Provisions of the Supreme People's Court on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit (2020)

(Adopted at the 1368th Session of the Judicial Committee of the Supreme People's Court on October 24, 2005, and amended by The Decision of the Supreme People's Court on Amending 29 Judicial Interpretations to Commercial Issues Including the Official Reply of the Supreme People's Court on Whether the Right to Use of Allotted State-Owned Land of a Bankrupt Enterprise Shall Be Grouped as Insolvent Property, as adopted at the 1823rd Session of the Judicial Committee of the Supreme People's Court on December 23, 2020.)

In accordance with the Civil Code of People's Republic of China, the Law of the People's Republic of China on Choice of Law for Foreign-Related Civil Relationships, the Civil Procedure Law of the People's Republic of China, by reference to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce and other relevant international practices, by taking into consideration the adjudication practices, these Provisions are formulated to address the issues concerning the trial of cases concerning disputes over letter of credit.

Article 1 The term "cases of disputes over the letter of credit" as mentioned in these Provisions refers to the cases of disputes arising in the links such as issuance, notification, revision, revocation, confirmation, negotiation and acceptance of letter of credit.

Article 2 When the people's court hears a case of disputes over letter of credit, if any stipulation is made by the parties concerned on applying the relevant international practices or other provisions that should be applicable to such case, this stipulation shall prevail; if no stipulation is made by the parties concerned, the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce and other relevant international practices shall be applied to it.

Article 3 These Provisions shall apply to the arrearage disputes between an applicant for the issuance of a letter of credit (hereinafter referred to as the applicant) and the issuing bank which arise from the application for the issuance of letter of credit, disputes between an entrusting party and the entrusted party which arise from the entrustment to issue a letter of credit, disputes over the guarantor's provision of a guaranty for the application for issuing a letter of credit, or for issuing a letter of credit upon entrustment, as well as the disputes over the financing under a letter of credit.

Article 4 Unless the parties to a foreign-related contract stipulate otherwise for the application of law, the relevant laws of the People's Republic of China shall apply to the arrearage disputes arising from the application for the issuance of a letter of credit, disputes arising from the entrustment to issue a letter of credit, disputes arising from the guaranty therefore as well as the disputes over the financing under the letter of credit.

Article 5 After the issuing bank makes a commitment on the payment or acceptance of a letter of credit or performance of other obligations under the letter of credit, as long as the documents conform to the clauses of the letter of credit and the documents conform to each other on the surface, the issuing bank shall perform the obligation to make a payment within the time limit as provided for by the letter of credit. If any party initiates a protest for the reason of the basic transaction between the applicant and the beneficiary, the people's court shall not support it, except for the circumstances as mentioned in Article 8 of these Provisions.

Article 6 When the people's court hears a case of disputes over letter of credit, if it needs to check the documents, it shall comply with the stipulation made by the parties concerned on applying the relevant applicable international practices or other provisions. If the parties concerned fail to make any stipulation, it shall, according to the Uniform Customs and Practice for Documentary Credits and other relevant standards provided for by the International Chamber of Commerce, determine whether or not the documents conform to the clauses of the letter of credit and whether or not the documents conform to each other on the surface.

If the documents under a letter of credit incompletely conform to the clauses of the letter of credit, or if the documents incompletely conform to each other on the surface, but if no different meaning is caused between them, the people's court shall not deem that any discrepancy has constituted.

Article 7 An issuing bank shall have independent right and obligation to check the documents. It shall have the right to decide, on its own initiative, whether or not the documents conform to the clauses of the letter of credit and whether or not the documents conform to each other on the surface, and whether to accept or reject the discrepancies between the documents and clauses of the letter of credit or between the documents.

After the issuing bank finds that there is any discrepancy under the letter of credit, it may, on its own initiative, decide whether or not to contact the applicant to accept the discrepancy. That the applicant decides whether or not to accept the discrepancy will not have any influence on the final decision of the issuing bank with respect to whether or not to accept the discrepancy unless the issuing bank and the applicant stipulate otherwise.

If the issuing bank clearly expresses to the beneficiary its acceptance of the discrepancy, it shall bear the liability for the payment.

If the issuing bank refuses to accept the discrepancy and if the beneficiary requests the issuing bank to bear the liability for the payment under the letter of credit on the grounds that the applicant has accepted the discrepancy, the people's court shall not support the request.

Article 8 Under any of the following circumstances, the letter of credit fraud shall be determined:

(1) The beneficiary counterfeits any documents or submits any documents containing false information;

(2) The beneficiary maliciously refuses to deliver the goods, or delivers goods of no value;

(3) The beneficiary submits any false documents by colluding with the applicant or a third party and there isn't any true basic transaction; or

(4) Other circumstances of letter of credit fraud.

Article 9 After the applicant, issuing bank or any other interested party finds any of the circumstances as mentioned in Article 8 of these Provisions, if it believes that any unrecoverable injury will be caused to it, it may file an application with the jurisdictional people's court for suspending the payment under the letter of credit.

Article 10 If the people's court determines that there exists any letter of credit fraud, it shall make a ruling on suspending the payment or make a judgment on terminating the payment under the letter of credit, except for any of the following circumstances:

(1) The designating or entrusting party of the issuing bank, in bona fide, has made a payment according to the instructions of the issuing bank;

(2) The issuing bank or the designating or entrusting party, in bona fide, has honored the instrument under the letter of credit;

(3) The confirmed bank, in bona fide, has performed the obligation to make the payment; or

(4) The negotiating bank, in bona fide, has negotiated the payment.

Article 11 Where a party concerned files an application for suspending the payment under the letter of credit before it initiates a lawsuit, and if the following conditions are met, the people's court shall accept the application:

(1) The people's court that accepts the application has the jurisdiction over the case of disputes over the letter of credit;

(2) The evidential materials submitted by the applicant show the existence of any of the circumstances as mentioned in Article 8 of these Provisions;

(3) If no measure is adopted to suspend the payment under the letter of credit, any unrecoverable injury will be caused to the legitimate rights and interests of the applicant;

(4) The applicant has provided a reliable and full guaranty; and

(5) None of the circumstances as mentioned in Article 10 of these Provisions exists.

A party concerned shall meet the conditions as mentioned in Items (2) through (5) of the preceding Paragraph if it, during the process of litigation, applies for suspending the payment under the letter of credit.

Article 12 After the people's court accepts the application for suspending the payment under the letter of credit, a ruling shall be made within 48 hours. If such a ruling is made, it shall be executed at once.

The people's court shall state the applicant, the party against whom the application is filed and the third party in the ruling on suspending the payment under the letter of credit.

Article 13 If any party opposes to the ruling made by the people's court on suspending the payment under the letter of credit, it may file a reconsideration application to the people's court at the next higher level within 10 days after the ruling is served upon it. The people's court at the next higher level shall make a ruling within 10 days after it receives the reconsideration application.

During the period of reconsideration, the execution of the original ruling shall not be ceased.

Article 14 During the process when the peoples' court hears a case of letter of credit fraud, where necessary, it may hear the case by combining the disputes over letter of credit with the disputes over the basic transaction.

If a party concerned initiates a lawsuit for the reason of basic transaction fraud, it may list the issuing bank, negotiating bank or other interested parties, which are involved in the case for the legal relationship with the letter of credit, as third parties. The third parties may apply for participating in the lawsuit. The people's court may also notify them to participate in the lawsuit.

Article 15 If the people's court, through substantial trial, determines that a letter of credit fraud is constituted and that none of the circumstances as mentioned in Article 10 of these Provisions exists, it shall make a judgment on terminating the payment under the letter of credit.

Article 16 If the guarantor pleads to be immune from the guaranty liabilities on the grounds that the issuing bank or the applicant accepts any discrepancy without obtaining its consent, it shall not be supported by the people's court, unless it is otherwise stipulated in the guaranty contract.

Article 17 If the applicant and the issuing bank revises the letter of credit without obtaining the consent of the guarantor, the guarantor shall only bear the guaranty liabilities on the basis of the time limit and scope as stipulated in the original guaranty contract or provided for by the law, unless it is otherwise stipulated in the guaranty contract.

Article 18 These Provisions shall come into force as of January 1, 2006.

（本英文版本由上海政法学院提供。）

(Provided by Shanghai University of Political Science and Law)