK BankLaunches Shariah-Compliant Structured TradeFinance Fund; FHL Bank Fills Financing Void;Banks Sign Refinancing Deal with Glencore;Lincoln National Corp., Credit Suisse Strike LCDeal; Barclays Leads Syndicated Deal forGazprom; International Updates

■■■■■ 12 READERS SPEAK: When ConfirmerRefuses, What Happens to the Confirmation?

■■■■■ 14 LITIGATION DIGEST:■■■■■ Lombard v. Landmark■■■■■ J.P. Morgan Chase Bank, N.A.v. Texas Contract Carpet, Inc.■■■■■ Newly Decided LC &Guarantee Cases

■■■■■ 32 ICC OPINIONS: TA675rev

■■■■■ 34 TEXT: Science Park Administration v.Standard Chartered Bank Full Text

■■■■■ 38 LC STATISTICS:■■■■■ US Branches of Non-Banks (3rd Quarter 2009)

■■■■■ 43 SCAM SURVEY

■■■■■ 45 LC TRADE NEWS

LC JURISDICTION

The exercise of jurisdiction over a letter

of credit case can give rise to disputes

with international dimensions, at times

relying on separate rules outside the

parameters of the LC. In her article, Dr.

Ningning ZHANG takes up the topic of

LC jurisdiction issues in the United

Kingdom. She first examines one set of

rules comprised of two European

Conventions and Judgments Regulation,

then another set consisting of traditional

English jurisdiction rules. This dual

system does present challenges. For

letters of credit, the contrast is even

more pronounced. Because the two sets

of rules are likely to remain for the

foreseeable future, Dr. ZHANG issues a

call for increased harmonization for the

sake of reducing legal costs and conflicts.

2 Documentary Credit World ■ January 2010

Editorial Advisory Board

Sue E. Auerbach (DC)

Michael Evan Avidon, PartnerMoses & Singer LLP (NY)

James G. Barnes*Baker & McKenzie (Chicago)

Alan Bloodgood, Consultant*(retired, J.P. Morgan)

Harold Burman, Senior Counsel,Office of Legal AdviserUS Department of State

Joseph Colleran, Consultant(retired, Irving Trust)

Gary Collyer*Collyer Consulting LLP

Dr. Alan Davidson, Senior LecturerTC Beirne School of LawUniversity of Queensland (Australia)

Philip J. De Chiara(retired, Wells Fargo Bank)

Professor E.P. EllingerNational University of Singapore

Haluk Erdemol, Advisor, Int’l DivisionAkbank T.A.S. (Turkey)

Roger D. Fayers, LLBBarrister (UK); Department of Trade& Industry, Soliciter’s Department(retired)

Clyde Fletcher, Documentation ManagerFonterra Limited

Gerard A. Genevieve(retired, Bank of New York)

Dr. Gerold Herrmann(retired, United Nations Commissionon International Trade Law)

Heinz HertlICC-Austria (retired, Bank Austria/Creditanstalt, Vienna)

George Hisert, PartnerBingham McCutchen LLP(San Francisco)

Professor Katsuto IidaTezukayama University (Japan)

Dean Rafael Illescas OrtizUniversity Carlos III de Madrid (Spain)

Jin Saibo, PartnerBeijing Commerce & FinanceLaw Offices (China)

Carter Klein, PartnerJenner & Block (Chicago)

*Denotes Editorial Board member

Professor Boris Kozolchyk, Director*National Law Center for Inter-American Free Trade

Jack Kurzer, Vice PresidentDeutsche Bank (NY)

Arthur Lloyd, Consultant*(retired, Control Risks, Ltd.)

Professor Salvatore Maccarone“La Sapienza” University - Rome

David Meynell, DirectorDeutsche Bank London

Neal MillardMusick, Peeler & Garrett LLPAdjunct Professor, USC Law School

Dennis Noah*(retired, M&T Bank)

Professor Yorng-Won PaeThe University of Seoul (Korea)

Janis S. Penton, Senior CounselUnion Bank of California, N.A.

Jianbao Shan, Executive Vice PresidentChina Everbright Bank (China)

Martin Shaw, Consultant(retired from Barclays and Lloyds)(London)

Angelo J. Schiraldi, Consultant(retired, IntesaBci (NY)

Donald R. Smith*President,Global Trade Advisory, Ltd.

Soh Chee Seng, Technical Consultant,Trade Finance Issues, the Associationof Banks in Singapore (Singapore)

Joseph Sommer (NY)

Chang-Soon Thomas Song, ManagerKorea Exchange Bank (Seoul)

Professor Jean StouffletUniversity of Clermont - Ferrand(France)

Alexander Zelenov, DirectorBank for Foreign Economic Affairs ofthe USSR (Moscow)

Published by Letter of Credit Survey, Inc. ISSN 1520-0221. Copyright © 2010 by Letter of Credit Survey, Inc. All rightsreserved. No part of this journal may be reproduced in any form, including microfilm, xerography or otherwise, orincorporated into any information retrieval system, without the written permission of the publisher. Single subscriptionprice: $595 per year. Global license information available upon request. This publication is designed to provideaccurate and authoritative information in regard to the subject matter covered. It is sold with the understanding thatthe publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expertassistance is required, the service of a competent professional should be sought.

Documentary Credit World

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phone: +1-301-330-1970

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website: www.doccreditworld.com

Litigation Board

Stanley L. Lane, Jr., MemberOtterbourg Steindler Houston& Rosen, P.C. (NY)

Stanley McDermott III, PartnerPiper Rudnick LLP (NY)

James G. MunisteriGardere Wynne Sewell& Riggs, L.L.P. (Houston)

Editor-in-ChiefProfessor James E. Byrne

Contributing EditorVincent Maulella

Managing EditorChristopher S. Byrnes

Associate Case EditorMatthew C. Butsick

Scam Survey EditorJacob A. Manning

Trade News EditorArushi Sharma

Student Research AssociatesGordon D. BreuerJ. Paul Ferman

ocumentary Credit World, (DCW), is published monthly by Letter of Credit Survey, Inc. Opinions

expressed in it do not necessarily reflectthe official positions of the publishers ofDCW, its Editorial Board, EditorialAdvisory Board, or the organizationswith which they are associated. Authors,editors, members of DCW’s EditorialBoard and Editorial Advisory Board, andthe institutions with which they areassociated often are actively involved inthe field as lawyers, advisers, parties,consultants, or expert witnesses in manyof the matters addressed in DCW. Thepublication often reflects and sometimesadopts their views. Notwithstandingpositions expressed in DCW, everyeffort will be made to publish differingviewpoints and contributions expressingsuch views are welcomed.

DDDDD

January 2010 ■ Documentary Credit World 3

UPDAUPDAUPDAUPDAUPDATESTESTESTESTES

A First: English CourtA First: English CourtA First: English CourtA First: English CourtA First: English CourtDecides UCP600 CaseDecides UCP600 CaseDecides UCP600 CaseDecides UCP600 CaseDecides UCP600 Case

In what is believed to bethe first reported courtdecision involving a

UCP600 letter of credit, anEnglish court held that thewords “MAY ADD” in an LCamount to relevantauthorisation by an issuingbank to a confirming bank toconfirm a credit subject toUCP600.

In Fortis Bank v. IndianOverseas Bank decided on 25September 2009, the Queen’sBench Division, CommercialCourt, Hamblen, J.,concluded that “all [Issuer’s]defences fail save for theconsolidated certificatediscrepancy defence, whichdefence succeeds subject topreclusion issues. In relationto the preclusion point I willallow further evidence/argument to be advancedand will hear counsel as tothe appropriate order to bemade in suchcircumstances.”

DCW has learned that theEngland’s High Court ofJustice will hand down afurther judgment in lateJanuary 2010 on the samecase which is expected tohave wide-rangingimplications for the bankingcommunity and to be thefirst reported case tointerpret UCP600 Article 16.

BAFT-IFSA Seeks toBAFT-IFSA Seeks toBAFT-IFSA Seeks toBAFT-IFSA Seeks toBAFT-IFSA Seeks toImpact Trade FinanceImpact Trade FinanceImpact Trade FinanceImpact Trade FinanceImpact Trade FinanceReformReformReformReformReform

Senior officials of thenewly mergedBAFT-IFSA were in

Europe in January to continuetheir efforts to demonstratethat trade finance is a“relatively safe” bankingendeavor and the need forpositive trade finance reform.

Donna Alexander, chiefexecutive of BAFT-IFSA, andDan Taylor, chief operatingofficer of BAFT-IFSA and vice-chairman of the ICC BankingCommission, say that whileregulators are receptive to thepossibility of reforming tradefinance rules, much workremains to convince them ofhow to do so.

At a time when revivingtrade finance is seen as a vitalcomponent toward energizingeconomic recovery, some fearthat bank regulators could optto go in the other directionand tighten bank lendingrules.

Alexander and Taylor saidindustry surveys and datashow that bankers believe thattrade finance instruments suchas letters of credit are treatedunder bank capital rules asbeing much riskier than theyreally are.

“It’s not really in line withthe level of risk thathistorically these transactionsincur,” said Alexander in aReuters article by JonathanLynn.



A 2009 survey conducted byBAFT illustrated that manybanks found the current rulesfor trade finance under theBasel II regime discouragedthem from extending tradecredit, according to the article.BAFT-IFSA is also currentlyconducting a new survey tocollect feedback in advance ofthe June 2010 G20 summit inCanada.

In addition, Taylor says theICC has initiated a projectwith the Asian DevelopmentBank to develop a tradefinance loan default registry.One of the registry’s aims is togenerate hard figures toreinforce their belief that tradefinance is considerably lessrisky than other forms ofcredit.

URDG 758 ProgrammesURDG 758 ProgrammesURDG 758 ProgrammesURDG 758 ProgrammesURDG 758 ProgrammesHeld in AsiaHeld in AsiaHeld in AsiaHeld in AsiaHeld in Asia

In January 2010, ProfessorJames E. Byrne andMr. Soh Chee Seng

presented programmescomparing URDG 758 to ISP98.Sessions were held inShanghai, Shenzhen, HongKong, Taipei, and Singapore.They were sponsored by ICCChina (PRC locations), co-sponsored by the Institute ofInternational Banking Law &Practice and Wachovia/WellsFargo (HK), the TaiwanAcademy of Banking andFinance, and the Association ofBanks in Singapore. Attendeesincluded approximately 500bankers, corporate financeofficials, attorneys, andgovernment officials.

The focus of thepresentations was RevisedURDG Version 758 which iseffective 1 July 2010. Itsprovisions were comparedwith UCP600 and ISP98, whichwere its primary sources. Thesessions considered the extentto which the revision copied,drew on, or altered these tworules and the strengths and

weaknesses of the revision.One of the surprises that the

sessions revealed was theextent to which UCP600 isused for Demand Guaranteesin Asia.

In light of the success of thepresentations, the Institute ispreparing a DVD fordistribution that capsulizes thepresentations. Informationabout it will be announcedsoon with an expected releaseof 1 March 2010. DCW will alsohighlight features of theURDG revision in comingmonths.

Confidence & Concern:Confidence & Concern:Confidence & Concern:Confidence & Concern:Confidence & Concern:Two Views of DubaiTwo Views of DubaiTwo Views of DubaiTwo Views of DubaiTwo Views of Dubai

According to FinancialExpress, Indianexports to Dubai

remain strong despite theDubai debt crisis. United ArabEmirates was India’s biggestexport destination in 2008-2009, comprising 13% of

2010 Guarantee & Standby Forum2010 Guarantee & Standby Forum2010 Guarantee & Standby Forum2010 Guarantee & Standby Forum2010 Guarantee & Standby Forum

MARK YOUR CALENDAR NOW & PLAN TO ATTEND!

EUROPE: London – 18 May 2010 (hosted by Clyde & Co)MIDDLE EAST: Dubai – 23 May 2010 (hosted by CBD)

HONG KONG: 13 Jul 2010SE ASIA: Singapore – 19 Jul 2010

AMERICAS: New York – 28 Oct 2010

for complete details, contact: +1-301-869-9840 • www.iiblp.org

IIBLP

TheTheTheTheThe Global Authority for Global Authority for Global Authority for Global Authority for Global Authority forGuarantees & Standbys.Guarantees & Standbys.Guarantees & Standbys.Guarantees & Standbys.Guarantees & Standbys.

continued on page 7



BAFT and IFSA Announce Merger to Form BAFT-IFSABAFT and IFSA Announce Merger to Form BAFT-IFSABAFT and IFSA Announce Merger to Form BAFT-IFSABAFT and IFSA Announce Merger to Form BAFT-IFSABAFT and IFSA Announce Merger to Form BAFT-IFSA

January 19, 2010

WASHINGTON – The Bankers’ Association for Finance and Trade (BAFT) and theInternational Financial Services Association (IFSA) announced that the two entities have merged,effective today. Members of each respective organization voted overwhelmingly in favor of themerger last month.

Both BAFT and IFSA bring outstanding pedigree in the world of payments and internationaltrade and finance. Their combination creates the preeminent organization of its kind in the worldand will provide the international financial services community with comprehensiverepresentation; broader, deeper expertise; and expanded resources.

BAFT-IFSA will continue to focus both on the broader issues affecting regional and globaltransactional banking services, such as trade, payments and cross-border financing, and trainingand operations technology—the crucial inner workings of any organization. Bringing the twoentities together under one umbrella gives the combined association increased breadth, depthand influence.

Donna K. Alexander, BAFT president, is now chief executive officer of BAFT-IFSA, while DanTaylor, IFSA president and CEO, is now president and chief operating officer of BAFT-IFSA.

Alexander noted that the value proposition of the merger for members will include instantaccess to a wider range of products, services, programs, training, global practices, advocacyopportunities, economies of scale, and future rationalization of membership fees.

“The combined organization yokes the unique strengths of BAFT and IFSA, increasing ourability to grow and expand membership and provide programs and services to a broader globalmarket,” said Alexander. “Members of BAFT-IFSA will benefit from a financially strongerorganization with greater influence around the globe.”

Taylor echoed these sentiments, noting that the merger further strengthens existingrelationships with regulators and other policy makers.

“The merger takes full advantage of the over 170 years of banking and advocacy experience ofthe two organizations and expands and integrates the international community around theworld.”

For nearly nine decades, BAFT has taken on regional challenges faced by bankers thatspecialize in international trade and finance, advocated on their behalf and developed businesssolutions and helped build valuable peer-to-peer relationships. Its regional councils provideinsight into markets around the globe, and its information resources increase members’understanding of developments affecting the industry.

For 85 years, IFSA has met the needs of those who provide, use and support the internationaloperations areas of financial services providers, their customers, suppliers and partners. IFSA hasrepresented the interests of its membership before international rule and lawmaking bodies andhas been a key player in the establishment and revision of every significant U.S. or internationallaw or rule governing global financial services.

“We are committed to taking the best of each organization, as well as using the merger as anopportunity to find new ways of approaching issues and providing services,” said Alexander.“No part of either organization or its work will be discontinued.”




India’s total export at nearlyUS$24 billion, one-third ofwhich is transacted throughletters of credit. However,most of the exports are fortranshipment to other markets,particularly in Eastern Europe,Russia, North Africa, and theMiddle East. Some 44% of theexports are in the jewelrymarket, whose sales haveslowed because of the sharprise in gold prices.

Anand Sharma, India’sCommerce Minister, tried tocalm fears, saying, “I do notthink some development in theDubai’s real estate sector willimpact us. The fundamentals inIndia are strong.”

The Press Trust of Indiareports less optimism, claimingthat exporters in India remainconcerned over Dubai’s creditcrisis. In particular, exportersremain anxious about Indianbanks not honoring letters ofcredit from Middle East banks.

Trade experts remain lessconcerned, unless the crisisspreads to Dubai-based banks.At worst, they claim,payments would be madedirectly to Indian banksinstead of being routedthrough Dubai.

Engineering ExportPromotion Council chairmanAman Chadha remainsoptimistic as well. “One maysee an increase in the insurancepremium for exports to Dubai.At the same time, engineeringexporters may drop the 90-120

day credit window for sales toDubai-based firms and ask forreliable letters of credits,”Chadha said.

Non-OperativeNon-OperativeNon-OperativeNon-OperativeNon-OperativeGuarantees Used inGuarantees Used inGuarantees Used inGuarantees Used inGuarantees Used inBogus Sugar DealsBogus Sugar DealsBogus Sugar DealsBogus Sugar DealsBogus Sugar Deals

Beware of “corporatebids” in the sugartrade, warns

commodity analyst TejinderNarang in Business Line. India,he claims, is likely to import 6-7 metric tons of sugar nextyear. Many spurious sellersfrom Europe, US, Thailand,Brazil, and elsewhere will startoffering “corporate bids”quoted generally at US$100per ton below the rulingcommercial prices of futuresexchanges of London and NewYork.

The bids typically mentionthat the seller will furnish a“non-operative performancebank guarantee” of 3%-5% ofthe total contract valuethrough the bank, and thatsuch a guarantee will becomeoperative when the 100%irrevocable letter of credit isreceived from the buyer. Thisallows the seller to takeadvantage of the Indian LC todraw US dollar pre-shipmentcredit at low interest rates tofinance the procurement of acargo and then dispose of thecargo at the rulinginternational price to anotherbuyer.

In the end, Indian importersare duped and receive no

sugar. Narang strongly urgesimporters to buy only fromreputable sellers or from themembers of the InternationalSugar Organisation, London.At the very least, tradersshould closely scrutinize alloffers, bids, and transactions.

ICC OffersICC OffersICC OffersICC OffersICC OffersRecommendationsRecommendationsRecommendationsRecommendationsRecommendationsConcerning PiracyConcerning PiracyConcerning PiracyConcerning PiracyConcerning PiracyProblemProblemProblemProblemProblem

Since October 2009 therehave been 33 attacksof which 13 vessels

were successfully hijacked inthe Northern Indian Ocean,according to the ICCInternational Maritime Bureau(IMB).

Concerned about the risingfrequency of attacks in recentmonths, the ICC issued a two-page paper stating itsrecommendations with regardto piracy in the Indian Ocean.

The ICC document,prepared by the Head of ICC’sMaritime Transport work,Andy Tung, and IMB Director,Captain Mukundan, points outthe pirates’ increasing use ofmotherships to launch smallerattacks on target vessels farout to sea has contributedheavily to this disturbingtrend.

“ICC finds it unacceptablethat such violent activitiescontinue to cause disruption tointernational trade, and moreimportantly threaten the livesof thousands of seafarers on adaily basis. The protection of

continued from page 4


“”

To those who see the victimization of others as anavenue to wealth, take notice: If you fabricate afinancial statement, if you propagate an investmentscheme, if you are complicit in an act of financialfraud, you are writing your ticket to jail.

— US Attorney General Eric HolderWest Palm Beach, FL

8 January 2010

QUOTE TO NOTEQUOTE TO NOTEQUOTE TO NOTEQUOTE TO NOTEQUOTE TO NOTEshipping from piracy –regardless of flag, or thenationality of the crew – is aclear and legitimateresponsibility for governmentsunder the United NationsConvention on the Law of theSea”, the paper states.

Among itsrecommendations, the ICCcalls upon governments tobolster their protection ofmerchant shipping byincreasing the navies patrollingthe Horn of Africa and theNorthern Indian Ocean. It“further calls upon the naviesin these areas to provide navalcommanders with clear rulesof engagement andinstructions to act againstmotherships, in line with UNSecurity Council Resolution1851 which call for seizure anddisposal of boats, vessels, armsand equipment used by piratesor suspected of being used bythem.”

Said Donald Smith,President of Global TradeAdvisory Ltd., about the ICCaddressing the piracy problem:“As much of the flow of goodsin this area is letter of creditrelated, this matter should beof interest to the industry.”

Banks Asked to ReduceBanks Asked to ReduceBanks Asked to ReduceBanks Asked to ReduceBanks Asked to ReduceLC-Related FeesLC-Related FeesLC-Related FeesLC-Related FeesLC-Related Fees

Bangladesh Bank (BB),the country’s centralbank, issued a circular

in November 2009 askingcommercial banks inBangladesh to reduce the

quarterly commission onopening deferred letters ofcredit from the existing 0.60%to a maximum of 0.50% inhopes of helping exporterscope with the global economicrecession.

Right Vision News reportsthat the BB circular fixed themaximum LC confirmationcharge at 0.20% of existingcharges and LC amendmentand transfer charges at Tk750(US$10.50). The circular alsoreduced the LC advising feefrom Tk1,000 (US$14) to amaximum of Tk750 and fixedthe interest on ExportDevelopment Fund (EDF) atLIBOR plus 1%, effective forloans released on or after 6April 2005. BB also askedbanks to cancel other charges,including handling andendorsement of copieddocuments. It further barredbanks from charging overdueinterest on payment of exportbills at sight of exportdocuments under an LC,subject to submission of

necessary export documentsby the exporters to the banksconcerned.

Philippine Central BankPhilippine Central BankPhilippine Central BankPhilippine Central BankPhilippine Central BankWidens LC IssuanceWidens LC IssuanceWidens LC IssuanceWidens LC IssuanceWidens LC IssuanceOptions for ThriftsOptions for ThriftsOptions for ThriftsOptions for ThriftsOptions for Thrifts

As of March 2009, thriftbanks in thePhilippines with at

least P1 billion in capital and aminimum capital adequacyratio of 10% have beenpermitted by the central bankto offer letters of credit,denominated in foreigncurrencies. Previously, thriftbanks could only issue peso-denominated LCs.

Since then, one bank hastripled its capital to P3 billion(US$21.6 million) so that it canissue LCs in currencies otherthan peso and prepare itselffor possible acquisitions in2010.

BusinessWorld reports thatPhilippine Business Bank, Inc.(PBB) increased its capital forit to pursue opportunities tobuy other lenders. The



Philippines’ Securities andExchange Commissionapproved the capital increaseon 17 September 2009.

Bank chairman Alfred M.Yao, who also heads Zest-OCorp. and Zest Airways, Inc.,said this would allow the thriftbank to secure a license forforeign letters of credit fromthe Bangko Sentral ngPilipinas.

New York OffersNew York OffersNew York OffersNew York OffersNew York OffersProperty Owners LowerProperty Owners LowerProperty Owners LowerProperty Owners LowerProperty Owners LowerLC FeesLC FeesLC FeesLC FeesLC Fees

New York State’saffordable housinglender, known as

“nyhomes” and comprised ofagencies such as the New YorkState Housing Finance Agency(HFA) and the State of NewYork Mortgage Agency’sMortgage Insurance Fund, hasbegun to provide mortgageinsurance relief for “rehabprojects of affordablemultifamily projects”.

Property ownerstraditionally obtained lettersof credit for their constructionprojects, but fees forconstruction-related LCs haverisen from 75-150 basis pointsin 2008 to 200-300 basis points.“nyhomes” will charge 125basis points duringconstruction for its mortgageinsurance. To be eligible,property owners must obtainHFA financing and keep theirprojects affordable for at least30 years.

Cornèr BancaCornèr BancaCornèr BancaCornèr BancaCornèr Banca Latest to Latest to Latest to Latest to Latest toOpt for MIT’s CREDOCOpt for MIT’s CREDOCOpt for MIT’s CREDOCOpt for MIT’s CREDOCOpt for MIT’s CREDOCSoftwareSoftwareSoftwareSoftwareSoftware

Cornèr Banca SA is thelatest financialinstitution to select

CREDOC software developedby MIT (Micro Informatique &Technologies SA) to support itsTrade Finance operations.

The system will beinterfaced with Cornèr Banca’score banking systemdeveloped in-house and theirSWIFT solution Stelink fromSterci, an MIT official partner.

“Cornèr Banca is a keybanking player in the Ticino(Switzerland) region”, saidPaul Cohen Dumani, MIT’sGeneral Manager adding that“this new CREDOCimplementation will reinforceour presence in Lugano sincethe Cornèr Banca will be ourthird operative site in theregion”.

UK Bank LaunchesUK Bank LaunchesUK Bank LaunchesUK Bank LaunchesUK Bank LaunchesShariah-CompliantShariah-CompliantShariah-CompliantShariah-CompliantShariah-CompliantStructured TradeStructured TradeStructured TradeStructured TradeStructured TradeFinance FundFinance FundFinance FundFinance FundFinance Fund

In what some are calling “awelcome return to aclassical bread-and-butter

asset class and financingactivity, which the Islamicfinance industry seems to haveneglected over the last fewyears”, Gatehouse Bank plcwill launch a Shariah-compliantStructured Trade Finance Fundin early 2010.

The wholesale Islamic bankbased in the UK notes that due

to the ongoing credit crisis,“many Western banksoperating in this sector arerestricted in their trade financeactivities and the creation ofan Islamic fund to service thissector would have worldwidebenefits, providing liquidity toa market that has beenseriously constrained.”

According to Arab Newsreporting of the Fund, tradefinance could also boost intra-Islamic trade which currentestimates place at 14% of totaltrade of the 56 membercountries of the IslamicDevelopment Bank (IDB).Adds Arab News:

“In some markets such asTurkey, trade finance formsa major part of the financingportfolios of the Islamicbanking industry. Indeed,letters of credit (LCs) andguarantees are in factconfirmed throughcounterparties in Bahrainfor the above transactionswhich run into millions ofdollars a year. There havebeen a number of tradefunds established over theyears, … [b]ut they havebeen consumed by theglamor of mutual, privateequity and real estatefunds, and more recently bythe odd sukuk fund.”

“Several Islamic bankers ruethe fact that many Islamicfinancial institutions areneglecting trade finance in



order to pursue other typesof transactions — privateequity, asset management,real estate etc.”

FHL Bank FillsFHL Bank FillsFHL Bank FillsFHL Bank FillsFHL Bank FillsFinancing Void withFinancing Void withFinancing Void withFinancing Void withFinancing Void withStandby LCsStandby LCsStandby LCsStandby LCsStandby LCs

T he Federal Home LoanBank of San Franciscohas recently issued 11

standby letters of creditsupporting non-housingrelated tax-exempt bondissuances for public-purposeand industrial developmentprojects.

In addition to thesecompleted transactionstotaling US$167 million incredit enhancement, anadditional $110 million ofsimilar standbys are pendingas of 9 January 2010 accordingto Real Estate Business Journal.Given the current economicenvironment, use of a FHLBank standby LC to creditenhance a tax-exempt bondtransaction may help lower theoverall cost of borrowing forbond-financed projects andstimulate economicdevelopment in communitiesserved by Bank members.

As previously reported inDCW (Sept. 2008, p. 6), aprovision of the Housing andEconomic Recovery Act of 2008(HERA), signed into law in2008 permits a non-housingrelated tax-exempt bond thatis supported by a FederalHome Loan Bank standby LCto retain its tax-exempt status,

provided the bond is issuedbefore 31 December 2010.

”The downgrading of bondinsurers in the wake of thefinancial crisis left a significantvoid in financing for criticalinfrastructure and othervaluable projects,” saidStephen P. Traynor, Senior VicePresident, Financial Servicesand Community Investment atthe Bank. “We are pleased tooffer a tool that our memberscan use to support these kindsof projects and boost economicdevelopment activities in theircommunities.”

Banks Sign US$1.22bBanks Sign US$1.22bBanks Sign US$1.22bBanks Sign US$1.22bBanks Sign US$1.22bRefinancing Deal withRefinancing Deal withRefinancing Deal withRefinancing Deal withRefinancing Deal withGlencoreGlencoreGlencoreGlencoreGlencore

Banks have signed aUS$1.22 billionone-year refinancing

for Swiss commodities trader,Glencore, according to TradeFinance. Led by bookrunnerING and lead arrangers BNPParibas and DBS, the facilityallows Glencore to havestandby letters of credit andguarantees issued to it at amargin of 110 basis points withupfront fees of 100 bp.

Other banks joining the dealas arrangers include: ANZ,Atradius, Banco Santander,Bank of China, BTMU, CajaMadrid, Credit Suisse, DZBank, Deutsche Bank,GarantiBank, HSBC, Helaba,ICBC, KBC, Mizuho, NationalAustralia Bank, National Bankof Greece, Natixis, RBS, RZB,SEB, Scotia Capital, SMBC,

UBS, UniCredit Group, Unionde Banques Arabes etFrancaises and ZuercherKantonalbank.

Lincoln National Corp.,Lincoln National Corp.,Lincoln National Corp.,Lincoln National Corp.,Lincoln National Corp.,Credit Suisse Strike LCCredit Suisse Strike LCCredit Suisse Strike LCCredit Suisse Strike LCCredit Suisse Strike LCDealDealDealDealDeal

Lincoln National Corp.announced on 7January 2010 that it

and certain of its subsidiarieshave entered into a US$550million, 10-year letter of credittransaction with Credit SuisseAG to support regulatorycapital requirements for its lifeinsurance business.

According to an LNC pressrelease, the transaction isexpected to provideapproximately $400 million ofinitial statutory capital relief asof year-end 2009, to Lincoln’sprimary insurance subsidiary,The Lincoln National LifeInsurance Company.

Barclays LeadsBarclays LeadsBarclays LeadsBarclays LeadsBarclays LeadsSyndicated Deal forSyndicated Deal forSyndicated Deal forSyndicated Deal forSyndicated Deal forGazpromGazpromGazpromGazpromGazprom

Barclays Capital closedgeneral syndication ofa US$148 million one-

year debut syndicated loan forGazprom Marketing andTrading on 14 December 2009.Gazprom will use the deal toprovide letters of credit toliquefied natural gasinfrastructure facilities inMexico and California.According to EuroWeek, sevenother banks joined Barclays onthe deal.



International UpdatesInternational UpdatesInternational UpdatesInternational UpdatesInternational UpdatesBANGLADESH: The

National Board of Revenuewill take legal actions against acompany that illegallyimported liquor worth over Tk5 crore (US$710,000) throughfalse declaration and alsoagainst the pre-shipmentinspection (PSI) company thatcertified the import. Theimporter allegedly declaredgoods worth only Tk 243,699(US$3,537) and its ownerreportedly gave a fake addressand contact number whileopening a letter of credit withPubali Bank, Khulna inSeptember 2009.

CHINA: Industrial andCommercial Bank of China(ICBC) became the firstfinancial institution outside theGulf area to gain licensedapproval from the Central

Bank of the United ArabEmirates to set up a branch inAbu Dhabi, according to ChinaKnowledge. With its newlicense, ICBC will be able toprovide more services,including LCs, project loans,letters of guarantee, andcurrency exchange, whichwere previously restricted.

NEPAL: An act repealed inDecember 2009 will make itpossible for AgriculturalDevelopment Bank Limited(ADBL) to issue letters ofcredit for the first time.Previously, ADBL has beenreferring its customerswanting to open LCs to theBank of Kathmandu as per anagreement made between thetwo banks. Customers woulddeposit collateral at ADBLwhile the Bank of Kathmanduissued the LCs. The two banks


would share the commissiongenerated by the transaction.An ADBL official said that,although there was muchpotential, the bank had beenlosing customers as it wasunable to provide completebanking services.

PAKISTAN: The countryhas been issued a “finalultimatum” and would bedeclared a high-risk country ifit fails to upgrade its anti-money laundering law beforeFebruary 2010, said State Bankof Pakistan (SBP) officials,according to Pakistan’s DailyTimes. SBP officials believe thecountry’s LCs will not behonoured abroad and therewill be difficulties ininternational trade if thegovernment fails “to take thematter seriously”, reportsDaily Times. ■


THE READERS SPEAKTHE READERS SPEAKTHE READERS SPEAKTHE READERS SPEAKTHE READERS SPEAK

WHEN CONFIRMER REFUSES,WHAT HAPPENS TO THE CONFIRMATION?

Query:Query:Query:Query:Query:We confirm a letter of credit for a customer but the documents

that are submitted are discrepant, thereby nullifying ourconfirmation. We then send them on to the issuing bank overseason a collection basis.

The foreign bank then gets the applicant to sign a waiver forthe discrepancies and the issuing bank then accepts thedocuments. When we receive notification that the issuing bankhas accepted the documents, is the LC made whole and ourconfirmation re-instated?

UCP600 (Art. 8) states that the confirming bank must honor thecredit if the documents “constitute a complying presentation”. Ihave heard some people say that once the acceptance is issued bythe foreign bank, the confirmation is re-instated. Others arguethat it is still not a complying presentation but one consisting ofwaived, discrepant documents, thereby still nullifying theconfirmation. Who is correct?

DCWDCWDCWDCWDCW Responds: Responds: Responds: Responds: Responds: A sufficiently worded and timely given refusal of a

presentation received by a confirming bank does not “nullify” theconfirmation; the refusal establishes a valid defense to theconfirmer’s dishonor of that presentation and preserves thatdefense against an affirmative defense of preclusion (whichdisplaces waiver and estoppel).

Forwarding the documents to the issuer should normally bedone by a bank so as to constitute a presentation to the issuerunder the LC. Nominated banks should avoid saying that theyare forwarding documents on a “collection” or “approval” basis.That statement may accurately describe the forwarding bank’srole, but might also be interpreted as describing the receivingbank’s role, with the effect of excusing the issuer from processingthe forwarded documents under the LC. A knowledgeablebeneficiary wants his documents presented to the issuer forexamination and payment under the LC. He wants to be paid, ifat all possible, under, not outside, the LC. The issuer mightdecide the presentation complies. The applicant might waivediscrepancies with the effect of inducing the issuer to honor. Theissuer might inadvertently preclude itself from raisingdiscrepancies. A forwarding bank should not assume that it isauthorized by the beneficiary to switch the presentation on the


READERS SPEAKREADERS SPEAKREADERS SPEAKREADERS SPEAKREADERS SPEAK

issuer from LC todocumentary collection lawand practice. In this regard, itis not necessary for anynominated bank, including aconfirmer, to tell an issuer thatthe confirmer found thedocuments discrepant; it isenough for the confirmer tosay that presentation is madeto the issuer under its LC bythe forwarding bank on behalfof the beneficiary and not toclaim reimbursement for itself.

If, after confirmer refusal,the issuer honors its LCundertaking, whether or not

based on applicant waiver ofdiscrepancies, that should notchange the status of thenominated bank’s confirmationor the status of its refusalnotice. If the issuer only “halfhonors” (by accepting a draftor incurring a deferredpayment undertaking but notpaying at maturity), thatshould not affect theconfirmer. To put it differently,preclusion is specific to thebank that precludes itself. Inthe question posed, theconfirmer has not precludeditself from raising non-

compliance as a defense.The analysis and result

should apply whether the LCis subject to UCP600, UCP500,or the UCC. A confirmer is notbound by the issuer’sobligation to honor documentsthat were rightfully refused bythe confirmer.

Comments to all queries posed toDCW are not necessarily those ofDCW and are not provided aslegal advice. If legal advice or otherexpert assistance is required, theservice of a competent professionalshould be sought.

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LITIGALITIGALITIGALITIGALITIGATION DIGESTTION DIGESTTION DIGESTTION DIGESTTION DIGEST

* Professor in Banking and Insolvency Law, Department of Mercantile Law,University of South Africa.

Lombard v. LandmarkLombard v. LandmarkLombard v. LandmarkLombard v. LandmarkLombard v. Landmark[2009] 4 All SA 322 (SCA) [South Africa][2009] 4 All SA 322 (SCA) [South Africa][2009] 4 All SA 322 (SCA) [South Africa][2009] 4 All SA 322 (SCA) [South Africa][2009] 4 All SA 322 (SCA) [South Africa]

Abstracted by Professor Michelle Abstracted by Professor Michelle Abstracted by Professor Michelle Abstracted by Professor Michelle Abstracted by Professor Michelle KELLY-LOUWKELLY-LOUWKELLY-LOUWKELLY-LOUWKELLY-LOUW*****

Topics: Independence Principle; Nature andInterpretation of Construction Guarantee andIndemnities; Fraud

Type of Lawsuit: Guarantor sued Indemnitors forreimbursement after it had paid in terms of aconstruction guarantee.

Parties: Appellant/Plaintiff/Guarantor– LombardInsurance Company Ltd (Counsel:Panayiotis Stais SC and CJ McAslininstructed by Frese, Moll & Partners c/oButler Blankenberg, Cape Town andWebbers Attorneys, Bloemfontein)

Respondents/Defendant/Indemnitors–(Counsel : Peter J Berthold SC instructedby DLA Cliffe Dekker Hofmeyer, CapeTown and McIntyre & Van der Post,Bloemfontein)

Principal/Contractor– Landmark Construction(Pty) Ltd.

Beneficiary/Employer– South African MaritimeTraining Academy

UnderlyingTransaction: Construction contract concluded between the

principal (contractor) and the beneficiary(employer).

Instrument: Construction guarantee (i.e., demandguarantee) and various indemnities. Silent asto governing rules and maximum amounts.



Decision: The South African Supreme Court of Appeal upheld an appeal (with costs) andreversed a judgment in favour of Indemnitors delivered by the Western CapeHigh Court, Cape Town (formerly known as the Cape Provincial Division).

Rationale: Indemnitors’ obligation to pay in terms of their indemnities is, just like thepayment obligation in terms of the construction guarantee, wholly independentfrom any underlying transaction and except in the case of fraud (in the narrowsense) must be honoured.

Factual Summary:Factual Summary:Factual Summary:Factual Summary:Factual Summary:In 2002, Guarantor, a short-

term insurance company,issued a constructionguarantee on behalf of aconstruction company(Principal). The basis for theguarantee was a constructioncontract between Principal andBeneficiary of the guarantee.Guarantor also bound itself asprincipal debtor in favour ofBeneficiary of the constructionguarantee, undertaking to payBeneficiary, on demand, theguaranteed sum or the fulloutstanding balance upon thehappening of one of twoeventualities:

• default by the principal(the construction company)resulting in cancellation or;

• a liquidation order beinggranted against the principal(the construction company).

The construction contractcontained the followingimportant clause:

3.The Guarantor herebyacknowledges that:

3.1 Any reference in thisGuarantee to the

Agreement is made forthe purpose ofconvenience and shallnot be construed as anyintention whatsoever tocreate an accessoryobligation or anyintention whatsoever tocreate a suretyship

3.2 Its obligation underthis Guarantee isrestricted to thepayment of money

3.3 Reference to a practicalcompletion certificateor to a final completioncertificate shall meansuch certificate asissued by the PrincipalAgent.(Emphasis added.)

Before the constructionguarantee was issued, threerelated companies providedGuarantor with indemnities inthe event that it had to pay interms of the constructionguarantee. The firstrespondent executed adocument entitled“RECIPROCAL INDEMNITYAND SURETYSHIP” in favourof Guarantor, in terms ofwhich the respondentundertook to “indemnify and

keep indemnified and hold it[the guarantor] harmless fromand against all and any claims,losses, demands, liabilities,costs or any other expenses ofwhatsoever nature ... which[Guarantor] may at any timesustain or incur by reason or inconsequence of havingexecuted or hereafterexecuting any guarantees ...”.The 1st Indemnitor alsofurther, undertook and agreedto pay Guarantor on demandany sum which the latter mayhave been called upon to payunder any guarantee, whetheror not Principal of theguarantee admitted thevalidity of the claim.

The 2nd and 3rd Indemnitorexecuted two writtendocuments in similar terms infavour of Guarantor. Althoughboth documents had the title“DEED OF SURETYSHIP”,they had the followingidentical feature: TheIndemnitors undertook asprincipal debtors to“indemnify” Guarantor against“any claims of whatsoevernature” which it may incur byreason of it having executed orin the future executing anyguarantee.



In 2003, the Principal of theconstruction guarantee wasliquidated. Beneficiary thendrew on the guarantee, statingin its demand that Principalhad been placed in liquidation,that a final completioncertificate had not been issued,and that consequently anamount of ZAR241 429,77(about US$35,740) was due toit by Guarantor, purportedlythe value of work done postthe issue of the practicalcompletion certificate.

Guarantor honoured thedemand and then turned tothe Indemnitors forreimbursement under theirindemnities. Indemnitorsrefused to pay on the basisthat the agent who had issuedthe completion certificates interms of the constructionagreement had perpetrated afraud in the presentation ofthe claim. Guarantor then suedIndemnitors forreimbursement in the WesternCape High Court, Cape Town(formerly known as the CapeProvincial Division).

The court of first instance,the Western Cape High Court,Cape Town, decided thematter on the basis that theconstruction guarantee had tobe interpreted in conjunctionwith the construction contract(underlying transaction). Itincorrectly held thatGuarantor was only obliged topay a claim under theconstruction guarantee if theclaim was within the terms of

the construction contract.According to the court of firstinstance, the claim did not fallwithin that purview andtherefore, Guarantor was notobliged to pay and neither wasany one of the respondents.Guarantor appealed againstthis decision. The appeal wasgranted and the judgmentreversed.

Legal Analysis:Legal Analysis:Legal Analysis:Legal Analysis:Legal Analysis:1. Independence Principle;

Nature and Interpretation ofConstruction Guarantee andIndemnities; Fraud: Theappellate court correctly foundthat the court of first instancemisinterpreted the nature ofthe construction guarantee andthe indemnities provided byIndemnitors. The constructionguarantee created anobligation to pay upon thehappening of an event. Theappellate court pointed outthat the construction guaranteeitself recorded that thereference to the constructioncontract was solely for thepurpose of convenience andthat there was no intention tocreate an accessory obligationor suretyship (see clause 3.1 ofthe construction guaranteequoted above). Theconstruction guarantee was toprotect the beneficiary in theevent of default by theprincipal (the constructioncompany) and it was to theguarantee that one had to lookto determine the rights andobligations of the guarantor

and the beneficiary (see inpara 19).

Regarding the nature of thecontraction guarantee theappellate court said thefollowing (in para 20):

“The guarantee by[Guarantor] is not unlikeirrevocable letters of creditissued by banks and used ininternational trade, theessential feature of which isthe establishment of acontractual obligation onthe part of a bank to paythe beneficiary (seller). Thisobligation is whollyindependent of theunderlying contract of saleand assures the seller ofpayment of the purchaseprice before he or she partswith the goods being sold.Whatever disputes maysubsequently arise betweenbuyer and seller is of nomoment insofar as thebank’s obligation isconcerned. The bank’sliability to the seller is tohonour the credit. The bankundertakes to pay providedonly that the conditionsspecified in the credit aremet. The only basis uponwhich the bank can escapeliability is proof of fraud onthe part of the beneficiary.This exception falls within anarrow compass and applieswhere the seller, for thepurpose of drawing on thecredit, fraudulentlypresents to the bank



documents that to theseller ’s knowledgemisrepresents the materialfacts (Loomcraft Fabrics CC v.Nedbank Ltd and another1996 (1) SA 812 (A) at 815G-816G).”

In terms of the constructionguarantee, Guarantorundertook to pay Beneficiaryupon Principal being placed inliquidation. Guarantor, it wasaccepted, did not collude inthe fraud and there was noobligation on it to investigatethe correctness of the claim.The trigger event in respect ofwhich it granted the guaranteehad occurred and the demandwas properly made (see para21). The same applied to theundertakings/indemnities byIndemnitors. They undertookto indemnify the guarantor ofthe construction guarantee (theappellant) in the event that itpaid a claim based on theguarantee provided by it. Thatevent occurred andIndemnitors were, thus,likewise liable.

Comments:Comments:Comments:Comments:Comments:The Supreme Court of

Appeal correctly

acknowledged the autonomyprinciple of the constructionguarantee. A fundamentalcharacteristic of documentarycredit law is the autonomy ofthe credit. The autonomyprinciple is also fundamentalto demand guarantees (i.e.,construction guarantees).1 Inthe United States, RevisedArticle 5 of the UniformCommercial Code (UCC) dealswith both commercial andstandby letters of credit andthe principle of autonomy iscodified in Section 5-103(d).The principle of autonomy isalso codified in articles 3 and 4of the 1993 version of theUniform Customs and Practicefor Documentary Credits(UCP500); articles 4 and 5 ofthe 2007 version of theUniform Customs and Practicefor Documentary Credits(UCP600); article 2(b) of the1992 Uniform Rules forDemand Guarantees (URDG);and Rules 1.06(a), 1.06(c), and1.07 of the InternationalStandby Practices (ISP98). TheUnited Nations Convention onIndependent Guarantees andthe Standby Letters of Creditwhich applies to aninternational undertaking such

as a demand guarantee or astandby letter of credit, alsomentions the autonomyprinciple applicable to theseletters of credit andguarantees in articles 2 and 3.

The first time the SouthAfrican courts briefly referredto the fraud exception to theautonomy principle in relationto letters of credit/demandguarantees was in 1985 inPhillips v. Standard Bank.2

However, it was not until theLoomcraft Fabrics v. Nedbank3

case in 1995 that the courtsreally acknowledged and dealtwith the fraud exception in theSouth African law. TheAppellate Division (now theSupreme Court of Appeal) inLoomcraft Fabrics v. Nedbankprovided merely a basis forthe fraud rule and has leftmany uncertainties regarding,specifically, the concept offraud and the standard ofproof that is required.However, the value of thisdecision lies in the fact that theAppellate Division did make itclear that:

• South African courtswould consider interveningand issue interdicts restraining

1. See HN Bennett ‘Performance bonds and the principle of autonomy’ (1994) Journal of Business Law 574; andRaymond Jack, Ali Malek & David Quest Documentary credits: the law and practice of documentary credits including standbycredits and demand guarantees (3ed 2001) in par 1.41 at 21. In Union Carriage and Wagon Company Ltd v Nedcor Bank Ltd1996 CLR 724 (W) at 731–732 it was confirmed that the autonomy principle also applies to standby letters of credit andadvance payment guarantees (i.e., demand guarantees).

2. 1985 (3) SA 301 (W).

3. 1996 (1) SA 812 (A).



payment in cases where thefraud was clearly established;and

• South African courtswould be willing to enforcethe fraud exception where theforgery or falsificationconcerned the documents (i.e.,where there was fraud in thenarrow sense).

However, since 1995 therehave been no other SouthAfrican cases specificallydealing with the fraud rule.The South African fraud rulehas thus remained stagnant formore than a decade and it isunclear how the courts wouldapply the fraud rule today. Forinstance, the courts have notyet indicated that they will notbe prepared to interdict a bankfrom paying in the case offraud concerning theperformance by the beneficiaryin terms of the underlying

contract (i.e., in cases of fraudin the wide sense).

The court in Union Carriagev. Nedcor Bank,4 however,remarked by way of an obiterdictum that had the beneficiaryand the applicant entered intoan agreement in terms ofwhich the beneficiaryundertook not to draw on the

letter of credit (i.e., a pactum denon cedendo) and had thebeneficiary, nevertheless,sought to extract paymentunder the letter of credit, itcould conceivably have beenguilty of fraud. It has beensaid that although thiscomment was made obiter, itprovides an indication that theSouth African courts may bewilling to look beyond theletter of credit documents inconsidering whether there wasany fraud on the part of thebeneficiary. It therefore

4. 1996 CLR 724 (W).

provides support for the viewthat fraud justifyinginterference with thebeneficiary’s claim to paymentis not limited to the so-calleddocumentary fraud. However,from the Lombard case,discussed above, it appearsthat the Supreme Court seemsto support the view that itwould only be willing toenforce the fraud exceptionwhere the forgery orfalsification concerned thedocuments (i.e., where therewas fraud in the narrow sense)

South African law regardingthe fraud exception is far frombeing settled. From the verylimited (and old) case law thatis available at this time, onecan see strong correlationswith the English law in SouthAfrican courts’ application ofthe fraud exception. However,there are still manyuncertainties regarding thelimits of the fraud rule inSouth African law and there ismuch speculation as to how itwill be applied by thecountry’s courts. ■

South African law regarding the fraud exception

is far from being settled.



J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc.J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc.J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc.J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc.J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc.No. 03-05-00629-CV, 2009 Tex. App. LEXIS 9443,No. 03-05-00629-CV, 2009 Tex. App. LEXIS 9443,No. 03-05-00629-CV, 2009 Tex. App. LEXIS 9443,No. 03-05-00629-CV, 2009 Tex. App. LEXIS 9443,No. 03-05-00629-CV, 2009 Tex. App. LEXIS 9443,

2009 WL 4725290 (Tex.App.-Austin) [USA]2009 WL 4725290 (Tex.App.-Austin) [USA]2009 WL 4725290 (Tex.App.-Austin) [USA]2009 WL 4725290 (Tex.App.-Austin) [USA]2009 WL 4725290 (Tex.App.-Austin) [USA]

Topic: Use

Note: As part of a construction agreement with Agape Round Rock Housing, Inc., d/b/a ChandlerCreek Apartments (Owner), JP Morgan Chase Bank (Bond Trustee/Issuer) issued a letter of credit inthe amount of US$15,800,000 to bond owner Charter MAC Equity Issuer Trust (Bondholder/Beneficiary). Owner missed the project completion date, causing an “event of default” to occurunder the construction agreement. As a result, Bondholder/Beneficiary instructed Issuer to drawupon the letter of credit to pay the interest due at the time. Issuer took possession of the bonds ascollateral for the amount owed by Owner under the loan. Subsequently, Issuer sold the bonds forUS$12 million, a US$4 million loss.

Various subcontractors sued Bond Trustee/Issuer and others under various theories includingmisappropriation of trust funds, breach of fiduciary duty, negligence, and conversion. The TexasDistrict Court of Williamson County, Anderson, J. awarded damages and exemplary damages againstBond Trustee/Issuer. After having settled certain issues, Bond Trustee appealed the judgment withrespect to violation of a duty to withhold amounts, misapplication of trust funds, negligence andgross negligence in failing to withhold the amounts, violation of fiduciary duty to subcontractors,and conversion. The Court of Appeals of Texas, Austin, Law, C.J., Puryear, and Henson, JJ., in anopinion by Henson, J., reversed as to the issues of violation of a duty as agent to withhold amounts,violation of a statutory duty with respect to trust accounts, negligence in failing to withholdamounts, breach of fiduciary duty, and conversion, and also ruled that exemplary damages were notappropriate. ■

[JEB/gdb]

NEWLNEWLNEWLNEWLNEWLY DECIDED LC &Y DECIDED LC &Y DECIDED LC &Y DECIDED LC &Y DECIDED LC &GUARANTEE CASESGUARANTEE CASESGUARANTEE CASESGUARANTEE CASESGUARANTEE CASES

Fifth Third Bank v. Kohl’s Ind., L.P., and Kohl’s Department Store2009 Ind. App. LEXIS 2668 [USA]

18 December 2009

Norris v. Jackson Hewitt, Inc.2009 U.S. Dist. LEXIS 114514 [USA]

8 December 2009


FEAFEAFEAFEAFEATURETURETURETURETURE

LETTER OF CREDIT JURISDICTION ISSUESLETTER OF CREDIT JURISDICTION ISSUESLETTER OF CREDIT JURISDICTION ISSUESLETTER OF CREDIT JURISDICTION ISSUESLETTER OF CREDIT JURISDICTION ISSUES

IN THE UNITED KINGDOMIN THE UNITED KINGDOMIN THE UNITED KINGDOMIN THE UNITED KINGDOMIN THE UNITED KINGDOMBy Ningning ZHANG*By Ningning ZHANG*By Ningning ZHANG*By Ningning ZHANG*By Ningning ZHANG*

IntroductionIntroductionIntroductionIntroductionIntroductionThe exercise of jurisdiction

over an LC case can give riseto disputes with internationaldimensions. The problem iscomplicated because a letter ofcredit arises from a series ofrelationships involving threeor more roles and usuallydifferent parties, each ofwhom may be located in adifferent country.

In the United Kingdom, theissue of jurisdiction is usuallydetermined by reference toseparate sets of rules. One setof rules encompasses theEuropean Conventions and theRegulation, including theEuropean CommunityConvention on Jurisdictionand the Enforcement ofJudgments in Civil and

Commercial Matters (theBrussels Convention),1 theLugano Convention onJurisdiction and theEnforcement of Judgments inCivil and CommercialMatters,2 and the CouncilRegulation (EC) 44/2001 onJurisdiction and theRecognition and Enforcementof Judgments in Civil andCommercial Matters (the“Judgments Regulation”hereafter).3 They applyrespectively to disputes fallingwithin the scope of theBrussels Convention, theLugano Convention or theJudgments Regulation. Theother set consists of traditionalEnglish jurisdiction rules,mainly based on the CivilProcedure Rules. These rules

apply to cases that fall outsidethe scope of the twoConventions and theJudgments Regulation.

This paper will discuss howthese rules apply in the area ofletters of credit. In the firstpart, certain differencesbetween the two Conventionsand the Judgments Regulationwill be addressed and theinfluence of these changes onmatters pertaining to letters ofcredit will be analysed.Following that, two bases forjurisdiction laid down in thetraditional rules (e.g. presencewithin jurisdiction and serviceout of jurisdiction) will bediscussed in detail. In the end,attention will be given to thedifferences of these two sets ofrules and their influence onletters of credit.

* Dr. Ningning ZHANG, LLB (SWUPSL (China)), LLM (University of Aberdeen), PhD (the University of Liverpool),once worked in the Bureau of Judiciary, Yuzhong District, Chongqing, P. R. China, and is now working at the Law Schoolof the Southwest University (China) as vice-professor. Current research interest is about letters of credit.

1. The Brussels Convention was agreed in 1968 by the member states of the EU, with the goal of increasing economicefficiency and promoting the single market by harmonizing the rules on jurisdiction and preventing parallel litigation.

2. The Lugano Convention was concluded in Lugano on 16 September 1988. It is a parallel convention to the BrusselsConvention but applies to EFTA countries.

3. The Judgments Regulation came into force on 01 March 2002, and applies to all the Member States of the EuropeanUnion (including the 10 new Member States as of 01 May 2004 with the exception of Denmark. It supersedes (except asregards Denmark) the Brussels Convention and it also supersedes (except as regards Iceland, Norway and Switzerland)the Lugano Convention.



Related Rules in TwoRelated Rules in TwoRelated Rules in TwoRelated Rules in TwoRelated Rules in TwoConventions and theConventions and theConventions and theConventions and theConventions and theJudgments RegulationJudgments RegulationJudgments RegulationJudgments RegulationJudgments Regulation

Although the two EuropeanConventions and theJudgments Regulation aresimilar in many aspects, thereare significant changes in theJudgments Regulation.Concerning letters of credit,two changes are worthdiscussing. One is that theConventions leave themeaning of domicile to bedetermined by national laws,while the JudgmentsRegulation providesautonomous rules forascertaining the domicile ofcompanies. The other is that,unlike the Conventions, theJudgments Regulationstipulates an autonomousdefinition for the place ofperformance in relation to thecontract of the sale of goodsand the provision of servicesonly.

The rule of domicileBoth the two Conventions

and the Judgments Regulationassign jurisdiction to the courtof the contracting state wherea party is domiciled in thatstate.4 As regards a naturalperson, the JudgmentsRegulation, like the twoConventions, requires the

court to apply its internal lawto determine whether such aperson is domiciled in thecountry in question. Thus, ifthe English courts are requiredto determine whether thedefendant is domiciled inEngland, Section 41(2) of theCivil Jurisdiction & JudgmentsAct 1982 (CJJA) will apply. Itprovides that “an individual isdomiciled in the UnitedKingdom if and only if (a) heis resident in the UnitedKingdom; and (b) the natureand circumstances of thisresidence indicate that he has asubstantial connection with theUnited Kingdom.” Then, if thebeneficiary or the applicantbeing a natural person is suedunder a letter of credit, thecourts in the UK havejurisdiction where that personis a resident of the UK and hassubstantial connection5 withthe UK.

However, a differenceoccurs in the situation wherethe party concerned is a legalperson. Sub-article 60(1) of theJudgments Regulationprovides an autonomousdefinition for the domicile of alegal person, which provides:

For the purposes of thisRegulation, a company orother legal person or

association of natural orlegal persons is domiciled atthe place where it has its:(a) statutory seat, or (b)central administration, or(c) principal place ofbusiness.

This definition is similar tothe one in the CJJA whereSection 42(3) states that acorporation or association hasits seat in the UnitedKingdom, if and only if (a) itwas incorporated or formedunder the law of a part of theUnited Kingdom and has itsregistered office or some otherofficial address in the UnitedKingdom; or (b) its centralmanagement and control isexercised in the UnitedKingdom. It is obvious that thedefinition in the JudgmentsRegulation is clearer than thatin the CJJA. First, the rule inthe Judgments Regulationexclusively indicates whatconstitutes the statutory seat.In sub-article 60(2), thestatutory seat includes “theregistered office or, wherethere is no such officeanywhere, the place ofincorporation or, where thereis no such place anywhere, theplace under the law of whichthe formation took place”.Only above three places are

4. See Article 2 of the Brussels Convention or the Judgments Regulation respectively.

5. The requirement of substantial connection shall be presumed to be fulfilled that an individual is resident in the UnitedKingdom, or in a particular part of the United Kingdom; and has been so resident for the last three months or more, unlessthe contrary is proved. See Section 41(6) of CJJA 1982.



statutory seats. Meanwhile, insub-article 60(2), a list fixes theorder of priority regarding theplace in respect of whichlawsuit should be filed. Theapplicant cannot choose at willany of the places to launch thelawsuit. Only in the situationof unavailability/inoperabilityof places higher on the list isthe applicant at liberty to

initiate proceedings against thedefendant at a place that ismentioned lower on the listnext to the higher stand.Finally, in the Regulation,principal place of business isadded in which extends thescope that a court couldexercise its jurisdiction.

Since the rule of domicile isdesigned to give a certainplace to sue, it is very clearand easy to operate in practice.However, this rule is notpreferred by the plaintiff inrelation to letters of credit.The reason is that, in mostcases, to invoke this rule theplaintiff has to sue in adifferent country. In view of

this, the plaintiff often turns toan alternative location for legalproceedings, like the place ofperformance.

Rules Relating toPlace of Performance

In addition to the place ofdomicile, a plaintiff is alsoallowed to commence legalproceedings in the place of

performance. Such rules are“based on a close link betweenthe court and the action or inorder to facilitate the soundadministration of justice”.6

Sub-article 5(1) of theJudgments Regulation7 whichdeals with matters relating toa contract is one of the specialrules. Sub-article 5(1) providesthat “a person domiciled in aMember State may, in anotherMember State, be sued, inmatters relating to a contract,in the courts for the place ofperformance of the obligationin question.” This sub-articleshould be interpreted in a waythat enables “a normally well-informed defendant

reasonably to predict beforewhich courts, other than thoseof the State in which he isdomiciled, he may be sued”for the purpose of“strengthening legal protectionof persons”.8 Following thisprinciple, this section willdiscuss the issues of “mattersrelating to a contract”, “theobligation in question”, “theplace of performance” and “adiscretion to stay” in the areaof letters of credit.

Matters relating to a contractIn Chailease Finance

Corporation v. Credit AgricoleIndosuez,9 the issuing bankrefused to accept documentstendered by the beneficiary onthe grounds that there wasone discrepancy in thedocuments. The court wasrequired to determine theplace of performance of theobligation in question, in thesituation where the beneficiaryindicated the place forpayment after the issuing ofthe letter of credit. The Courtof Appeal went directly to theissue of “place ofperformance” withoutconsidering whether therelationship between theissuing bank and thebeneficiary fell within the

6. http://europa.eu.int/eur-lex/pri/en/oj/dat/2001/l_012/l_01220010116en00010023.pdf.

7. Also in the Brussels Convention.

8. Jakob Handte & Co. GmbH v. Traitements Mécano-chimiques des Surfaces SA EU: Case C-26/91.

9. [2000] 1 Lloyd’s Rep. 348; abstracted at 2001 ANNUAL SURVEY OF LETTER OF CREDIT LAW & PRACTICE 205.

“In relation to letters of credit ... the plaintiff

often turns to an alternative location for legal

proceedings, like the place of performance.”



10. [2006] EWHC 1450 (Comm); noted at 2007 ANNUAL SURVEY OF LETTER OF CREDIT LAW & PRACTICE 230.

11. In Jakob Handte & Co. GmbH v. Traitements Mécano-chimiques des Surfaces SA EU: Case C-26/91., the European Courtof Justice held that “the phrase ‘matters relating to a contract’, as used in Sub-article 5(1) of the Convention, is not to beunderstood as covering a situation where there is no obligation freely assumed by one party towards another.”

meaning of “matters relatingto a contract” under sub-article5(1). It could be reasonablyinferred that such arelationship has already beenrecognized by the Court ofAppeal as a matter relating tocontract. The contractualrelationship between theissuing bank and thebeneficiary is established atthe time that the beneficiary isinformed of the issuing of thecredit although the issuingbank does not contract withthe beneficiary directly.Thereafter, the issuing bankassumes the paymentobligation to the beneficiaryagainst the consistentdocuments. For thisconsideration, the Court ofAppeal in Chailease was right inapplying sub-article 5(1) to therelationship between theissuing bank and thebeneficiary.

However, it needs to beaddressed that not all disputesbetween the issuing bank andthe beneficiary are mattersrelating to a contract. InTrafigura Beheer BV v. KookminBank Co.,10 the credit required afull set of 3/3 original bills oflading. It also allowed a letterof indemnity (LOI) to beissued by the seller to replace

the required documents in thecase where the requireddocuments (especially bills oflading) were not available atthe time of negotiation. Anadvising bank in London paidthe beneficiary against a letterof indemnity which wasaddressed to the buyer ratherthan to the issuing bank or theadvising bank itself (two ofthe three copies of the bills oflading were handed over tothe issuing bank and one copywas passed to the applicant towhom the goods werereleased by the shipper uponthis copy of bills of lading).The issuing bank did notobtain reimbursement fromthe buyer since the latter wentinto liquidation, and so thebank commenced a proceedingagainst the beneficiary on thegrounds that the latter hadbreached its obligations forhanding over only two of thethree copies of the bills oflading which rendered thebank as losing security againstthe goods. In this case, theissuing bank claimed for apecuniary remedy which wasnot based on a contract (thecontract of sale, the LC or theLOI). Instead, the beneficiarywas alleged to commit a civilwrong against the issuing bank

according to Article 750 of theKorean Civil Code, whichprovides that “Any personwho causes loss or inflictsinjuries on another person byan unlawful act, wilfully ornegligently, shall be bound tomake compensation fordamages arising therefrom”.Thus, the court held that theclaim was to be characterizedas a claim in tort andtherefore, the English conflictof laws rules concerning tortas set out in Part III of thePrivate International Law(Miscellaneous Provisions) Act1995, not sub-article 5(1) of theConvention, applied. TheTrafigura case suggests that itcannot be simply stated that alldisputes between the issuingbank and the beneficiary fallwithin the scope of sub-article5(1) even though there is acontractual relationshipbetween them. The obligationsassumed by the beneficiary tothe issuing bank may not becontractual obligations.Instead, these obligationsmight be imposed by law.Hence, in order to invoke sub-article 5(1), it is important toascertain whether theobligations are freely assumedby one party towardsanother.11



The obligation in questionIn De Bloos v. Bouyer,12 the

European Court of Justice heldthat “the obligation inquestion” was the obligationwhich was the basis of thelegal proceedings. In thesituation where the beneficiarydoes not obtain payment,there is a dispute as towhether the obligation inquestion is the obligation topay or the obligation toexamine the documents and totake up the conformingdocuments by the bank. InChailease, the Court of Appealaccepted the former view.Potter LJ said:

“Although it is clear that, inproviding a code in respectof the procedures,responsibilities andliabilities of the variousparties to a letter of credit,the UCP 500 lays down anumber of detailedrequirements for theexamination of documentsand the determinationwhether or not they arediscrepant, it does nothingto erode the undertaking ofthe issuing bank to make,and the interest of the

beneficiary to claim,payment under the terms ofthe credit, that being theobligation the performanceof which is sought in theproceedings brought by thebeneficiary. Accordingly, itseems clear to me that theobligation in question inthese proceedings is theobligation to make paymentunder the credit.”

According to the agreementbetween the applicant and theissuing bank, the issuing bankhas to perform two inter-related obligations. One is toexamine the documents andthe other is to make paymentprovided that the documents,after examination, do notcontain discrepancies.Although, in most cases, theobligation of payment issimply regarded as counter-performance by one partyagainst the main obligationperformed by another party, inessence a letter of credit is onekind of payment method forinternational tradetransactions. The firstobligation is just theprecondition for the bank tofulfill its second obligation,

and the beneficiary’s mainconcern also focuses on thelatter. In Medway Packaging Ltdv. Meurer Maschinen GmbH,13 theCourt of Appeal held that theprincipal obligation in questiondetermines jurisdiction in thesituation where there are morethan two obligations. Then,the obligation in question isthe obligation to makepayment in letters of credit.

The place of performanceBefore the Judgments

Regulation came into force, themeaning of “the place ofperformance of the obligationin question” remained to besolved “pursuant to thesubstantive law governing theobligation in dispute under theconflicts rules of the courtseised”.14 Sub-article 5(1)(b) ofthe Judgments Regulation,however, contains autonomousrules for sale of goods andprovision of services. It states:

“For the purpose of thisprovision and unlessotherwise agreed, the placeof performance of theobligation in question shallbe: in the case of the sale ofgoods, the place in a

12. [1976] ECR 1497.

13. [1990] 2 Lloyd’s Rep. 112.

14. Custom Made Commercial Ltd v. Stawa Metallbau GmbH [1994] ECR I-2913. Industrie Tessili Italiana Como v. Dunlop AG[1976] ECR 1473. It held that “It is for the court before which the matter is brought to establish under the Conventionwhether the place of performance is situated within its territorial jurisdiction. For this purpose it must determine inaccordance with its own rules of conflict of laws what is the law applicable to the legal relationship in question anddefine in accordance with that law the place of performance of the contractual obligation in question.”



Member State where, underthe contract, the goodswere delivered or shouldhave been delivered; in thecase of the provision ofservices, the place in aMember State where, underthe contract, the serviceswere provided or shouldhave been provided.”

Although such autonomousrules are only for the sale ofgoods and the provision ofservices, by analogy with themit could be reasonably drawnthat the place of performanceas regards letters of credit isthe place where the payment isto be made. This point of viewwas also accepted by the courtin Chailease. The issue beforethe court in Chailease15 was thatthe credit did not state anexact place for payment at thetime of issuing. The credit onlyindicated that “upon receipt atour counters in Geneva ofdocuments in strict conformitywith this stand-by letter ofcredit terms and conditions,we shall pay you as per yourinstructions, value twoGeneva/New York Bankworking days”. Mr. Males forthe appellant/defendantargued that the place ofperformance should be

Switzerland where thedocuments were presented.The Court of Appeal rebuttedMr. Males’s argument and heldthat the place of paymentcould be determined bysubsequent agreementbetween the parties concerned.Potter LJ said:

“In such cases and, as itseems to me, in the instantcase which concerns the dueplace of payment under adocumentary credit, theCourt does not abdicatefrom its task of ascertainingthe due place for paymentaccording to the apparentintention of the contract (i.e.“expressly or byimplication”). In the courseof that task, the Court mayand, in my view, shouldhave regard to anysubsidiary agreement by theparties in that respect or tothe outcome of anymachinery or method forsubsequent determinationof the place of paymentwhich is anticipated and/orpermitted within the termsof the contract. If by thoseterms, the parties anticipatethat the place for paymentmay be determined at theoption of one party and

subsequently communicatedin instructions to the other,then there seems to me noconvincing argument ofprinciple or policy why therule of jurisdiction in sub-article 5(1) should betreated as inapplicable,simply because the partieshave agreed that thecrystallization of theobligation as to the place ofpayment be postponed inthat manner.”

It is true that protection oflegal certainty of jurisdictionhas been repeatedly stated bythe European Court ofJustice.16 However, allowingthe parties to determine theplace of payment later doesnot violate this principle.English authorities are silent asto when a specific place ofperformance should beascertained by the parties.Then, according to Englishlaw, the parties have the rightto reach a subsequentagreement to fill thecontractual gap.17 Soon after aninstruction which contained adefinite place of payment wasgiven, the bank knew where itwas to make payment before itperformed its obligation inquestion and where any likely

15. [2000] 1 Lloyd’s Rep. 348.

16. E.g. Jakob Handte G.m.b.H. v. Traitements Mecanochimiques des Surfaces, [1992] E.C.R. I-3967; Mulox v. Geels, [1993]E.C.R. I-4075; Kleinwort Benson Ltd. v. Glasgow City Council, [1999] 1 A.C. 153.

17. Urquhart Lindsay & Co Ltd v. Eastern Bank Ltd [1922] 1 KB 318; Ficom SA v. Sociedad Cadex Limitada [1980] 2 Lloyd’sRep 118; Glencore Grain Rotterdam BV v. Lebanese Organisation for International Commerce [1977] 2 Lloyd’s Rep 386.


18. In Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460.

19. [2005] 1 Lloyd’s Rep. 452


legal proceedings would takeplace. As a result, nouncertainty could be held toexist from the time theinstruction was issued.Furthermore, an issuing bankwhich, however, indicated inits credit that the place ofpayment should bedetermined by furtherinstruction of the beneficiarywas likely to be held as givingup its right of indicating aspecific place at an earlier time.In such a situation, it would bequite strange for that issuingbank to make a claim for thelack of certainty of such aninstruction.

A general discretion to staySchedule 4 of the CJJA

which applies a modifiedversion of the BrusselsConvention provides that:

“The court shall stay theproceedings so long as it isnot shown that thedefendant has been able toreceive the documentinstituting the proceedingsor an equivalent documentin sufficient time to enablehim to arrange for hisdefence, or that allnecessary steps have beentaken to this end.”

According to this provision,forum non conveniens is not the

basis for discretion to stay. Theprinciple of forum nonconveniens is that “a stay willonly be granted on the groundof forum non conveniens wherethe court is satisfied that thereis some other available forum,having competent jurisdiction,which is appropriate forum forthe trial of the action, i.e. inwhich the case may be triedmore suitably for the interestsof all the parties and the endsof justice.” 18 This principleimposes great discretionpower on the courts indetermining a stay of action.This is not inconsistent withthe related rules of theBrussels Convention where theforum non conveniens doctrine isnot recognized according toSection 49 of the CJJA. InOwusu v. Jackson,19 theEuropean Court of Justiceexplained:

“Application of the forumnon conveniens doctrine,which allows the courtseised a wide discretion asregards the questionwhether a foreign courtwould be a moreappropriate forum for thetrial of an action, is liable toundermine thepredictability of the rules ofjurisdiction laid down bythe Brussels Convention, inparticular that of art. 2, and

consequently to underminethe principle of legalcertainty, which is the basisof the Convention.”

Although the Owusu casereferred particularly to Article2 of the Convention, it shouldalso apply to sub-article 5(1)and other rules in theConvention because rules ofthe Convention should alsofollow the principle ofprotecting legal certainty laiddown in the Owusu case.

Traditional RulesTraditional RulesTraditional RulesTraditional RulesTraditional RulesIn cases where the Brussels

Convention, the LuganoConvention, and theJudgments Regulation do notapply, determination as towhether the English courtshave jurisdiction should bemade according to thetraditional rules which arenow enshrined in the CivilProcedure Rules (CPR) and itssupplement Practice Direction.In this paper, two forms ofjurisdiction under thetraditional rules will beaddressed. One is the inpersonam jurisdiction whicharises where the claim form isserved on the presence of thedefendant within jurisdiction.The other is that, in somecases, the English courts couldserve the service out ofjurisdiction.


20. See R. 7.2 & 7.5 of CPR.

21. [1990] 2 Lloyd’s Rep. 112. See detailed discussion in this paper.

22. Société Générale de Paris v. Dreyfus Brothers (1885) 29 Ch.D. 239.

23. [1994] 1 A.C. 438.


Presence withinthe Jurisdiction

In the situation where thedefendant is present withinjurisdiction, the plaintiff hasthe right to require the courtto exercise its jurisdiction,though the court may stay theproceeding on the ground ofinjustice.20 The rule of presenceis different from that ofdomicile in the EuropeanConventions and theJudgments Regulation. Nomatter how fleeting thedefendant is present injurisdiction, the English courtis entitled to exercise itsjurisdiction according to therule of presence. Thus, so faras the defendant can be servedwith the claim form, the courtcan exercise jurisdiction overdisputes relating to letters ofcredit.

According to Rule 6.12 (1) ofCPR 2008, a claim form can beserved on an agent of aprincipal who is out ofjurisdiction provided that “thecontract to which the claimrelates was entered into withinthe jurisdiction with orthrough the defendant’sagent” and “at the time of theapplication either the agent’sauthority has not been

terminated or the agents is stillin business relations with thedefendant.” Thus, the issuingbank could be sued in thebeneficiary’s country in thesituation where it hadnominated another bank topay within that jurisdictionprovided that its contract withthe beneficiary was alsoadvised by that nominatedbank. For this consideration,the beneficiary could not suefor payment in his owncountry if an advising bankhad been utilized to advise,and only to advise, the creditwithin that jurisdiction sincethe burden of the advisingbank ceased as soon as thecredit had been communicatedto the beneficiary.Furthermore, to advise thecredit is one of the obligationsthat an issuing bank assumesbut is not the principal one(the principal one should bethe obligation to pay). Then,according to Medway PackagingLtd v. Meurer MaschinenGmbH,21 the beneficiary cannotsue for non-payment of theissuing bank in his countrysolely on the ground thatcredit is advised through abank within that jurisdiction.

Service out ofthe Jurisdiction

Unlike the circumstance ofpresence within jurisdiction,the action of the court in casesof service out of jurisdiction isdiscretionary. The court oughtto be exceedingly carefulbefore it allows a writ to beserved out of jurisdiction sincegreat inconvenience andannoyance will be entailed inbringing a foreigner, whoowes no allegiance, to contesthis rights in another country.22

Only in the situation where theclaim falls within any part ofPractice Direction 6B 3.1(former CPR Rule 6.20 before 1October 2008) can the courtgrant permission to serveproceedings out of jurisdiction.In granting permission, thecourt should be satisfied thatcertain standards of proof andthe principle of forumconveniens are met.

Standard of proofIn Seaconsar Far East Ltd v.

Bank Markazi Jomhouri IslamiIran,23 the House of Lords heldthat “the majority of the Courtof Appeal erred when theyheld that Seaconsar had toestablish under either of thosesub-paragraphs (sub-pars.


(d)(i) or (ii) of Rule 1(1) ofRSC, Order 11 which wasreplaced by CPR 1998 R. 6.20,and now is recorded in CPR2008, Practice Direction 6b 3.1)a good arguable case on themerits”. Instead, the leave toserve out of the jurisdictionwas granted in so far as therewas a serious issue to be tried.The test of a serious issue tobe tried means that wherethere is a substantial legalquestion arising on the factsdisclosed by the affidavitswhich the plaintiff bona fidedesires to try, the courtshould, as a rule, allow theservice of the writ.24 Comparedwith the test of “goodarguable case” which is thestandard of civil burden ofproof, the test of “a seriousissue to be tried” is a lowertest. In exercising its discretionunder [RSC Order] O.11, thecourt should be satisfied notonly by certain evidence thatthere is need for the issue tobe tried, but also by the

requirement of forumconveniens.25 It is theninapposite to “apply thelanguage of the civil standardof proof applicable to issues”26

since at the stage ofdetermining jurisdiction, thecourt is only required todecide “on affidavits fromboth sides and without fulldiscovery and/or crossexamination”.27 Otherwise, itwould be “whollyinappropriate once thequestion[s] of jurisdiction andforum [conveniens] areestablished for there to beprolonged debate andconsideration of the merits ofthe plaintiff’s claim at theinterlocutory stage”.28 It isworth mentioning that thephrase “a serious issue to betried” is replaced by the phaseof “a reasonable prospect ofsuccess” which is laid down inCPR 2008, R. 6.37 (1)(b). In TheIslamic Republic of Pakistan v.Asif Ali Zardari, RominaProperties Limited, Winkford

Farm Limited, Parsonage FarmLimited,29 Mr Justice LawrenceCollins took a view that “it isprobable that there is nopractical difference betweenthis test [a reasonable prospectof success] and the test for thepurposes of RSC Order 11, r1(1) of ‘a serious issue to betried’”.

Then, in order to determinewhether to grant the serviceout of jurisdiction, the properstandard should be the test ofa reasonable prospect ofsuccess which substitutes thetest of serious issue to be triedand which is lower than thator of “good arguable case”since there is no need to dofull discovery and/or crossexamination at theinterlocutory stage.

Forum conveniensThe principle of forum

conveniens is designed toidentify the forum in whichthe case can suitably be triedfor the interests of all parties

24. Lord Davey in Chemische Fabrik Vormals Sandoz v. Badische Anilin Und Soda Fabriks (1904) 90 L. T. 733, 735. The phraseappears to be first reported in Société Générale de Paris v. Dreyfus Brothers, 29 Ch D 239.

25. See Seaconsar Far East Ltd case [1994] 1 A.C. 438.

26. Canada Trust Co. and Others v. Stolzenberg and Others (No. 2) [1998] 1 W.L.R. 547.

27. Ibid.

28. See what Stuart-Smith LJ said in Seaconsar Far East Ltd case in Court of Appeal, and approved by the House ofLords, per Lord Goff of Chieveley.

29. [2006] WL 2850944.



and for the ends of justice.30 InRosler v. Hilbery,31 the Court ofAppeal held “in decidingwhether or not it will exerciseits discretion the Court paysattention to a great number ofmatters, in particular it wouldpay attention to what is theforum conveniens.” The courtmust take “the nature of thedispute, the legal and practicalissues involved, such questionsas local knowledge,availability of witnesses andtheir evidence, and expense”32

into account. However, theimportance of these factorsmay vary from case to case.33

In Trafigura Beheer B.V. v.Kookmin Bank Co.,34 Mr. JusticeCooke regarded the governinglaw as the decisive factor onthe ground that there might be“little factual evidence which isrequired for determination ofthe points in issue”;35 while in

The Islamic Republic of Pakistanv. Asif Ali Zardari, RominaProperties Limited, WinkfordFarm Limited, Parsonage FarmLimited,36 the court held “theexistence of parallelproceedings in anotherjurisdiction between the sameparties is a relevant, andfrequently an important, oreven decisive, factor in thedetermination of theappropriate forum”.37

In Spiliada MaritimeCorporation v. Cansulex Ltd,38 theHouse of Lords held thatapplication of the principle offorum conveniens was almostthe same as that of forum nonconveniens. Then, the principleof forum conveniens, as theprinciple of forum nonconveniens, only applies to thesituation where an Englishcourt is invited to hold that acourt of Scotland or Northern

Ireland is a more appropriateforum or where an action isbrought in England against adefendant where theConventions and theJudgments Regulation do notapply. This is because they“contained no provision whichsuggested that their operationwas subject to a jurisdictiondiscretion which was a part ofthe common law but notgenerally known to civiliansystems”.39

Unlike forum non convenienswhich imposes the burden ofproof on the defendant, theburden of proof for forumconveniens should be on theclaimant who should persuadethe court that England isclearly the appropriate forum.It is worth mentioning that“each party will seek toestablish the existence ofcertain matters which will

30. La Société du Gaz de Paris v. La Société Anonyme de Navigation “Les Armateurs Français” Paris (1925) 23 Ll. L. Rep. 209.

31. [1925] Ch. 250.

32. Lord Wilberforce in Amin Rasheed Shipping Corporation v. Kuwait Insurance Co., (The “Al-Wahab”), [1983] 2 Lloyd’s Rep.365.

33. Spiliada Maritime Corporation v. Cansulex Ltd., [1987] 1 Lloyd’s Rep. 1.

34. [2005] EWHC 2350 (Comm); abstracted at 2006 ANNUAL SURVEY 458.

35. Ibid.

36. [2006] EWHC 2411.

37. Ibid.

38. [1987] A.C. 460.

39. See Sir L. Collins, Dicey, Morris & Collins on the Conflict of Laws (14th Edition, Sweet & Maxwell, 2006), 12-017. It shouldbe the same for the Lugano Convention and the Judgments Regulation.



40. [1987] 1 Lloyd’s Rep. 1.

41. Ibid.


assist him in persuading theCourt to exercise its discretionin his favour”.40 So, in practice,the defendant may alsoprovide evidence to show that“England is not the natural orappropriate forum for the trial,and to establish that there isanother available forum whichis clearly or distinctly moreappropriate than the Englishforum”.41

All in all, it is clear that thecourt when it decides whetherto give leave to serve out ofjurisdiction should considerwhether there is a reasonableprospect of success andwhether the forum isappropriate altogether. Bothtests should be satisfied. InSeaconsar, Lord Goff ofChieveley said:

“Suppose that, for example,the plaintiff’s case is verystrong on the merits. If so, Icannot see that a caseparticularly strong on themerits can compensate for aweak case on forumconveniens. Likewise, in myopinion, a very strongconnection with the Englishforum cannot justify a weakcase on the merits, if astronger case on the meritswould otherwise berequired. In truth, as I seeit, the two elements areseparate and distinct.”

Main Differences inMain Differences inMain Differences inMain Differences inMain Differences inTwo Sets of RulesTwo Sets of RulesTwo Sets of RulesTwo Sets of RulesTwo Sets of Rules

As far as two sets of rulesfor jurisdiction are concerned,two differences need to beaddressed. First, the courtunder the English traditionalrules has broader jurisdictionthan that under theConventions and theRegulation. This is because thecourt can exercise itsjurisdiction in the situationwhere the defendant is presentwithin jurisdiction, by himselfor through an agent in theformer set. The defendant canbe sued in the UK no matterhow fleeting he is present injurisdiction. On the contrary,the rule of domicile laid downin the latter set which requiresthe defendant to have anofficial, legal, or majorbusiness address in the UK.

Another importantdifference between two sets ofrules is that one set (i.e. twoEuropean Conventions or theJudgments Regulation)emphasizes on the legalcertainty of jurisdiction andprecludes forum non conveniensfrom being applied whileanother one gives much moreconcern to legal andcommercial suitability so that acourt should consider forumnon conveniens in allowing aservice out of jurisdiction.

The first difference would

impose few influences onletters of credit since asmentioned above few partiesinitiate the proceedingsaccording to these rules inpractice. However, if aclaimant of a member state ofthe Convention or theRegulation sues twodefendants (one is domiciledin a member state whileanother one is not) in anEnglish court, the Englishcourt has to determinejurisdiction according to twosets of rules respectively. Thesituation would be the same asregards the second difference,and may produce morecomplexities since the courtenjoys great discretionarypower under the traditionalrules and therefore bringsuncertainty in determiningjurisdiction. Such a situationwould increase legal costs andproduce difficulties indetermining jurisdiction.Therefore, it may increase thepossibility that the partiesconcerned might avoidpursuance of suit through legalprocedures in the UK due tothis complication. The bestapproach is to harmonize thesetwo sets of rules forjurisdiction, like the rules forthe governing law which usedto be two different sets ofrules as that for jurisdiction,but now are tending more and


more to be the same since therules of common law arelargely replaced by the RomeConvention. After all,harmonization is the trend forthe purpose of reducing legalconflicts and cost. However,from the reform of CPR in2008 which does contain asimilar rule for service inpresent as well as for serviceout of jurisdiction as that informer rules. It is likely thattwo sets of rules forjurisdiction will remain in theforeseeable future.

ConclusionConclusionConclusionConclusionConclusionIn two European

Conventions and theJudgments Regulation, theclaimant under a letter ofcredit can choose the placewhere the defendant domicilesor the place of the payment tosue. However, attentionshould be given to the natureof issue in dispute (e.g.whether the issue in dispute iscontractual or tortious). Eventhough the beneficiary and theissuing bank have a contractual

relationship, it does not meanall disputes between abovetwo parties are contractual. Incertain cases, the nature ofdisputes would be tortious.Therefore, the issue indisputes is not governed bysub-article 5(1) which dealswith matters relating to acontract only, but by sub-article 5(3) of the JudgmentsRegulation. This is so for othercontractual relationships undera letter of credit.

In the second set of rules,the court could exercise itsjurisdiction in the situationwhere the defendant is presentwithin jurisdiction, by himselfor through an agent. It isworth mentioning that theadvising bank which isappointed by the issuing bankto advise the credit only is notthe agent of the issuing bankto make a payment.Accordingly, the beneficiarycannot sue in his own countrymerely because the advisingbank is in his country.Furthermore, the legalconsideration gives to the

forum conveniens which is thenecessary condition to obtainpermission for a service out ofjurisdiction even though thereis a reasonable prospect ofsuccess. The principle of forumconveniens may enable the caseto be heard in an appropriatecourt but increase uncertaintyto the decision since greatdiscretion power is imposedon the courts. Therefore, itbecomes one majorimpediment to theharmonization of the two setsof rules.

It is easy to draw that twosets of rules for jurisdictionwhich apply to differentscopes contain essentialdifferences. For letters ofcredit, the conflicts betweentwo sets of rules easily occursince more than three partiesare involved in thisinternational paymentmechanism. For thisconsideration, it is urgent tocall for harmonization of thesetwo sets of rules for the sakeof reducing legal costs andconflicts. ■



ICC OPINIONSICC OPINIONSICC OPINIONSICC OPINIONSICC OPINIONS

ICC OPINION TA675REV (UCP600)SPRING 2009

Scope of Opinion:Scope of Opinion:Scope of Opinion:Scope of Opinion:Scope of Opinion:

Interpretation of clause in bill of lading and, incidentally,UCP600 Article 20(a)(v).

Query Summary:Query Summary:Query Summary:Query Summary:Query Summary:

✒ LC required bills of lading conveyed to order and blankendorsed.

✒ It also stated LC requirement:

“Bills of lading that on their face indicate that goods maybe released without presentation of an original bill oflading are not acceptable.”

✒ B/L presented contained extreme pre-printed wordingabove the carrier’s signature including the followingstatement:

“Where the bill of lading is non-negotiable, the Carriermay give delivery of the Goods to the named consigneeupon reasonable proof of identity and without requiringsurrender of an original bill of lading. Where the bill oflading is negotiable, the Merchant is obliged to surrenderone original, duly endorsed, in exchange for the Goods.”

Question:Question:Question:Question:Question:

Whether the clause in the bill of lading violates the prohibitionin the LC?

Summary of ICC Opinion:Summary of ICC Opinion:Summary of ICC Opinion:Summary of ICC Opinion:Summary of ICC Opinion:

A clause in pre-printed text of a bill of lading provides forrelease of the goods without presentation of an original in thecase of a non-negotiable bill of lading is not a basis for refusalsince it is part of the Terms & Conditions of carriage. However,the Opinion also notes that pursuant to the Terms & Conditions,the provision for surrender of the goods without the original billof lading would be inapplicable since the bill of lading at issuewas negotiable.


Comment:Comment:Comment:Comment:Comment:

It is unclear from the Opinion whether it is based on the prohibited text not being examinedbecause it is a Term & Condition not to be examined or because the clause is inapplicable to an orderbill of lading. The body of the Opinion suggests the former but the final sentence suggests the latter.

What Does This Opinion Mean for LC Specialists?What Does This Opinion Mean for LC Specialists?What Does This Opinion Mean for LC Specialists?What Does This Opinion Mean for LC Specialists?What Does This Opinion Mean for LC Specialists?

There has long been doubt as to what constituted a Term & Condition within the meaning of thevarious transport document articles and more doubt about what could be disregarded. If the reasonfor the Opinion rested on it being a Term & Condition, the same term regarding a negotiable B/Lwould not be a basis for refusal. Clarification here is desirable.

ICC OPINIONSICC OPINIONSICC OPINIONSICC OPINIONSICC OPINIONS

UCP600: An AnalyticalCommentary

The Institute’s UCP600: An Analytical Commentarywill provide an exhaustive, analytical, and historicalinterpretation of the text of the UCP in light of letter of creditpractice. A book like no other, this comprehensive 1,488-pagehardbound study will be the definitive treatise on UCP600and an essential element of every LC library.

This Analytical Commentary will include:• Extensive examination of each article & subarticle of UCP600• Reference to ICC Banking Commission Opinions and legal

cases from around the world relevant to each article• Reference to other rules of practice (ISP98, URDG) and legal

systems (US UCC Article 5, UN LC Convention, Chinese LCRules) relevant to each article

• Comprehensive index and appendices.• Pocket part that will be annually updated to reflect the latest

developments in law and practice

Click Here or Visit:www.iiblp.org/UCP600Commentary

for More Information.Institute of International Banking Law & Practice20405 Ryecroft Court, Montgomery Village, MD 20886, USAwww.iiblp.org • [email protected] • +1-301-869-9840 • +1-301-926-1265 (fax)

www.iiblp.org/UCP600Commentary


TEXTTEXTTEXTTEXTTEXT

SCIENCE PARK ADMINISTRASCIENCE PARK ADMINISTRASCIENCE PARK ADMINISTRASCIENCE PARK ADMINISTRASCIENCE PARK ADMINISTRATIONTIONTIONTIONTION(TAIW(TAIW(TAIW(TAIW(TAIWAN)AN)AN)AN)AN)

VVVVV.....STSTSTSTSTANDARD CHARANDARD CHARANDARD CHARANDARD CHARANDARD CHARTERED BANK (TAIWTERED BANK (TAIWTERED BANK (TAIWTERED BANK (TAIWTERED BANK (TAIWAN)AN)AN)AN)AN)

LIMITED*LIMITED*LIMITED*LIMITED*LIMITED*

Supreme Court of Republic of China –Supreme Court of Republic of China –Supreme Court of Republic of China –Supreme Court of Republic of China –Supreme Court of Republic of China –Civil JudgmentCivil JudgmentCivil JudgmentCivil JudgmentCivil Judgment

File No: 98 XX 1925Date: 2009-10-15Claim: refund security deposit

Supreme Court of Republic of China, Civil Judgment, 98 XX 1925.Appellant – Standard Chartered Bank (Taiwan) Limited

(Attorney – Binghuang Zhang, Riquan Zhu)Appellee – Science Park Administration (Taiwan)

(Attorney – Qinyuan Cai, Shaoying Wei, Peixuan Li)

Prior History: The appellant appealed from the second instancedecision of Taiwan High Court (98 XX 176) [which had reversedthe decision of the trial court]. The Supreme Court dismissed theappeal with appellant bearing all expenses.

* Allignment of the parties in the trial court decision. DCW has been informedthat it is not customary to label cases by the party names in Taiwan.

Opinion:The appellee alleges that:It entered into a

construction contract (“thecontract”) with a third partyZhipin Tech. Ltd. (“Zhipin”) on12 December 2005, designatingZhipin as a contractor to workon the two stages sewageexpansion project (“sewageproject”) of the four phasesZhunan Base developmentproject in Yiyuan District.According to the contract andthe construction tenderregulation, Zhipin shouldsubmit a security deposit to

ensure its contractperformance. The appellant,formally known as HsinchuInternational Bank, guaranteedthe security deposit and issueda performance guarantee foran amount of NT$85,987,039(“the guarantee”). On 15 June2007, Zhipin requested theappellee to release its liabilityof the outstanding balance,75% of the guarantee amount(NT$64,490,179). Since theactual completion date of theinflow station (30 April 2006)was later than the due date inthe contract (17 March 2006),


and the major part of theproject was not completed, theappellee rejected the request.At the same time, the appelleenotified the projectsupervisory company, CECIEngineering Consultants, Inc.Taiwan (“CECI”) on 26 June2007 to compute the overduepenalty and the relevantoutstanding unclaimedcharges, noting that if therelevant outstandingunclaimed charges were notsufficient to pay for thepenalty, the appellee wouldmake a claim from theguarantee amount according tothe contract. It was alsoreminded that the expiry dateof the guarantee was pending,and requested that the expirydate of the guarantee to beextended as soon as possible.A copy of the guarantee wassent to the appellant andZhipin as well. However,Zhipin was in breach of itscontractual obligation by notextending the expiry date intime. On 4 June 2008, theappellee wrote to theappellant, demanding that theappellant perform itsobligation under the guaranteeand claiming the amount ofNT$64,490,179. The appellantrefused to make payment onthe ground that the guaranteehad expired. The appellee suedthe appellant for the paymentpursuant to the guarantee,

with interest calculated from 6June 2008.

The appellant contendedthat:

Provision 4 of the guaranteedesignated that thepayment obligation of theappellant was from the dateof issuance until the expirydate, 30 June 2007. Theappellant bore no obligationafter the expiry date. Thedemand for payment underthe guarantee was made on4 June 2008 and was afterthe expiry date. This wasthe reason that theappellant refused paymentunder the guarantee.

After reviewing the wholeissue and evidence, the firstinstance [trial] court observedthat1:

It was an undisputed factbetween the two parties thatthe appellant issued aguarantee in favour of theappellee on behalf of Zhipin.The guarantee worked as aperformance security depositfor the sewage project, whichwas evidenced by the relevantparts of the contract, thetender regulation, theguarantee and relevantdocuments. The appellantconceded the above. Thoughits contention was based on

the above, the provisions 1and 2 in the guarantee wrotethat: “since Zhipin contractedwith the administration… onthe sewage project, in pursuantto the tender documents,Zhipin shall deposit with theadministration a performancesecurity deposit…suchperformance security depositwas guaranteed by theguarantee issued by the bank”;“in accordance with theprovisions stated in the tenderdocument and the contract, ifthe administration affirms thatthe security deposit should notbe refunded, theadministration shall notify thebank by a written document,and the bank shallimmediately make payment tothe administration in theamount stated in the writtendocument not exceeding thetotal amount of the guarantee ,without shifting anyresponsibility and delay.” It isclear that, according to thetender document, Zhipinshould deposit with theappellee a performancesecurity deposit as anassurance of its performancebefore execution of thecontract. Considering that thecontractor may not be able toprovide such huge amount ofmoney as a performancesecurity deposit, or suchdeposit may hinder theliquidity of the contractor, the

1. The original text in Chinese words showed “yuan shen”, meaning original trial, but this must be a typographicalerror, since the last sentence of this portion of the opinion (stating that for reasons stated in that portion of the decisionof the first instance court was reversed) suggests that the portion of the opinion is a summary of the decision of theintermediate appellate court. One would not expect the trial court to have explained why it should be reversed.



appellee accepted a relatedguarantee to be issued by abank as a substitute for thecash deposit. Therefore, theguarantee was an assurance ofthe performance by Zhipin,rather than an assurance forthe damages resulted from thebreach of contract. It wasrecognized that the guaranteeissued by the appellant was apromise of payment, whichdiffered from that in theaccessory guarantee orsuretyship under the civil lawsystem. Provision 7(9) in thecontract provided that “ifZhipin could not perform itsduty within the time limit asstated in the contract, or if theproject could not be examinedand accepted [by theadministration]within thevalidity of the security depositdue to the fault of Zhipin, thevalidity of the security depositshould be extended inaccordance with the period ofthe delay”. Provision 7(8)provided that “if Zhipin couldnot extend the validity of thesecurity deposit in pursuant tothe contract, the securitydeposit not being extendedwould not be refunded”. On26 June 2007, in the notice sentto the supervisory company,CECI, with copies sent to theappellant and Zhipin, theappellee noted that “first, in itsletter of 15 June 2007, thecontractor, Zhipin, requestedthe release of its advancepayment liability; second, inaccordance with the

assessment by your designingunit, part of the sewageproject….we agree to extendthe deadline for 90 days forpart of the project... the projectmay not be completed in time,you are requested to computethe overdue penalty and therelevant outstandingunclaimed chargesimmediately. If the relevantoutstanding unclaimed chargesare not sufficient to pay for theoverdue penalty, theadministration would deductthe amount from theperformance security depositaccording to the agreement. Inaddition, the expiry date ofthe performance security isimpending, please request thecontractor to extend the dateimmediately for the benefit ofthe administration.” SinceZhipin failed to performbefore the deadline, it shouldhave extended the validity ofthe performance securityaccording to the contract. As itfailed to apply for theextension of the guaranteeeven after the appellee’snotice, it is sufficient to decidethat Zhipin was in breach ofthe provision 7(8) of thecontract, and there is no doubtthat the performance securitydeposit shall be forfeited. Inaddition, provision 4 of theguarantee provided that “thevalidity period of theguarantee is from its date ofissuance to 30 June 2007”. Theprovision did not intend toindicate that the guarantee is

ineffective after the expirydate, but to mean that Zhipinshould perform within thevalidity period. The appellantclaimed that in accordancewith the provision 4, theappellee had no right todemand payment under theguarantee after 30 June 2007.The appellant’s claim could notbe accepted. Zhipin used theguarantee as a substitute forthe performance securitydeposit, and thus theguarantee was an undertakingto make payment. As Zhipinhad failed to make payment ofthe performance securitydeposit before the expiry dateprovided by provision 3, andthe appellant did not disputethe fact that the appellee haddemanded for payment on 4June 2008, the appellee has metall payment conditions of theguarantee. Therefore, theappellee’s demand forpayment in the amount ofNT$64,490,279 with interestfrom 6 June 2008 was proper.Appellant’s other allegationswere also dismissed withpropriety and would not bediscussed in details. Thus, thefirst instance trial court’sdecision was reversed andjudgment was entered asdescribed above.

[Supreme Court held that:]In interpreting the terms of

a contract, all intents andpurposes of the parties shouldbe explored. Courts shouldview a contract in its totality,



considering all other evidencesincluding circumstances beforeand around the execution ofthe contract and customs insimilar transactions. Thedecision should follow theexperience and customs and itshould be predicated onprinciples of honest. Courtsshould also consider a contractin view of its underlying facts,purposes, economic value,social recognition and the legaleffect the parties intended toachieve. On the other hand,courts should not confinethemselves to the exactexpression of the terms oradjudicate upon theinterpretation of only severalterms in the contract, whichmay lead to a deviation ofinterpretation from parties’true intent. Based on theinterpretation of the contract,the guarantee and otherdocuments and letters, Zhipinwas found in breach of theprovision 7(8) of the contractbefore the expiry date of theguarantee, and the conditionto forfeit the performancesecurity deposit was met. Theappellee requested paymentfrom the appellant on 4 June2008 and the expiry datestated in the provision 4 of theguarantee did not mean thatthe guarantee would beineffective after the expirydate. Zhipin used theguarantee as a substitute forthe performance securitydeposit, and thus theguarantee was an undertaking

to pay. The conditions of theperformance security deposithad been met by the appellee.The decision unfavorable tothe appellant is consistent withthe intent of the agreementsand is thus legally proper. Inaddition, the appelleecontended in its response thatthe appellant had an obligationto pay under the guarantee ifZhipin failed to performbefore the project deadlineand the conditions to forfeitthe performance securitydeposit were met inaccordance with the contract.The interpretation of theexpiry date in provision 4 ofthe guarantee is proper and itdoes not contradict with theprinciple of adversary system.The validity of the guaranteemeans the performance periodof Zhipin, and Zhipin failed toprovide a performancesecurity deposit in cash withinthe validity period. Theperformance period isdifferent from the projectdeadlines agreed between theappellee and Zhipin, which are17 March 2006 and 7 April2007. The above argumentcontains no contradiction withthe evidence. Based on theabove argument, in correctingthe first instance trial decision,the appellate court reasonedthat: The appellee claimed thatthe validity period of theguarantee prescribed theperiod within which Zhipinwas in breach of the contract.The first instance trial court

nevertheless held that thevalidity period prescribed theperiod within which paymentmust be made, which wascontradictory to the otherwisedesignated validity period ofguarantee payment and thecontract performance deadlineof 17 March 2006 and 7 April2007. Thus, the first instancetrial court’s holding wascontradictory with theprinciple of adversary systemand inconsistent with theparties’ intent and purpose. Inaddition, in view of the rulesgoverning other kinds ofsecurity deposits, the firstinstance trial court’s decisionthat the validity period of theguarantee was the periodwithin which paymentundertaking was to be made isinconsistent with the customsand theories of securitydeposits. The first instancetrial decision is improper andwithout reason, and thusreversed.

Accordingly, we herebydismissed the appeal as nocause. According to CivilProcedure Code 481, 448 (1)(78), judgment is entered.

2009-10-15Supreme Court

the Fifth Civil CourtJiannan Zhu J.

(Presiding judge)Nanquan Yan J.Dayang Lin J.Fangwei Shen J.Biyu Chen J.



3RD QUARTER 20093RD QUARTER 20093RD QUARTER 20093RD QUARTER 20093RD QUARTER 2009

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1 DEXIA CREDIT LOCAL NY BR NEW YORK NY 35,474,598 1,153,223 36,256,759 0 36,256,7592 LLOYDS TSB BK PLC NY BR NEW YORK NY 9,425,567 2,258,748 11,684,315 36,033 11,720,3483 DEUTSCHE BK AG NY BR NEW YORK NY 10,874,741 1,750,656 11,142,141 383,566 11,525,7074 BANK OF NOVA SCOTIA NY AGY NEW YORK NY 10,316,149 997,656 10,341,328 42,628 10,383,9565 LANDESBANK HESSN-THRN NY BR NEW YORK NY 6,659,941 2,627,083 9,169,135 0 9,169,1356 BANK TOK-MIT UFJ NY BR NEW YORK NY 6,662,310 2,405,835 8,777,455 136,555 8,914,0107 BAYERISCHE HYPO VEREINS NY BR NEW YORK NY 7,046,959 588,307 7,358,500 289,288 7,647,7888 BNP PARIBAS EQUITABLE TWR BR NEW YORK NY 9,632,043 1,588,142 7,206,810 436,630 7,643,4409 ABN-AMRO BK NV CHICAGO BR CHICAGO IL 6,825,868 1,057,932 7,186,558 91,204 7,277,76210 BAYERISCHE LANDESBANK NY BR NEW YORK NY 6,802,016 325,072 6,675,391 0 6,675,39111 INTESA SANPAOLO SPA NY BR NEW YORK NY 5,103,253 782,864 5,886,117 780,503 6,666,62012 ALLIED IRISH BKS NY BR NEW YORK NY 6,725,697 75 6,543,174 0 6,543,17413 ROYAL BK OF SCOTLAND PLC NY BR NEW YORK NY 6,895,234 580,730 6,481,581 0 6,481,58114 MIZUHO CORPORATE NY BR NEW YORK NY 4,865,319 812,305 5,650,328 56,307 5,706,63515 BANCO SANTANDER SA NY BR NEW YORK NY 4,431,223 204,901 4,612,844 11,386 4,624,23016 ROYAL BK OF CANADA LIB PL BR NEW YORK NY 4,118,383 878,835 4,460,558 618 4,461,17617 BNP PARIBAS SF BR SAN FRAN. CA 6,905,790 148,481 4,339,577 1,902 4,341,47918 SUMITOMO MITSUI BKG NY BR NEW YORK NY 3,814,177 805,331 4,177,860 83,014 4,260,87419 STANDARD CHARTERED BK NY BR NEW YORK NY 2,526,958 1,319,134 3,292,673 885,588 4,178,26120 SOCIETE GENERALE NY BR NEW YORK NY 4,447,307 373,078 4,122,855 44,773 4,167,62821 BARCLAYS BK PLC PARK AVE BR NEW YORK NY 4,230,654 584,083 3,092,387 918,094 4,010,48122 LANDESBK BADN WUERTTMB NY BR NEW YORK NY 4,046,307 251,414 4,003,570 0 4,003,57023 CALYON NY BR NEW YORK NY 4,208,140 825,647 3,332,842 33,959 3,366,80124 SVENSKA HANDELS AB PUBL NY BR NEW YORK NY 1,712,794 964,777 2,677,571 473,010 3,150,58125 WESTLB AG NY BR NEW YORK NY 3,008,982 72,172 3,081,154 0 3,081,15426 KBC BANK NV NY BR NEW YORK NY 2,709,554 10,036 2,719,590 162,553 2,882,14327 UBS AG STAMFORD BR STAMFORD CT 2,269,297 572,403 2,601,623 1,693 2,603,31628 FORTIS BK SA/NV NY BR NEW YORK NY 3,260,887 63,351 2,520,557 9,890 2,530,44729 COMMERZBANK AG NY BR NEW YORK NY 2,083,189 275,593 2,355,648 40,362 2,396,01030 NATIXIS NY BR NEW YORK NY 1,784,209 434,915 2,219,124 69,079 2,288,20331 ROYAL BK OF CANADA MIAMI BR MIAMI FL 50,057 2,193,868 2,243,925 2,342 2,246,26732 BANK OF NOVA SCOTIA HOU BR HOUSTON TX 2,409,101 351,785 2,191,301 26,203 2,217,50433 AUSTRALIA & NEW ZEALAND NY BR NEW YORK NY 1,699,976 186,689 1,797,712 7,565 1,805,27734 RABOBANK NEDERLAND NY BR NEW YORK NY 1,774,478 450,756 1,657,906 36,377 1,694,28335 BANK OF MONTREAL CHICAGO BR CHICAGO IL 1,310,884 882,914 1,595,137 36,694 1,631,83136 BANCO BILBAO VIZCAYA NY BR NEW YORK NY 1,156,542 110,214 1,266,756 243 1,266,99937 NORDEA BK FINLAND PLC NY BR NEW YORK NY 911,532 288,219 1,199,751 0 1,199,75138 BNP PARIBAS HOUSTON AGY HOUSTON TX 1,456,213 45,149 1,093,800 2,938 1,096,73839 BANK OF SCOTLAND PLC NY BR NEW YORK NY 949,954 0 949,954 0 949,95440 CREDIT INDUS ET CMRL NY BR NEW YORK NY 705,972 34,700 740,672 0 740,67241 ARAB BK PLC NY AGY NEW YORK NY 775,323 0 732,222 1,875 734,09742 BNP PARIBAS CHICAGO BR CHICAGO IL 1,008,131 2,264 700,688 0 700,68843 CREDIT SUISSE NY BR NEW YORK NY 300,286 465,405 692,734 0 692,73444 RIYAD BK HOU AGY HOUSTON TX 488,757 150,000 638,757 444 639,20145 UNICREDITO ITALIANO NY BR NEW YORK NY 425,801 212,131 637,932 0 637,932


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46 HSH NORDBK AG NY BR NEW YORK NY 818,104 1,374 605,162 25,785 630,94747 DNB NOR BK ASA NY BR NEW YORK NY 426,251 238,100 623,439 0 623,43948 DZ BK AG DEUTSCHE ZENTRA NY BRNEW YORK NY 599,893 15,921 615,814 0 615,81449 MEGA INTL CMRL BK CO NY BR NEW YORK NY 65,783 850 66,633 511,200 577,83350 DEPFA BK PLC NY BR NEW YORK NY 573,486 0 573,486 0 573,48651 NORDDEUTSCHE LANDSBNK NY BR NEW YORK NY 564,694 5,780 570,474 0 570,47452 BANK OF CHINA NY BR NEW YORK NY 428,777 16,263 422,899 8,164 431,06353 NATIONAL AUSTRALIA BK NY BR NEW YORK NY 321,146 42,615 363,761 0 363,76154 NATIONAL BK KUWAIT SAK NY BR NEW YORK NY 340,995 5,600 334,865 5,842 340,70755 MEGA INTL CMRL BK LA BR L. ANGELES CA 15,453 0 15,453 310,908 326,36156 TORONTO-DOMINION BK NY BR NEW YORK NY 149,915 249,230 310,666 0 310,66657 ABU DHABI INTL BK WA BR WASH. DC 366,877 0 291,978 506 292,48458 WESTPAC BKG CORP NY BR NEW YORK NY 279,946 7,249 287,195 0 287,19559 ICICI BK NY BR NEW YORK NY 285,128 0 285,128 9 285,13760 UNITED OVERSEAS BK NY AGY NEW YORK NY 203,308 65,827 269,135 0 269,13561 BANK TOK-MIT UFJ SEATTLE BR SEATTLE WA 108,389 0 108,389 140,036 248,42562 ARAB BKG CORP NY BR NEW YORK NY 24,203 134,753 158,956 75,905 234,86163 EUROHYPO AG NY BR NEW YORK NY 607,602 5,112 225,108 0 225,10864 T C ZIRAAT BANKASI AS NY BR NEW YORK NY 207,879 10,095 217,974 2,700 220,67465 BANK HAPOALIM BM NY BR NEW YORK NY 202,393 2,066 204,459 15,501 219,96066 STATE BK OF INDIA NY BR NEW YORK NY 71,312 131,992 203,304 8,279 211,58367 CANADIAN IMPERIAL BK NY AGY NEW YORK NY 257,324 1,572 192,333 0 192,33368 BANK TOK-MIT UFJ CHICAGO BR CHICAGO IL 182,453 182,453 1,232 183,68569 UBS AG PARK AVE BR NEW YORK NY 58,325 107,635 165,960 685 166,64570 BANCA MONTE DEI PASCHI NY BR NEW YORK NY 131,446 1,921 132,870 0 132,87071 BANCO ESPIRITO SNTO CMR NY BR NEW YORK NY 116,327 0 116,327 0 116,32772 BANCO ESPANOL CREDITO NY BR NEW YORK NY 0 112,066 112,066 0 112,06673 MIZUHO CORPORATE BK LA BR L. ANGELES CA 102,675 527 102,478 5,144 107,62274 GULF INTL BK NY BR NEW YORK NY 100,782 0 100,782 187 100,96975 BANK TOK-MIT UFJ LA BR L. ANGELES CA 95,476 1,648 97,124 1,041 98,16576 NATIONAL BK EGYPT NY BR NEW YORK NY 39,894 5,459 45,353 42,975 88,32877 BANK TOK-MIT UFJ SF BR SAN FRAN. CA 79,054 635 79,689 550 80,23978 TAIPEI FUBON CMRL BK CO LA BR L. ANGELES CA 79,865 0 79,865 56 79,92179 BANK OF CMNTNS NY BR NEW YORK NY 76,569 240 76,809 302 77,11180 FIRST CMRL BK NY AGY NEW YORK NY 74,016 0 74,016 483 74,49981 MEGA INTL CMRL SILICON VALL BR SAN JOSE CA 65,761 0 65,761 2,103 67,86482 CHANG HWA CMRL BK NY BR NEW YORK NY 64,431 0 64,431 0 64,43183 TAIWAN BUS BK LA BR L. ANGELES CA 63,261 0 63,261 0 63,26184 LAND BK OF TAIWAN LA BR L. ANGELES CA 63,114 0 63,114 0 63,11485 BANCO DO BRASIL SA NY BR NEW YORK NY 52,183 7,328 59,511 2,311 61,82286 BANCO DE SABADELL SA MIAMI BR MIAMI FL 18,572 38,943 57,515 325 57,84087 BANCO NACION ARGNTNA NY BR NEW YORK NY 0 6,117 6,117 49,970 56,08788 CHANG HWA CMRL BK LA BR L. ANGELES CA 0 0 0 54,701 54,70189 HUA NAN CMRL BK NY AGY NEW YORK NY 54,210 0 54,210 0 54,21090 BANK OF BARODA NY BR NEW YORK NY 4,616 46,150 50,766 3,153 53,91991 CAJA DE AHORROS Y MNT MIA AGY MIAMI FL 33,792 20,067 53,859 0 53,85992 KOREA DEVELOPMENT BK NY BR NEW YORK NY 9,708 40,279 49,987 2,867 52,85493 COMMONWEALTH BK AUS NY BR NEW YORK NY 50,259 0 50,259 0 50,25994 FIRST CMRL BK LA BR L. ANGELES CA 42,056 0 42,056 7,786 49,84295 E SUN CMRL BK LA BR INDUSTRY CA 45,276 0 45,276 0 45,276


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96 DOHA BK NY BR NEW YORK NY 0 2,470 2,470 40,378 42,84897 ABN-AMRO BK NV NY BR NEW YORK NY 0 42,692 42,692 0 42,69298 NORINCHUKIN BK NY BR NEW YORK NY 42,078 0 42,078 0 42,07899 CAIXA GERAL DE DEPOSITOS NY BR NEW YORK NY 39,401 2,054 41,455 0 41,455100 SUMITOMO TR BKG NY BR NEW YORK NY 33,431 7,176 40,607 0 40,607101 WOORI BK NY AGY NEW YORK NY 6,066 28,672 34,738 5,777 40,515102 CHIBA BK NY BR NEW YORK NY 40,177 0 40,177 0 40,177103 NATIONAL BK OF PAKISTAN NY BR NEW YORK NY 2,108 0 2,108 37,589 39,697104 BANCO LATINOAMERCNO NY AGY NEW YORK NY 0 14,675 14,675 24,516 39,191105 HANA BK NY AGY NEW YORK NY 28,278 0 28,278 9,695 37,973106 SHINHAN BK NY BR NEW YORK NY 30,759 0 30,759 7,042 37,801107 DBS BK LA AGY L. ANGELES CA 26,139 6,441 32,580 5,077 37,657108 BANCO DO BRASIL SA MIAMI AGY MIAMI FL 2,528 7,751 10,279 27,237 37,516109 MASHREQBANK PSC NY BR NEW YORK NY 0 0 0 36,880 36,880110 NATIONAL BK OF CANADA NY BR NEW YORK NY 65,264 6,731 35,218 44 35,262111 TORONTO-DMINION BK HOU AGY HOUSTON TX 47 131,602 0 34,955 34,955112 CHINATRUST COMMRCL BK NY BR NEW YORK NY 33,789 224 34,013 0 34,013113 BANCO DE CREDITO E INV MIA BR MIAMI FL 2,060 26,454 28,514 4,546 33,060114 HUA NAN CMRL BK LA BR L. ANGELES CA 32,835 0 32,835 175 33,010115 BANCO POPULAR ROCK CENT BR NEW YORK NY 30,636 0 30,636 0 30,636116 MALAYAN BKG BERHAD NY BR NEW YORK NY 28,070 0 28,070 885 28,955117 CATHAY UNITED BK LA AGY L. ANGELES CA 28,591 0 28,591 0 28,591118 TAIWAN CO-OP BK LA BR L. ANGELES CA 26,231 0 26,231 0 26,231119 LLOYDS TSB BK PLC MIAMI AGY MIAMI FL 0 24,935 24,935 0 24,935120 OVERSEA-CHINES BKG CRP NY AGY NEW YORK NY 3,928 0 3,928 19,303 23,231121 INDUSTRIAL CMRL BK OF NY BR NEW YORK NY 22,957 0 22,957 0 22,957122 SHANGHAI CMRL BK NY BR NEW YORK NY 2,534 0 2,534 19,077 21,611123 UNITED OVERSEAS BK LA AGY L. ANGELES CA 20,195 0 20,195 548 20,743124 MIZRAHI TEFAHOT BK LA BR L. ANGELES CA 4,500 0 4,500 16,036 20,536125 BANCO D ESTADO D CHILE NY BR NEW YORK NY 0 20,000 20,000 0 20,000126 WOORI BK LA BR L. ANGELES CA 13,700 463 14,163 5,291 19,454127 DESJARDINS HALLANDALE BR HALLANDLE FL 18,501 0 18,501 0 18,501128 ROYAL BK OF SCOT GRNWCH BR STAMFORD CT 18,191 0 18,191 0 18,191129 BNP PARIBAS MIAMI AGY MIAMI FL 0 17,256 17,256 883 18,139130 UBS AG MIAMI BR MIAMI FL 0 16,117 16,117 1,937 18,054131 ROYAL BK OF CANADA NY BR NEW YORK NY 12,155 4,948 17,103 0 17,103132 BANCO INTERNACIONAL MIA AGY CRL GABLES FL 0 5,592 5,592 11,449 17,041133 BANK OF CHINA LA BR L. ANGELES CA 28,447 0 4,263 10,506 14,769134 BANK OF INDIA NY BR NEW YORK NY 6,641 6,000 12,641 1,940 14,581135 BANCO BRADESCO SA NY BR NEW YORK NY 101 45 146 13,690 13,836136 BANK EAST ASIA NY WHOLESALE BR NEW YORK NY 13,638 0 13,638 0 13,638137 BANK HAPOALIM BM MIAMI BR AVENTURA FL 765 10,982 11,747 1,339 13,086138 SHIZUOKA BK NY BR NEW YORK NY 10,850 0 10,850 0 10,850139 SHANGHAI CMRL BK LA BR ALHAMBRA CA 544 3,000 3,544 6,928 10,472140 GUNMA BANK NY BR NEW YORK NY 10,400 0 10,400 0 10,400141 SHANGHAI CMRL BK SF BR SAN FRAN. CA 5,669 0 5,669 4,164 9,833142 GOVERNOR&CO BK IR STMFRD BR STAMFORD CT 9,688 0 9,688 0 9,688143 NANYANG CMRL BK SF BR SAN FRAN. CA 9,202 0 9,202 228 9,430144 STATE BANK INDIA CHICAGO BR CHICAGO IL 17,363 0 8,845 264 9,109145 TURKIYE VAKIFLAR BK NY BR NEW YORK NY 0 476 476 8,322 8,798


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146 CAJA DE AHORROS DE VAL MIA BR MIAMI FL 8,460 182 8,642 124 8,766147 BANK SINOPAC LA BR L. ANGELES CA 6,289 304 6,593 551 7,144148 BANK OF TAIWAN LA BR L. ANGELES CA 6,688 0 6,688 197 6,885149 BANCO IND DE VENEZLA MIA AGY MIAMI FL 6,819 0 6,819 0 6,819150 BANK TOK-MIT UFJ HOU AGY HOUSTON TX 4,459 359 4,818 1,842 6,660151 BANCO IND DE VENEZLA NY AGY NEW YORK NY 2,700 0 2,700 3,651 6,351152 UNITED BK AFRICA NY BR NEW YORK NY 0 0 0 5,782 5,782153 INDUSTRIAL BK OF KOREA NY BR NEW YORK NY 4,027 0 4,027 1,237 5,264154 MITSUBISHI UFJ TR & BKG NY BR NEW YORK NY 5,067 40 5,107 0 5,107155 SWEDBANK AB NY BR NEW YORK NY 4,487 0 4,487 0 4,487156 SHOKO CHUKIN BK NY BR NEW YORK NY 3,816 0 3,816 0 3,816157 BANCOLOMBIA SA MIAMI AGY MIAMI FL 0 2,500 2,500 0 2,500158 BANCO DE BOGOTA SA MIAMI AGY MIAMI FL 20 158 178 1,953 2,131159 BARCLAYS BK PLC LA AGY STA MONICA CA 2,027 0 2,027 0 2,027160 STATE BK OF INDIA LA AGY L. ANGELES CA 7,146 0 0 1,886 1,886161 BANGKOK BK PUBLIC CO NY BR NEW YORK NY 0 47 47 1,500 1,547162 KOOKMIN BK NY BR NEW YORK NY 1,300 0 1,300 238 1,538163 MEGA INTL CMRL BK CHICAGO BR CHICAGO IL 1,259 1,259 118 1,377164 BANK OF EAST ASIA NY BR NEW YORK NY 586 0 586 789 1,375165 BANCO DE CRE CORAL GABLES AGY CRL GABLES FL 0 428 428 943 1,371166 CAIXA DE AFORROS MIAMI BR MIAMI FL 791 0 791 500 1,291167 BANCO PICHINCHA CA MIAMI AGY MIAMI FL 0 985 985 257 1,242168 BANCO DE LA NACION MIA AGY MIAMI FL 0 1,185 1,185 0 1,185169 CITIC KA WAH BK NY BR NEW YORK NY 0 0 0 988 988170 P T BK NEGARA INDO PER NY AGY NEW YORK NY 801 0 801 0 801171 HABIB BK NY BR NEW YORK NY 30 0 30 768 798172 PHILIPPINE NB LA BR L. ANGELES CA 750 0 750 0 750173 TAIWAN CO-OP BK SEATTLE BR SEATTLE WA 0 0 0 628 628174 METROPOLITAN B&TC NY BR NEW YORK NY 0 0 0 438 438175 BANCO REPUBLICA ORIENTL NY BR NEW YORK NY 0 338 338 0 338176 OVERSEA-CHINESE BKG LA AGY L. ANGELES CA 0 0 0 335 335177 BANK OF INDIA SF AGY SAN FRAN. CA 299 0 299 0 299178 WING LUNG BK LA BR ALHAMBRA CA 250 0 250 0 250179 CITIC KA WAH BK LA BR ALHAMBRA CA 200 0 200 0 200180 BANK HAPOALIM BM PLAZA BR NEW YORK NY 125 0 125 0 125181 KRUNG THAI BK LA AGY L. ANGELES CA 0 0 0 72 72182 P T BK RAKYAT INDONESIA NY AGY NEW YORK NY 733 0 0 68 68183 MERCANTIL CA CRL GABLES AGY CRL GABLES FL 0 40 40 0 40184 BANCO ITAU SA NY BR NEW YORK NY 25 8 33 0 33185 CHONG HING BK SF BR SAN FRAN. CA 0 0 0 28 28186 BANK OF E ASIA LA BR ALHAMBRA CA 5,265 0 18 0 18187 BANK OF TAIWAN NY AGY NEW YORK NY 69,203 0 0 0 0

TOTALS 213,785,611 31,803,617 222,129,750 6,765,616 228,895,366


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SCAM SURVEYSCAM SURVEYSCAM SURVEYSCAM SURVEYSCAM SURVEY

HK Bank Officer PleadsHK Bank Officer PleadsHK Bank Officer PleadsHK Bank Officer PleadsHK Bank Officer PleadsNot Guilty to AcceptingNot Guilty to AcceptingNot Guilty to AcceptingNot Guilty to AcceptingNot Guilty to AcceptingBribesBribesBribesBribesBribes

Former Hang Seng Bankmarketing officer, Wong Tai-wai, pled not guilty before theCourt of First Instance inHong Kong to several chargesalleging that he acceptedbribes to approve bank loansto Ho Chi-chun and various ofhis companies. Wong has beencharged with seven counts ofconspiracy to defraud the bankand seven charges of acceptingbribes.

Wong is accused ofaccepting Rolex watches andHK$230,000 (US$29,000) incash bribes between 1994 and1997 in return for workingwith three senior bankers toapprove the loans. Wong alsoallegedly helped devise a scamwhereby Ho’s staff defraudedthe bank using 258 forgedapplications for letters ofcredit totaling HK$932.85million (US$117.8m).

The Court was presentedwith evidence that Wong andthe three senior bankers wereable to secure almost HK$400million in loans and creditfacilities for Ho’s companies,which were engaged inproperty speculation. Thebribes allegedly persuaded thebankers to hide and maintainthe fraud by creating falseinvoices and documents toapply for trade finance.

(Source: South China Morning Post)

US Attorney GeneralUS Attorney GeneralUS Attorney GeneralUS Attorney GeneralUS Attorney GeneralAnnounces FinancialAnnounces FinancialAnnounces FinancialAnnounces FinancialAnnounces FinancialFraud EnforcementFraud EnforcementFraud EnforcementFraud EnforcementFraud EnforcementTask ForceTask ForceTask ForceTask ForceTask Force

In prepared remarks givento the Forum Club of the PalmBeaches (Florida), US AttorneyGeneral Eric Holderannounced a joint initiativeintended to address “one ofgreatest and most glaringthreats facing our economy”:the presence of financial fraud.

The Financial FraudEnforcement Task Force, ledby the US Department ofJustice, was created by anExecutive Order of thePresident and is intended tocoordinate efforts to combatfraud.

“The simple truth is thatfinancial crimes have becomeall too common,” said Holder,adding to his comments beforethe Florida audience, “PalmBeach is, in many respects,ground zero for the $65-billionPonzi scheme perpetrated byBernard Madoff – the largestinvestor fraud case in ournation’s history.”

The Task Force will focus onfour types of financial crime,according to Holder: mortgagefraud; securities fraud;Recovery Act and rescuefraud; and financialdiscrimination (includingpredatory lending practices).The Task Force will leveragecriminal and civil enforcementresources with the primary


SCAM SURVEYSCAM SURVEYSCAM SURVEYSCAM SURVEYSCAM SURVEY

goal of receiving stolen fundsfor victims. Holder believesthe effort will “restoreconfidence, punish wrongdoing, and help get oureconomy back on track.”

(Source: US Dept. of Justice News)

Indonesian High CourtIndonesian High CourtIndonesian High CourtIndonesian High CourtIndonesian High CourtIncreases Sentence forIncreases Sentence forIncreases Sentence forIncreases Sentence forIncreases Sentence forFraudster in LC ScamFraudster in LC ScamFraudster in LC ScamFraudster in LC ScamFraudster in LC Scam

The former majorityshareholder of Bank Century(Indonesia) will be serving alonger prison sentence afterthe High Court in Jakartadisagreed with the lowercourt’s sentence. ThoughRobert Tantular hadpreviously been sentenced tofour years by the CentralJakarta District Court, theHigh Court found that theruling was incorrect andincreased the sentence to fiveyears.

The two courts disagreedhow to characterize Tantular’sconduct, though both agreedhis actions were criminal.

“Among the incriminatingacts he committed were

diverting fictitious letters ofcredit worth US$178 million,purchasing credits worthRp364 billion and marked upfund remainders worth US$18million”, said High Courtspokesman Andi SamsanNganro.

(Source: Antara (Indonesia))

Missouri FraudsterMissouri FraudsterMissouri FraudsterMissouri FraudsterMissouri FraudsterSentenced to 15 YearsSentenced to 15 YearsSentenced to 15 YearsSentenced to 15 YearsSentenced to 15 Yearsin Prisonin Prisonin Prisonin Prisonin Prison

Daryl Miles Brown, aMissouri resident, wassentenced to 15 years in prisonfor his role in a high-yieldinvestment scam alleged tohave resulted in more thanUS$3 million in losses tovictims. Brown had beenconvicted in 2008, partiallybased on the testimony of analleged co-conspirator, whohad previously pled guilty.

As previously reported byDCW (Feb 2009, p. 42), Brownwas alleged to have convincedvictims to invest in a scamwhich involved the trading ofstandby letters of credit.Brown promised investors

returns as high as 20% within30 banking days but insteadwithdrew investors’ moneyfor his own use. Investorswere asked to invest inUS$50,000 increments in whatBrown termed a “no lose”proposition: the purchase ofstandby letters of credit.

Brown proceeded to trial inDecember 2008 and wasconvicted on all but onecharge. The US District Courtfor the Western District ofMissouri denied Brown’srequest for a sentence belowwhat the US FederalSentencing Guidelinessuggested and insteadimposed a sentence of 15years. Brown has filed aNotice giving his intent toappeal. One of his alleged co-conspirators, Sylvester L.Mitchell, III, pled guilty to hisrole in the scheme as anemployee of Brown’s company,The Vertical Group, andtestified at the trial. Mitchellwas sentenced to four years’probation.

(Source: US v. Brown,Case No. 05-3052-K-1)


LC TRADE NEWSLC TRADE NEWSLC TRADE NEWSLC TRADE NEWSLC TRADE NEWS

■ Bank of America, N.A. issued LC backing US$6,500,000 Steelcell ofNorth America, Inc. project, Weekly Variable Rate IndustrialDevelopment Revenue Bonds, Series 2009, dated Sep 29, 2009, due Sep 1,2010 to 2029.

■ Bank of America, N.A. issued LC backing US$33,805,000 variousrural housing apartment projects, Variable Rate Multifamily RentalHousing Revenue Bonds, Series 2009B, dated Sep 25, 2009, due Aug 1,2011.

■ Bank of America, N.A. issued LC backing US$106,100,000 WeeklyVariable Rate Measure A Sales Tax Revenue Bonds (Limited Tax Bonds),dated Sep 30, 2009, due Oct 1, 2028 to 2038.

■ Bank of America, N.A. issued LC backing US$79,525,000 SarasotaMemorial Hospital project, Weekly Variable Rate Hospital RevenueRefunding Bonds, Series 2009B, dated Sep 30, 2009, due Jul 1, 2010 to2037.

■ Bank of America, N.A. issued LCs backing US$16,000,000 WoodfuelsVirginia, LLC project, Weekly Variable Rate Demand Revenue Bonds,Series 2009 A-B, dated Oct 8, 2009, due Oct 1, 2024.

■ Bank of America, N.A. issued LC backing US$25,000,000 UnitedGrain Corporation of Oregon Project, Weekly Variable Rate RefundingRevenue Bonds, Series 2009, dated Oct 21, 2009, due Oct 1, 2029.

■ Bank of America, N.A. issued LC backing US$8,500,000 NationalBronze and Metals, Inc. project, Weekly Variable Rate Revenue Bonds,Series 2009, dated Oct 23, 2009, due Oct 1, 2029.

■ Bank of America, N.A. issued LC backing US$100,000,000 TheNemours Foundation project, Weekly Variable Rate Revenue Bonds,Series 2009B, dated Oct 15, 2009, due Jan 1, 2013 to 2039.

■ Barclays issued LC backing US$106,100,000 Weekly Variable RateMeasure A Sales Tax Revenue Bonds (Limited Tax Bonds), dated Sep 30,2009, due Oct 1, 2028 to 2038.

■ Branch Banking & Trust Co. issued LC backing US$9,000,000Institute for Business and Home Safety (IBHS) project, Weekly VariableRate Economic Development Revenue Bonds, Series 2009, dated Nov 5,2009, due Nov 1, 2034.

■ Federal Home Loan Bank of Chicago issued LC backingUS$5,500,000 The Hopedale Medical Foundation project, WeeklyVariable Rate Demand Revenue Bonds, Series 2009, dated Sep 23, 2009,due Sep 1, 2029.


LC TRADE NEWSLC TRADE NEWSLC TRADE NEWSLC TRADE NEWSLC TRADE NEWS

■ Federal Home Loan Bank of San Francisco issued LC backing US$11,130,000 South Shore Apartmentsproject, Weekly Variable Rate Demand Mulitifamily Housing Revenue Bonds, 2009 Series M, dated Sep 30,2009, due Sep 1, 2049.

■ JPMorgan Chase Bank, N.A. issued LC backing US$106,100,000 Weekly Variable Rate Measure A Sales TaxRevenue Bonds (Limited Tax Bonds), dated Sep 30, 2009, due Oct 1, 2028 to 2038.

■ JPMorgan Chase Bank, N.A. issued LC backing US$26,710,000 Arizona Public Service Company NavajoProject, Daily Variable Rate Pollution Control Revenue Refunding Bonds, 2009 Series B, dated Sep 22, 2009,due Apr 1, 2038.

■ JPMorgan Chase Bank, N.A. issued LC backing US$5,445,000 A Brookwood Terrace Family ApartmentsProject, Weekly Variable Rate Demand Multifamily Housing Subordinate Revenue Bonds, Series 2009B-2,dated Dec 23, 2009, due Jan 1, 2014.

■ PNC Bank, N.A. issued LCs backing US$59,005,000 Euclid Avenue Hsg Corp project, Variable Rate HousingRevenue Bonds, Series 2009A-B, dated Dec 17, 2009, due Aug 1, 2039 to Aug 1, 2042.

■ PNC Bank, N.A. issued LC backing US$37,865,000 Bayhealth Medical Center project, Weekly Variable RateRefunding Revenue Bonds, Series 2009B, dated Oct 27, 2009, due Jul 1, 2010 to 2039.

■ Scotia Capital issued LC backing US$66,455,000 Weekly Variable Rate Demand Utilities System RevenueBonds, Series 2009C, dated Oct 1, 2009, due Nov 1, 2010 to 2028.

■ Sun Trust Bank issued LC backing US$65,000,000 Robert W. Woodruff Arts Center, Inc. project, WeeklyVariable Rate Refunding Revenue Bonds, Series 2009A, dated Sep 24, 2009, due Mar 15, 2039.

■ Sun Trust Bank issued LCs backing US$304,230,000 Adventist Health System/Sunbelt,INC. AccountsReceivable Program, Weekly Variable Rate Demand Revenue Bonds, Series 2009A-F, dated Oct 7, 2009, dueNov 15, 2024 to Nov 15, 2034.

■ U.S. Bank, N.A. issued LC backing US$14,595,000 Pearl Family Housing project, Weekly Variable RateHousing Development Revenue Bonds, 2009 Series B-1, dated Sep 24, 2009, due Feb 1, 2042.

■ Wachovia Bank, N.A. issued LC backing US$37,865,000 Bayhealth Medical Center project, Weekly VariableRate Refunding Revenue Bonds, Series 2009C, dated Oct 27, 2009, due Jul 1, 2010 to 2039.

■ Wells Fargo Bank, N.A. issued LCs backing US$30,345,000 Weekly Variable Rate Revenue Refunding Bonds,Series 2009A-B2, dated Sep 29, 2009, due Jun 1, 2031 to Dec 1, 2027.

■ Wells Fargo Bank, N.A. issued LC backing US$10,500,000 University Gateway project, Variable RateDemand Revenue Bonds, Series 2009, dated Oct 22, 2009, due Dec 1, 2040.

■ Wells Fargo Bank, N.A. issued LC backing US$18,880,000 Florentine Villas Apartments project, WeeklyVariable Rate Demand Multifamily Housing Revenue Bonds, Series 2009A, dated Sep 22, 2009, due Sep 1,2049.

■ Westpac Banking Corp. issued LC backing US$60,000,000 Austal USA, LLC project, Weekly Variable RateRevenue Bonds, Series 2009, dated Oct 8, 2009, due Sep 1, 2039.


Attention CDCS SpecialistsEarn 13 PDUs

2010 ANNUAL SURVEY OF LETTER OF CREDIT

LAW & PRACTICE CONFERENCEWhere the LC WorldComes Together ...

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8:30-9:00 Check-in and Registration9:00-9:15 Opening Address & Welcoming Remarks9:15-11:00 Hot Topics

• “Presentation”: Sent to Wrong Address … Is Refusal Required?• Limitations Periods & LCs: Do They Mesh with Auto Extension Clauses?• Creeping Exceptions to Independence• Impact of Arbitration in the Underlying Contract• Sending a Notice of Non-Extension• Two-Party LCs

11:00-11:30 Break11:30-1:00 Recent ICC Opinions

More Significant Than Ever? Fall 2009 Opinions Critiqued1:00-2:00 Lunch2:00-3:00 Standby & Guarantee Issues

The Most Important Matters Impacting Standby Practice

3:00-3:30 Break3:30-5:30 UCP600

• UCP600 in the Courts: How is It Faring?• Negotiation of Cured Documents

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Scheduled event dates and locations are tentative and subject to change. For the most currentinformation, visit: www.iiblp.org The Institute also develops specialized programs for banks andcorporations. For a complete list of resources available, please contact the Institute.

Annual Survey of Letter of Credit Law & PracticeAMERICAS: Tampa, FL – 11-12 March 2010EUROPE: Vilnius, Lithuania – 20-21 May 2010MIDDLE EAST: Dubai – 24-25 May 2010HONG KONG: Hong Kong – 12 July 2010SE ASIA: Singapore – 15-16 July 2010

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UCP600: An Analytical CommentaryOver 1400 pages, a comprehensive interpretationof each article of UCP600 in light of LC practice

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Annual Review of International BankingLaw & Practice

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ISP98 & UCP500 ComparedSee the differences quickly and easily.

The Comparison of UCP600 & UCP500A summary comparison of the changes and

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LC Rules & Laws: Critical Texts (4th Edition)Now with UCP600 and updated ISBP,

your all-in-one reference guide for LCs.

An Introduction to ISP98 (DVD)Understanding ISP98 (DVD)

The best way to learn about the standby rules.

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