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909 - Case laws - Miscellaneoous
Newco Co. Ltd., Switzerland v. Huichun Branch of the Construction Bank, Jilin, China Supreme People's Court clarifies China's position on UCP |
| In the important case of Newco Co. Ltd., Switzerland v. Huichun Branch of the Construction Bank, Jilin, China , reported on March 6, the Chinese Supreme Court addressed key questions that have concerned banks dealing with Chinese policy on L/Cs. A full write-up of the case, including the factual situation, will appear in the next issue of DCI, but a summary of the major findings are as follows: The Court, while recognizing that UCP represents international practice rather than statutory law or a commercial code, nevertheless stated that since the two parties agreed in the credit that UCP 500 should apply, their agreement shall prevail as to the basic rule deciding their rights and duties in the case. The Court, for the first time, affirmed that a credit is an independent relationship between parties to the underlying contract. With regard to what constitutes compliance, the Court, upholding the views of the trial court, said: A credit transaction is a documentary transaction. The standard of strict compliance should be observed in all and every respect in a credit transaction. It has been generally accepted by banks and recognized by ICC that documents should be both consistent with one another and in compliance with the Credit. The Court explicitly accepted UCP sub-Articles 14(d) and (e)s requirement of a time limit of seven days to examine documents and the requirement of sending the rejection notice without delay. However, the Court did not define what a reasonable time was and Chinese banks and judicial circles have not yet developed a uniform practice or a prevailing opinion. The decision demonstrates that Chinese courts are willing to follow the basic rules of the game in international commercial practice. The fact that the Supreme Court has accepted some of the basic doctrines of the UCP is encouraging to practitioners and banks alike and sends a clear signal that Chinese courts are becoming more competent in dealing with letter of credit cases. |