B&R CasesTM

一带一路案例 TM

Hyundai Heavy Industries Co., Ltd. and

The Zhejiang Provincial Branch of the Industrial and Commercial Bank of China Limited,

An Appeal Concerning a Dispute Over a Demand Under an Independent Guarantee

B&R Typical Case 14

Batch 2 Case 6 (Released by the Supreme People’s Court on May 15, 2017)

CHINA GUIDING CASES PROJECT

March 1, 2018 Edition∗

∗ The citation of this translation of this Typical Case is:《现代重工有限公司与中国工商银行股份有限公司

浙江省分行独立保函索赔纠纷上诉案》(Hyundai Heavy Industries Co., Ltd. and The Zhejiang Provincial Branch of the Industrial and Commercial Bank of China Limited, An Appeal Concerning a Dispute Over a Demand under an Independent Guarantee), STANFORD LAW SCHOOL CHINA GUIDING CASES PROJECT, B&R CasesTM, Typical Case 14 (TC14), Mar. 1, 2018 Edition, http://cgc.law.stanford.edu/belt-and-road/b-and-r-cases/typical-case-14. For the original version of this case, see 第二批涉“一带一路”建设典型案例 (Second Batch of Typical Cases Involving the “Belt and Road” Construction), 《 最 高 人 民 法 院 网 》 (WWW.COURT.GOV.CN), May 15, 2017, http://www.court.gov.cn/zixun-xiangqing-44722.html.

This document was primarily prepared by LUO Wen, Peter Witherington, and Dr. Mei Gechlik; it was finalized by Angelina Bishman, Dimitri Phillips, and Dr. Mei Gechlik. Minor editing, such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the headings, was done to make the piece more comprehensible to readers; all footnotes, unless otherwise noted, have been added by the China Guiding Cases Project. The following text is otherwise a direct translation of the original text released by the Supreme People’s Court.

B&R CasesTM is a serial publication of the China Guiding Cases Project that provides full-text versions and high-quality English translations of court cases in China that are related to the country’s Belt and Road Initiative.

Applying, in accordance with a Contract, the International Chamber of Commerce’s

Uniform Rules for Demand Guarantees

Safeguarding the Transaction Order of Independent Guarantees

I. Basic Facts of the Case

Hyundai Company, 1 a company incorporated in South Korea, and Zhejiang Zhonggao Company 2 signed a supply contract for diesel generator sets. [The contract] stipulated that Zhejiang Zhonggao Company was to apply to the Zhejiang Branch of the Industrial and Commercial Bank of China 3 for the issuance of an irrevocable demand guarantee, i.e., an independent guarantee, to serve as the payment method for the underlying transaction. The independent guarantee that the Zhejiang Branch of the Industrial and Commercial Bank [of China] issued to Hyundai Company stated that, in making a demand [under the guarantee], Hyundai Company had to present “a copy of a clean ocean bill of lading marked with To Order and Freight Collect, with the notify party being the applicant”.

Thereafter, Zhejiang Zhonggao Company was unable to make payment on time. Hyundai Company presented a demand to the Zhejiang Branch of the Industrial and Commercial Bank [of China] and provided a copy of a straight bill of lading,4 but [the demand] was rejected.

Hyundai Company brought suit in the Intermediate People’s Court of Hangzhou Municipality, Zhejiang Province, requesting that the Zhejiang Branch of the Industrial and Commercial Bank [of China] pay, under the terms of the independent guarantee, USD 6,648,010 1 The original text reads “现代公司”, which is translated herein as “Hyundai Company”. In the case name, this party is referred to as “现代重工有限公司”, which is translated as “Hyundai Heavy Industries Co., Ltd.” based on an announcement of China’s Ministry of Commerce (giving both English and Chinese names), at http://www.cacs.mofcom.gov.cn/cacs/newcommon/details.aspx?navid=B01&articleid=126811. 2 The original text reads “浙江中高公司”, which is translated herein as “Zhejiang Zhonggao Company”. According to the first-instance judgment of this case, the full name of the company is “浙江中高动力科技股份有限

公司”, whose English name is “Zhejiang Zhonggao Power Technology Co., Ltd.” according to the company’s website, at http://www.cccme.org.cn/shop/cccme11587/introduction.aspx.

The first-instance judgment is（2014）浙杭商外初字第 60 号民事判决 (“(2014) Zhe Hang Shang Wai Chu Zi No. 60 Civil Judgment”), rendered by the Intermediate People’s Court of Hangzhou Municipality, Zhejiang Province, on December 22, 2015, full text available on the Stanford Law School China Guiding Cases Project’s website, at http://cgc.law.stanford.edu/judgments/zhejiang-2014-zhe-hang-shang-wai-chu-zi-60-civil-judgment [hereinafter First-Instance Judgment]. 3 The original text reads “中国工商银行浙江分行”, which is translated herein as “The Zhejiang Branch of the Industrial and Commercial Bank of China”. In the case name, this party is referred to as “中国工商银行股份有限公

司浙江省分行”, which is translated as “The Zhejiang Provincial Branch of the Industrial and Commercial Bank of China Limited” in accordance with the English name appearing on the website of the Industrial and Commercial Bank of China, at http://www.icbc-ltd.com/icbcltd/Contact%20Us/default.htm. 4 A “straight bill of lading” (“记名提单”) is a bill of lading that is issued to a specified consignee for the delivery of the goods and that cannot be endorsed to another party. See, e.g., information provided by a shipping company’s website, at http://www.fjtd-logistics.com/show.asp?id=1115.

and late fees. The Zhejiang Branch of the Industrial and Commercial Bank [of China] replied claiming that the demand made by Hyundai Company in accordance with the independent guarantee was an invalid demand and that the Zhejiang Branch of the Industrial and Commercial Bank [of China] had already issued, in accordance with the terms [of the guarantee], a cable to refuse payment and to point out three discrepancies.5 [The bank] requested [the court] reject Hyundai Company’s litigation requests.

II. Results of the Adjudication

In the first-instance judgment, the Intermediate People’s Court of Hangzhou Municipality, Zhejiang Province, opined[:]6 the guarantee involved in the case stipulated that the International Chamber of Commerce’s publication numbered 758, the Uniform Rules for Demand Guarantees,7 would be applicable, and that stipulation was valid. According to the provisions of the Rules, under circumstances where the terms and conditions of the guarantee are clear and definite, a guarantor needs to consider only whether the document8 [presented] appears on its face to be in compliance with the terms and conditions of the guarantee. 9 The [issue as to whether the] underlying contract [has been] performed is not a factor that should be considered when the document is examined.

Because there were discrepancies between the document involved in the case and the terms of the guarantee, the multiple refusals of payment of the Zhejiang Branch of the Industrial and Commercial Bank [of China] were in compliance with the rules and [were] valid. Based on this, [the court rendered] a judgment rejecting Hyundai Company’s litigation requests. Unconvinced by the first-instance judgment, Hyundai Company appealed.

5 The original text reads “不符点”, which is translated herein as “discrepancy” based on, inter alia, Article 24 of the Uniform Rules for Demand Guarantees of the International Chamber of Commerce (ICC Product No. 758E, 2010 Edition), http://store.iccwbo.org/icc-uniform-rules-for-demand-guarantees-urdg-including-model-forms [hereinafter Rules], which provides:

D. When the guarantor rejects a demand, it shall give a single notice to that effect to the presenter of the demand. The notice shall state:

1. that the guarantor is rejecting the demand, and 2. each discrepancy for which the guarantor rejects the demand.

6 First-Instance Judgment, supra note 2. 7 Rules, supra note 5. 8 The original text reads “单据”, which is translated herein as “document” based on Article 2 of the Rules, which provides: “Document means a signed or unsigned record of information, in paper or in electronic form, that is capable of being reproduced in tangible form by the person to whom it is presented. Under these rules, a document includes a demand and a supporting statement”. Rules, supra note 5. 9 See Rules, supra note 5, Article 19A of which provides: “The guarantor shall determine, on the basis of a presentation alone, whether it appears on its face to be a complying presentation.”

In the second-instance judgment, the High People’s Court of Zhejiang Province opined[:]10 an independent guarantee is a legally binding contract between the issuing bank and the beneficiary. Once the beneficiary accepts the terms of the guarantee or, based on the terms of the guarantee, presents a demand to the issuing bank, the beneficiary is deemed to have voluntarily accepted all of the terms of the guarantee and is thus bound.

The guarantee issued by the Zhejiang Branch of the Industrial and Commercial Bank [of China] definitively enumerated documentary conditions, 11 to which the beneficiary, Hyundai Company, did not raise objections when it accepted the guarantee, and thus, in making a demand, [Hyundai Company] should provide all documents [required for] compliance with the terms and conditions of the guarantee. According to the standards the independent guarantee specified for examining [presented] documents, i.e., Article 2 of the Uniform Rules for Demand Guarantees (the International Chamber of Commerce’s publication numbered 758), the issuer[, the Zhejiang Branch of the Industrial and Commercial Bank of China,] was supposed to apply the principle of compliance on the face [of the guarantee], [i.e., the principle of] strict compliance,12 when it examined [presented] documents. 10 《现代重工有限公司与中国工商银行股份有限公司浙江省分行保证合同纠纷二审民事判决书》 (Hyundai Heavy Industries Co., Ltd. and The Zhejiang Provincial Branch of the Industrial and Commercial Bank of China Limited, The Second-Instance Civil Judgment of a Dispute over a Guarantee Contract) （2016）浙民终 157号民事判决 ((2016) Zhe Min Zhong No. 157 Civil Judgment), rendered by the High People’s Court of Zhejiang Province on October 12, 2016, full text available on the Stanford Law School China Guiding Cases Project’s website, at https://cgc.law.stanford.edu/judgments/zhejiang-2016-zhe-min-zhong-157-civil-judgment [hereinafter Second-Instance Judgment].

When this judgment was rendered, the Supreme People’s Court had already passed a set of provisions regarding independent guarantees, but the provisions did not come into effect until December 2016. See 《最高人民

法院关于审理独立保函纠纷案件若干问题的规定》 (Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Disputes over Independent Guarantees), passed by the Adjudication Committee of the Supreme People’s Court on July 11, 2016, issued on Nov. 18, 2016, effective as of Dec. 1, 2016, http://www.court.gov.cn/fabu-xiangqing-31291.html. 11 The original text reads “单据条件”, which is translated here as “documentary conditions” based on, inter alia, Article 7 of the Rules, which provides:

A guarantee should not contain a condition other than a date or the lapse of a period without specifying a document to indicate compliance with that condition. If the guarantee does not specify any such document and the fulfilment of the condition cannot be determined from the guarantor's own records or from an index specified in the guarantee, then the guarantor will deem such condition as not stated and will disregard it except for the purpose of determining whether data that may appear in a document specified in and presented under the guarantee do not conflict with data in the guarantee. (Rules, supra note 5.)

12 Compare Article 2 of the Rules, which provides, inter alia: Complying presentation under a guarantee means a presentation that is in accordance with, first, the terms and conditions of that guarantee, second, these rules so far as consistent with those terms and conditions and, third, in the absence of a relevant provision in the guarantee or these rules, international standard demand guarantee practice. (Rules, supra note 5.)

For more information about the principle of strict compliance, see, e.g., Michelle Kelly-Louw, The Doctrine of Strict Compliance in the Context of Demand Guarantees, 49 COMP. & INT’L L. J. OF SOUTHERN AFRICA 85 (2016), http://www.academia.edu/27460056/The_Doctrine_of_Strict_Compliance_in_the_Context_of_Demand_Guarantees,

The copy of the straight bill of lading presented by Hyundai Company and the copy of the To Order bill of lading required by the guarantee involved in the case are notably different types of bills of lading. These two [types of bills of lading] have differences in international trade and the carriage [of goods] by sea. The refusal of the Zhejiang Branch of the Industrial and Commercial Bank [of China] to pay, [which was done] on the grounds that discrepancies existed, complied with the stipulations of the guarantee. Hyundai Company asserted, by [relying on a point related to] the performance of the underlying contract, 13 that there was [in effect] no difference between the document presented by it and the document required by the guarantee. This [assertion] went against [two principles of] independent guarantees, the principle of documentary transactions and the principle of compliance on the face [of the guarantee]. Therefore, the [High People’s] Court [of Zhejiang Province rendered] judgment rejecting the appeal and upholding the original judgment.

III. Typical Significance

Independent guarantees have important functions, including guaranteeing transactions, confirming credit, and supporting financing, and have become an indispensable, commonly-seen tool for guaranteeing financing in the course of Chinese enterprises’ “going global” and the “Belt and Road” construction. In adjudicating cases [involving] demands under independent guarantees, people’s courts fully respect and apply the rules for international transactions agreed upon by the parties. [This is of] critical importance to accurately delimitating the parties’ rights and obligations and to safeguarding the transaction order of independent guarantees.

The independent guarantee in this case stated that the International Chamber of Commerce’s Uniform Rules for Demand Guarantees would be applicable. Both the first- and second-instance courts defined the rights and obligations of the parties by relying on the Rules, applied the principle of strict compliance, [i.e., the principle of] compliance on the face [of the guarantee], and reviewed, on the basis of the presented document itself, whether the document strictly followed the terms and conditions of the guarantee. [The courts then] determined the existence of discrepancies. [This procedure] demonstrated the competence of Chinese courts in accurately applying international rules.

The judgments of this case clearly indicate that [one] cannot conclude from [a point related to] the performance of the underlying contract that [a presented document shows] compliance on and an eAlert of CMS Law-NowTM of December 21, 2016, at http://www.cms- lawnow.com/ealerts/2016/12/ondemand-guarantees-and-the-principle-of-strict-compliance. 13 As reported in the second-instance judgment of this case, Hyundai Company asserted that the requirement by the Zhejiang Branch of the Industrial and Commercial Bank of China for a To Order bill of lading was meaningless because the bank was fully aware that Zhejiang Zhonggao Company, which was specified as the consignee in the straight bill of lading presented by Hyundai Company, would be the party that ultimately received the goods. Both the first-instance and second-instance courts decided that this assertion was related to the performance of the underlying contract, a factor that should not be considered in the examination, by the bank, of a presented document. See Second-Instance Judgment, supra note 10.

its face. This manifests full respect for the principle of documentary transactions and the principle of independence of independent guarantees, equally protects the legal rights and interests of Chinese and foreign parties, and strongly safeguards the transaction order of independent guarantees. This case also reflects the importance for the Chinese banking industry to understand international rules for financial transactions and to apply [those rules so as] to protect its own rights and interests and to effectively guard [itself] against financial risks.