CTBC Bank Co. v. Industrial Commercial Bank of China Ltd. [2024]

Factual Summary:

To support its purchase of 61,066 MT of green petroleum coke, Guizhou New Era Union Import and Export Co. Ltd. (Buyer/Applicant) applied for and caused Industrial Commercial Bank of China, Ltd., Guizhou branch, (Issuer) to issue a CNY 63,204,011.73 UCP600 letter of credit in favour of VLSA Enterprise Ltd. (Seller/Beneficiary). CTBC Bank Co., Ltd. (Negotiating Bank), was nominated by Issuer; late May 2023, Seller/Beneficiary tendered Negotiating Bank with an application and complying bills of exchange requesting that they be discounted (90-days sight). The next day, Negotiating Bank forwarded the documents to Issuer. Seller/Beneficiary later presented a revised commercial invoice to Negotiating Bank which was passed on to Issuer.

Early June 2023, Issuer sent Negotiating Bank a SWIFT message stating that “the documents were accepted under the L/C and the due date for payment was 30 August 2023.” Issuer, however, also stated a discrepancy: “+1NV: SHOWING PRICE TERM RIZHAO PORT DIFFER FROM B/L QINZHOU”. Nevertheless, Negotiating Bank discounted and paid Seller/Beneficiary CNY 62,493,679.95 (para.10).

Prior to maturity, Issuer sent Negotiating Bank a message informing it of an injunction (“interim stop order”) issued by the Intermediate People’s Court of Guiyang (PRC Court). The order was effective against Seller/Beneficiary and Issuer as Buyer/Applicant had alleged fraud, essentially claiming that the goods were not shipped. Notably, Buyer/Applicant, following its own investigation, alleged the vessel supposedly carrying the goods was moving too fast “and its water line was too shallow for the amount of coke being shipped, thus suggesting that the coke had not in fact been loaded and the representations made in the B/L were untruthful.” (para.12(2)). Within those proceedings, Issuer claimed it acted in good faith, waived certain discrepancies at the request of Buyer/Applicant, and otherwise honoured complying documents.  

After unsuccessful demands by Negotiating Bank for Issuer to fulfil its undertaking, Negotiating Bank sued Issuer in Hong Kong under the LC and bills of exchange. Negotiating Bank claimed it honoured a complying presentation pursuant to UCP600 Article 7(c) and was due reimbursement. The Hong Kong court granted several extensions for Issuer to file its defence. Ultimately, Issuer alleged that Negotiating Bank did not in fact negotiate and, in any event, did not act in good faith. Following a second application by Issuer alleging the Hong Kong proceedings should be stayed on the basis of forum non conveniens, the High Court of Hong Kong, Court First of Instance, Chan, J., denied the application.

Analysis:

Following the interim stop order, substantive proceedings followed in the PRC Court (“Fraud Proceedings”, see para.21) wherein Buyer/Applicant sought a final stop order against Seller/Beneficiary and Issuer. Through these proceedings, Seller/Beneficiary alleged that the underlying transaction was actually tripartite, with Seller/Beneficiary as trade facilitator and Oppten International Ltd. (Third Party) as actual seller. After Negotiating Bank initiated suit in Hong Kong, Issuer sued Negotiating Bank in the PRC to have it joined in the Fraud Proceedings and another suit with parties Negotiating Bank was in “no way concerned.” (para.3). Issuer allegedly pursued joinder “out of abundance of caution as it did not know how exactly [Negotiating Bank] was internally organized.” (para.24). Issuer initiated separate proceedings to allege fraud against Negotiating Bank as Buyer/Applicant had not done so in its Fraud Proceedings. At the time of the instant forum non conveniens application, Negotiating Bank had challenged jurisdiction of Issuer’s separate PRC action.

As Negotiating Bank’s application was interlocutory in nature, the Hong Kong court would not render any final decision on the merits. Forum non conveniens applications are to be resolved “expeditiously” and the court “should not be overloaded with evidence and submissions, and the arguments should take hours, not days.” (para.33). Citing the recent action in ING Bank NV v. Industrial and Commercial Bank of China Ltd.,[[1]] the Judge reviewed the general principles regarding whether another competent jurisdiction would be more suitable forum for all parties and interests of justice. This analysis involves: (1) the opposing party (here, Issuer) must establish (i) that Hong Kong is not the natural forum and (ii) another is clearly more appropriate; (2) if factors (i) and (ii) are satisfied, the party alleging forum non conveniens must show some “personal or juridical” disadvantage for which the court must balance to determine whether “substantial justice” will be done in the alternate forum. (para.35). The burden of proof is a “good arguable case.”

The Judge noted that Negotiating Bank’s claim was based on Issuer’s UCP600 undertaking, citing Article 7(c). The dispute was “not complicated” and one “which is not unfamiliar to Hong Kong Court[s], bearing in mind that Hong Kong is an international financial centre where countless international trade[s] are carried out everyday.” (para.38). Turning to the LC’s applicable law, the Judge applied prior case law which held the place of presentation of documents dispositive, i.e. the PRC in this action.[[2]] In any event, the parties acknowledged that Hong Kong was well equipped to resolve disputes involving PRC law; moreover, contemplating international LC law and practice, there were no fundamental differences between PRC and Hong Kong. Of further relevance were Issuer’s defences to Negotiating Bank’s claim, i.e. that Seller/Beneficiary had engaged in fraud and Negotiating Bank did not act in good faith. The Judge, however, found it “difficult to escape the conclusion that the fraud claim is sketchy.” Those matters and others (such as the negotiation issue) would turn on factual and legal determinations for which the court was “well-experienced” in resolving. 

Issuer’s primary argument for forum non conveniens went to the existence of parallel proceedings and the possibility of inconsistent results. While important that the two actions arose from the same facts and parties, it was not essential that the causes of action be identical. It was also critical to take account of the stage of the parallel proceedings. Negotiating Bank cited a case containing similar facts in Deutsche Bank v. CIMB,[[3]] wherein the English court denied a stay finding that the possibility of inconsistent decisions only arose when the issuing bank in that action initiated parallel proceedings in Singapore after the confirming bank had sued the issuer in England. Similarly, because evidence of the instant action could be adduced in Hong Kong or the PRC did not suggest the PRC as being “a more appropriate forum.” Although Negotiating Bank sought to argue that Issuer had engaged in abuse of process by having it joined in the PRC proceedings, the Hong Kong court disagreed, noting that “[Issuer] had [not] acted in any way other than trying to protect its legitimate interests.” (para.53). No bank relishes being brought into court regarding matters going to the underlying contract.  

Ultimately, the critical defect in Issuer’s case was that Negotiating Bank could not bring its independent claim in the parallel proceedings given its posture, i.e. as a mere third party. Negotiating Bank was clearly within its rights to bring a direct action against Issuer in Hong Kong. Negotiating Bank’s limited ability to participate in the Fraud Proceedings and because certain issues relevant to it would be unlikely resolved led the Judge to conclude that concerns of res judicata should be given little weight. The additional complexity of foreign illegality (i.e. were Negotiating Bank to prevail in Hong Kong, Issuer would still be affected by the PRC interim stop order), was one that could not be resolved on an interlocutory basis. Given there were no concerns as to availability of witnesses and documentary evidence, and that Issuer had not made a good arguable case that the PRC would be a more appropriate or natural forum, the Judge denied Issuer’s application.

Comment:

In December 2024, Issuer sought leave to appeal this decision. Leave was denied, with the Judge remarking: “it appears to me from the Grounds and the Submissions of [Issuer] that the Decision had not been properly understood.” Each ground for appeal was rejected in the brief decision, and the Judge made an order for Issuer to file its defence before the end of the year.

[[1]]: [2024] HKCFI 2220 [Hong Kong]

[[2]]: Citing in support Cooperatieve Centrale Raiffeisen-Boerenleenbank BA v. Bank of China, [2004] 3 HKLRD 477 [Hong Kong], China Construction Bank (Asia) Corp. v. Shanghai Pudong Development Bank Co., CACV 14/2016, 3 February 2017 [Hong Kong]

[[3]]: [2017] EWHC 81 [England]