What is the content of the Precedent No. 13/2017/AL on validity of Letter of Credit (L/C) in case where the contract for international sale of goods providing for the use of the Letter of Credit is canceled in Vietnam?
- What is the overview of the Precedent No. 13/2017/AL on validity of Letter of Credit (L/C) in case where the contract for international sale of goods providing for the use of the Letter of Credit is canceled in Vietnam?
- What is the content of the Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled in Vietnam?
- What is the Court's comment on Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled in Vietnam?
What is the overview of the Precedent No. 13/2017/AL on validity of Letter of Credit (L/C) in case where the contract for international sale of goods providing for the use of the Letter of Credit is canceled in Vietnam?
Decision 299/QD-CA in 2017 clearly states an overview of Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled as follows:
Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled
Approved by the Council of Judges of the Supreme People's Court on December 14, 2017 and announced under Decision 299/QD-CA in 2017 dated December 28, 2017 of the Chief Justice of the Supreme People's Court.
Source of Precedent:
Cassation Decision No. 17/2016/KDTM-GĐT dated November 10, 2016 of the Council of Judges of the Supreme People's Court on the business and commercial case "Dispute on goods purchase and sale contract" in Ho Chi Minh City. Ho Chi Minh City between plaintiff One Member Limited Liability Company A (authorized representative by Mr. Nguyen Duy T) and defendant Company B; People with related rights and obligations include Joint Stock Commercial Bank E (authorized representative by Mr. Hua Anh K) and Bank N (authorized representative by Ms. Nguyen Thi V).
Location of Precedent content:
Paragraph 34 and Paragraph 36 of "Court's Opinions".
Overview of Precedent content:
- Precedent situation:
A contract for international sale of goods provides for the use of Letter of Credit (L/C) as the method of payment and L/C shall be used in conformity with international trade practices (the sixth revision of the Uniform Customs and Practice for Documentary Credits 2007 (UCP 600) of International Chamber of Commerce) and in accordance with laws of Vietnam. Such contract for international sale of goods was cancelled.
- Legal solutions:
In this case, the Court should have determined that the L/C will not cease to be valid on the ground that the contract for international sale of goods providing for the use of such L/C was cancelled.
Legal provisions related to Precedent:
- Article 3 of the 2005 Civil Code (corresponding to Article 5 of the 2015 Civil Code);
- Decision No. 226/2002/QD-NHNN dated March 26, 2002 of the State Bank on "Regulation on payment activities through payment service suppliers";
- Amendment to the 6th Uniform Code of Practice for Documentary Credits 2007 (UCP 600) of the International Chamber of Commerce.
Precedent's keywords:
“Letter of credit”; “L/C”; “UCP 600”; “International trade practices”; "Commodity trading contracts"; “Contract for the international sale of goods”; “The contract is cancelled.”
What is the content of the Precedent No. 13/2017/AL on validity of Letter of Credit (L/C) in case where the contract for international sale of goods providing for the use of the Letter of Credit is canceled in Vietnam?
What is the content of the Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled in Vietnam?
Decision 299/QD-CA in 2017 clearly states the content of Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled as follows:
Representation of the plaintiff A Single Member Limited Company, represented by Mrs. Mai Thi Tuyet N, in the lawsuit petition dated September 15, 2011, the additional lawsuit petition dated September 22, 2011 and during the legal proceedings:
On June 7, 2011, A Single Member Limited Company (hereinafter referred to as the Buyer, Company A) and Company B (hereinafter referred to as the Seller) signed a contract for international sale of goods No. FARCOM/RCN/IVC/036/2011 dated June 7, 2011 (hereinafter referred to as the sales contract dated June 7, 2011). Under this contract, the Buyer buys raw cashew nuts, Ivory Coast origin, with quantity of 1,000 tonnes x price 1,385.50 USD/tonne, using deferred L/C 98% within 90 days from the shipment date based on the bill of lading (B/L) with the quality standards below:
- Outturn: 47 lbs/80kg and the Buyer has the right to reject cargoes if outturn is lower than 45 lbs/80kg.
- Nut count: 205 nuts/kg (max). 220 nuts/kg: rejection.
- Moisture: 10% (max). Moisture more than 12%: rejection.
The cargoes will be inspected by Vinacontrol in terms of quality and quantity at the loading time at the discharge port in Ho Chi Minh City.
According to agreement on the deferred L/C 90 days, on July 7, 2011, the Buyer asked D Branch of E Joint-Stock Commercial Bank to issue a deferred L/C No. 1801ILUEIB110002 (hereinafter referred to as L/C No. 1801) in order for the Buyer to complete the purchase procedures.
Upon receipt of cargoes, as specified in Article 8 of the agreement, the Buyer checked the quality and quantity of the shipment at the discharge port, which is Cat Lat Port in Ho Chi Minh City, under the supervision of Vinacontrol, and then detected that the cargoes of the Seller do not meet the quality assurance. Based on two inspection certificates No. 11G04HN05957-01 and No. 11G04HN05939-01 issued by Vinacontrol on August 31, 2011 in terms of quantity, quality and conditions of cargoes, the inspection result shows that the average outturn in two cutting tests performed on samples of raw nuts is 37.615 lbs/80kg (this outturn is too lower than the outturn mentioned in clause of rejection, approximately 10 lbs). Facing that commercial fraud, the Buyer has attempted to contact with the Seller many times to deal with the issue relating to the quality of imported cashew nuts but no response from the Seller has been received.
Thus, on September 15, 2011, the Buyer filed a lawsuit petition with People’s Court of Ho Chi Minh City, requesting the Court to force the Seller to receive back 1,000 tonnes of cashew nuts because their outturn is lower than 45lbs, falling on the clause of rejection, the Buyer refuses to make the payment and requests the Court to adopt temporary emergency measures to force E Joint-Stock Commercial Bank to suspend the payment of USD 1,313,308.85 under the L/C No. 1801 to the Seller according to the undertaking of the Buyer until there is any other decisions of the Court.
On August 12, 2013, the Buyer paid the court fee advance for the additional lawsuit petition, which requests cancellation of the sales contract dated June 7, 2011 and cancellation of L/C No. 1801.
At the first instance court hearing, the plaintiff requested:
1. Canceling the sales contract dated June 7, 2011.
2. Forcing the Seller to receive back the whole delivered shipment at the warehouse of the Buyer at C2, Highway 1A, Commune C, District L, Dong Nai Province as soon as possible after the Judgment takes effect. 30 days after the Judgment takes effect, if the Seller fails to receive back the shipment at the warehouse of the Buyer, the enforcement agency has the right to sell the above-mentioned shipment so as to leave the empty warehouse to the Buyer.
3. Canceling the payment obligation of the Buyer to L/C No. 1801 and requesting E Joint-Stock Commercial Bank to refund the plaintiff the deposit secured for L/C of USD 1,313,308.85.
4. Requesting the Court to keep implementing the decision on temporary emergency measures No. 101/2011/QD-BPKCTT dated September 23, 2011 until the Judgment takes effect. Concurrently, refunding the Buyer VND 1,500,000,000 as the security under the decision of the Court at Branch P of Bank T after the Judgment takes effect.
The defendant, Company B (the Seller), is situated abroad and was duly served by the Court through the Ministry of Justice of Vietnam in accordance with the Civil Procedure Code, the Law on Mutual Legal Assistance 2007 and Joint Circular No. 15/2011/TTLT-BTP-BNG-TANDTC dated September 15, 2011 but the Seller was still absent and gave no response.
Representation of the person with relevant rights and obligations, E Joint-Stock Commercial Bank:
At the request of the Buyer, on July 7, 2011, Branch D of E Joint-Stock Commercial Bank issued L/C No. 1801 as follows:
- Value of L/C: USD 1,357,790
- Purpose: import of 1,000 tonnes of raw cashew nuts from Ivory Coast;
- Beneficiary bank: Bank N, Singapore.
- Beneficiary: Company B.
- Deferred L/C issued under UCP 600; with confirmation term.
- Security interests: guarantee by a third party, collateral: a passbook.
- Latest payment date: on September 29, 2011 (USD 961,813.66) and on October 17, 2011 (USD 351,495.19).
Upon receipt of the set of complying documents, the Buyer confirmed to make full payment on schedule under the L/C. According to the confirmation of the Buyer, E Joint-Stock Commercial Bank accepted the draft.
Based on the confirmation of L/C and the conditions of the set of documents, the Bank N negotiated 3 sets of documents without recourse for USD 1,313,308.85 on July 25, July 28 and August 8, 2011.
According to the issued L/C, L/C is governed by the latest version of “the Uniform Customs and Practice for Documentary Credits” (UCP 600). Pursuant to UCP 600, E Joint-Stock Commercial Bank as the issuing bank undertakes to honour after receiving the documents, it means that the Buyer made the payment to the Seller. According to the complying documents and acceptance of the Buyer, E Joint-Stock Commercial Bank accepted the draft. The Bank N negotiated 3 said sets of documents without recourse.
E Joint-Stock Commercial Bank disagrees with the plaintiff’s claim, requesting the Court to cancel L/C No. 1801 and requesting E Joint-Stock Commercial Bank to refund the deposit of USD 1,313,308.95 to the plaintiff. E Joint-Stock Commercial Bank requests the Court to annul the decision on temporary emergency measures No. 101/2011/QD-BPKCTT dated September 23, 2011 in order for E Joint-Stock Commercial Bank to pay the Bank N as agreed in L/C.
Representation of the person with relevant rights and obligations, the Bank N:
Under the sales contract dated June 7, 2011 and L/C No. 1801, the Bank N (branch in Singapore) is the nominated bank of the Seller at which the letter of credit issued by E Joint-Stock Commercial Bank is available.
In compliance with UCP 600, the Bank N negotiated the comply documents presented by the Seller and paid the Seller the value of L/C on July 25, 2011, July 28, 2011 and August 8, 2011. Accordingly, the Bank N purchased L/C No. 1801 and relevant documents legally and became the direct beneficiary of all and any payments under this L/C. After receiving the complying presentation in accordance with the said L/C, E Joint-Stock Commercial Bank confirmed the presentation and committed to pay the Bank N on September 29, 2011 and October 17, 2011 but the payments were not made because the Buyer requested and the Court issued the decision on temporary emergency measures No. 101/2011/QD-BPKCTT dated September 23, 2011.
The Bank N requests the Court to cancel the decision on temporary emergency measures No. 101/2011/QD-BPKCTT dated September 23, 2011 immediately and requires the Buyer to compensate for damage suffered by the Bank N from its illegal request for temporary emergency measures, leading to the Bank N’s failure to receive the payment of L/C amount from E Joint-Stock Commercial Bank. The amount of damages claimed by the Bank N is the interest amount incurred by the Bank N on the sum payable for 3 sets of complying documents corresponding to the late payment period from the latest payment date as undertaken by E Joint-Stock Commercial Bank (September 29, 2011) to the date on which the Bank N filed a request for participating in legal proceedings and this interest amount is calculated according to the USD interest rate on demand loan of interbank on the date of submission of the request (3.8%/12 months). Total amount of damages claimed by the Bank N against the Buyer is USD 33,270.59, equivalent to VND 694,188,774.
See all at: Decision 299/QD-CA in 2017
What is the Court's comment on Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled in Vietnam?
In Decision 299/QD-CA in 2017, it clearly stated the opinion of Precedent No. 13/2017/AL on validity of L/C in case where the contract for international sale of goods providing for the use of the L/C is canceled as follows:
[1] On June 7, 2011, Company A (the Buyer) and Company B (the Seller) concluded a sales contract dated June 7, 2011 as follows: The Buyer buys 1,000 tonnes of cashew nuts using deferred L/C 98% within 90 days, from the shipment date indicated in the bill of lading.
[2] Following the above contract, Company A paid a deposit of USD 1,313,308.85 and asked E Joint-Stock Commercial Bank for issuing the L/C No. 1801.
[3] When cargoes arrived the port in Ho Chi Minh City, the Buyer requested Vinacontrol of Ho Chi Minh City to inspect the quality and quantity of the cargoes in accordance with Article 8 and Article 11 of the contract.
[4] In the certificate of inspection in terms of quantity, quality and conditions of cargoes dated August 31, 2011, Vinacontrol determined: The outturns in two cutting tests performed on samples of raw nuts are: first outturn: 38.2 lbs/80kg; second outturn: 37.03 lbs/80kg.
[5] Since the actual outturn is too lower than the outturn agreed in the contract, the Buyer sent a complain via email to the Seller but the Seller did not show cooperation attitude. Thus, the Buyer filed a lawsuit to request cancellation of the sales contract dated June 7, 2011, return of the whole shipment to the Seller and cancellation of payment obligation under L/C No. 1801 issued by E Joint-Stock Commercial Bank on July 7, 2011 and request E Joint-Stock Commercial Bank to refund the deposit of USD 1,313,308.85 which has been secured for the L/C No. 1801 dated July 7, 2011.
[6] According to the documents and evidence available in the case file, it can be found that: the format and content of the sales contract dated June 7, 2011 were not made against the law, in accordance with Articles, Clauses, Section 2 on rights and obligations of parties in the contract for sale of goods in the Law on Commerce 2005; in Article 15 of the contract, the contracting parties agree that any dispute arising out of or in relation with this contract shall be resolved in accordance with Vietnam’s law.
See all at: Decision 299/QD-CA in 2017
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