Read the full judgment text of HCCT 45/2006 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 19 June 2006 before Mr Recorder K Kwok SC in Chambers.
Construction and Arbitration Proceedings — Contract for sale of iron ore between Shanghai plaintiff and Indian defendant — Payment by irrevocable, freely negotiable letter of credit issued by Standard Chartered Bank with Bank of Baroda as negotiating bank — Plaintiff sought injunction restraining defendant from drawing proceeds of letter of credit — Court examined principles from United City Merchants restricting bank’s obligation to documents and fraud exception — Fraud not established on facts — Jurisdiction assumed but not decided — Injunction refused due to lack of risk of dissipation and absence of plaintiff's asset or presence in Hong Kong — Court rejected plaintiff’s novel contention that money becomes defendant’s upon issuing bank’s decision to pay — Compensation and costs awarded to defendant for losses from injunction — Application for stay of discharge refused. This case underlines the critical treatment of documentary credits as transactions based on documents, not underlying goods, and confirms the stringent test for restraining payment or dealing with proceeds where no fraud or risk of dissipation is shown. The defendant’s assured right to payment was preserved, and injunction was discharged accordingly.
Legal issues: Fraud Exception to Bank’s Obligation under Documentary Credit · Jurisdiction to Grant Injunction Against Defendant · Whether Injunction Should Restrain Defendant from Dealing with Proceeds of Letter of Credit · Whether Letter of Credit Payment Creates Defendant's Money and Courts Can Restrain Defendant's Use
Outcome: Order granting injunction dated 29 May 2006 discharged; Plaintiff to pay compensation for losses caused by injunction plus costs payable forthwith; inquiry to be held into amount of losses.
Cited by 1 case · Cites 1 case