CASE LAW NO. 13/2017/AL On the payment validity of Letters of Credit (L/C) when the underlying international sale of goods contract is terminated

CASE LAW NO. 13/2017/AL

On the payment validity of Letter of Credit (L/C) when the underlying international sale of goods contract is terminated

Approved by the Judicial Council of the Supreme People’s Court on December 14^th, 2017, and published under Decision No. 299/QD-CA dated December 28^th, 2017, by the Chief Justice of the Supreme People’s Court.

Source of the Case Law:

Cassation Decision No. 17/2016/KDTM-GĐT dated November 10^th, 2016, of the Judicial Council of the Supreme People’s Court concerning the business and commercial case “Dispute over a Sale of Goods Contract” in Hồ Chí Minh City between the plaintiff, One-member Limited Liability Company A (represented by Mr. Nguyễn Duy T as the authorized representative), and the defendant, Company B; with interested parties including Commercial Joint Stock Bank E (represented by Mr. Hứa Anh K as the authorized representative) and Bank N (represented by Mrs. Nguyễn Thị V as the authorized representative).

Location of the Case Law’s content:

Paragraphs 34 and 36 of the “Court’s Opinion” section.

Summary of the Case Law:

– Case Background:

An international sale of goods contract stipulates payment via a Letter of Credit (L/C), following international commercial practices (Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 (UCP 600)) and in accordance with Vietnamese law. The international sale of goods contract, which is the basis of the L/C, is terminated.

– Legal Resolution:

In this case, the Court must determine that the Letter of Credit (L/C) remains valid for payment despite the termination of the underlying international sale of goods contract.

Relevant Legal Provisions:

– Article 3 of the 2005 Civil Code (corresponding to Article 5 of the 2015 Civil Code);

– Decision No. 226/2002/QĐ-NHNN dated March 26^th, 2002, by the State Bank of Vietnam on “Regulations on payment activities via payment service providers”;

– The 2007 Revision of the Uniform Customs and Practice for Documentary Credits (UCP 600) by the International Chamber of Commerce.

Keywords:

“Letter of Credit”; “L/C”; “UCP 600”; “International commercial practices”; “Sale of Goods Contract”; “International Sale of Goods Contract”; “Contract termination”.

CASE DETAILS

In the complaint dated September 15^th, 2011, the amended complaint dated September 22^nd, 2011, and throughout the litigation process, the plaintiff,  represented by Mrs. Mai Thị Tuyết N, the legal representative of One-member Limited Liability Company A, stated:

On June 7^th, 2011, One-member Limited Liability Company A (hereinafter referred to as the Buyer, Company A) and Company B (hereinafter referred to as the Seller) signed an international sale of goods contract No. FARCOM/RCN/IVC/036/2011 dated June 7^th, 2011 (hereinafter referred to as the June 7^th, 2011 Contract). According to the content of the June 7^th, 2011 Contract, the Buyer purchased raw cashew nuts originating from Ivory Coast, totaling 1,000 tons at USD 1,385.50 per ton, with payment terms of 98% via deferred L/C payable within 90 days from the date of delivery based on the Bill of Lading (B/L) and meeting the following quality standards:

– Recovery rate of 47 lbs/80kg with the right to reject the goods if the recovery rate is below 45 lbs/80kg.

– Maximum nut count of 205/kg with a rejection threshold of 220 nuts/kg.

– Maximum moisture content of 10%, with rejection above 12%.

The goods would be inspected by Vinacontrol for quality and quantity at the time of delivery at the destination port in Hồ Chí Minh City.

With the deferred payment method via L/C within 90 days, on July 7^th, 2011, the Buyer requested Commercial Joint Stock Bank E, Branch Đ, to issue a deferred L/C No. 1801ILUEIB110002 (hereinafter referred to as L/C No. 1801) to facilitate the purchase of the goods from the Seller.

Upon receiving the goods, pursuant to Article 8 of the Contract, the Buyer re-checked the quality and quantity of the goods at the unloading port, Cát Lái Port in Hồ Chí Minh City, under the supervision of Vinacontrol, and found that the goods did not meet the quality standards. Specifically, according to Vinacontrol’s two inspection certificates No. 11G04HN05957-01 and No. 11G04HN05939-01 dated August 31^st, 2011, the average recovery rate of the cashew nuts from two sampling cuts was 37.615 lbs/80kg (significantly below the 45 lbs rejection threshold). In response to this commercial fraud, the Buyer made multiple attempts to contact the Seller to address the quality issues of the imported cashew nut batch but received no response from the Seller.

Consequently, on September 15^th, 2011, the Buyer filed a lawsuit with the People’s Court of Hồ Chí Minh City, requesting the Court to compel the Seller to take back the 1,000-ton cashew nut batch due to the recovery rate being below the 45 lbs rejection condition specified in the Contract, to refuse payment for the goods, and to order Commercial Joint Stock Bank E to suspend the payment of USD 1,313,308.85 under L/C No. 1801 according to the Buyer’s payment commitment until a different decision by the Court is made.

On August 12^th, 2013, the Buyer paid the advance court fee for the additional claim, requesting the cancellation of the June 7^th, 2011 Contract and the cancellation of L/C No. 1801.

At the trial, the plaintiff requested:

1. Theterminationof the June 7^th, 2011 Contract.
2. The Seller must retrieve the entire batch of goods from the Buyer’s warehouse at the address C2 Hamlet, National Highway1A, CommuneC, L District, Đồng Nai Province immediately after the judgment takes legal effect. If the Seller fails to collect the goods within 30 days from the effective date of the judgment, the Enforcement Authority is authorized to sell the goods to vacate the warehouse space for the Buyer.
3. The terminationof the Buyer’s payment obligation under L/C No. 1801 and the immediate return of the USD 1,313,308.85 deposit securing the L/C payment to the plaintiff by Commercial Joint Stock Bank E.
4. The Court to maintain the provisionalemergencymeasure Decision No. 101/2011/QĐ-BPKCTT dated September 23^rd, 2011, until the judgment takes effect. Additionally, the Buyer should be refunded VND 1,500,000,000 deposited as security according to the Court’s Decision at Bank T, Branch P, when the judgment takes effect.

The defendant, Company B (the Seller), headquartered abroad, was duly notified by the Court through the Ministry of Justice of Vietnam in accordance with the Civil Procedure Code, the 2007 Law on Judicial Assistance, and Joint Circular No. 15/2011/TTLT-BTP-BNG-TANDTC dated September 15^th, 2011, but the Seller remained absent and did not provide any response.

The interested party, Joint Stock Commercial Bank E, presented the following statement:

At the request of the Buyer, on July 7^th, 2011, Joint Stock Commercial Bank E, Branch Đ issued L/C No. 1801 with the following details:

– L/C Value: USD 1,357,790

– Purpose: Import of 1,000 tons of raw cashew nuts from the Ivory Coast;

– Beneficiary Bank: Bank N, Singapore.

– Beneficiary: Company B.

– Deferred payment L/C opened under UCP 600; with terms can be confirmed by request.

– Security measures: third-party guarantee, collateral; savings card.

– Payment due dates: September 29^th, 2011 (USD 961,813.66) and October 17^th, 2011 (USD 351,495.19).

Upon receiving the compliant documents, the Buyer signed to fully pay the value of the L/C on time. Based on the Buyer’s confirmation, Joint Stock Commercial Bank E, Branch Đ accepted the draft.

Based on the L/C confirmation and the status of the document set, Bank N discounted without recourse for the Seller against three document sets valued at USD 1,313,308.85 on July 25^th, July 28^th, and August 8^th, 2011.

According to the issued L/C, it was governed and applied under the “Uniform Customs and Practice for Documentary Credits” latest version (currently UCP 600). Under UCP 600, Joint Stock Commercial Bank E, as the issuing bank, committed to payment based on the document set and the payment commitment, meaning the Buyer paid the Seller. Based on the compliant documents and the Buyer’s acceptance of payment, Joint Stock Commercial Bank E signed the draft acceptance. Bank N discounted the three document sets of the aforementioned L/C without recourse.

Joint Stock Commercial Bank E disagreed with the Plaintiff’s request to terminate L/C No. 1801 and the request to refund the deposit amount of USD 1,313,308.85 to the Plaintiff. Joint Stock Commercial Bank E requested the Court to vacate Decision No. 101/2011/QĐ-BPKCTT dated September 23^rd, 2011, to allow Joint Stock Commercial Bank E to pay Bank N in accordance with the L/C terms.

Bank N, a interested party, stated:

According to the Sale of Goods Contract dated June 7^th, 2011, and L/C No. 1801, Bank N (Branch Singapore) was the Seller’s designated bank to execute the letter of credit guaranteeing payment issued by Joint Stock Commercial Bank E.

In compliance with the UCP 600 rules, Bank N discounted the compliant documents presented by the Seller and paid the L/C value to the Seller on July 25^th, 2011, July 28^th, 2011, and August 8^th, 2011. Thus, Bank N lawfully purchased L/C No. 1801 along with related documents and became the direct beneficiary of all payments under this letter of credit. Once the documents were presented per the L/C terms, Joint Stock Commercial Bank E accepted the documents and committed to paying Bank N on September 29^th, 2011, and October 17^th, 2011. However, the payment was halted due to the Buyer’s request and the Court’s issuance of Decision No. 101/2011/QĐ-BPKCTT dated September 23^rd, 2011.

Bank N requested the Court to vacate Decision No. 101/2011/QĐ-BPKCTT dated September 23^rd, 2011, and ordered the Buyer compensate Bank N for damages caused by the unlawful request for a provisional emergency measure, which prevented Bank N from receiving the L/C payment from Joint Stock Commercial Bank E.

The compensation amount demanded by Bank N is the interest payable on the total amount due under the three compliant document sets presented to Joint Stock Commercial Bank E, calculated from the due payment date per Joint Stock Commercial Bank E’s commitment (September 29^th, 2011) to the date Bank N submitted the request to participate in the lawsuit, based on the interbank USD overnight loan interest rate at the submission date (3.8%/12 months). The total damage amount Bank N demanded from the Buyer is USD 33,270.49, equivalent to VND 694,188,774.

At the First-instance Business and Commercial Judgment, No. 356/2014/KDTM-ST dated April 7^th, 2014, the People’s Court of Hồ Chí Minh City ruled:

“1. Terminate the Sale Contract No. FARCOM/RCN/IVC/036/2011 dated June 7^th, 2011, between the Seller Company B and the Buyer One-member Limited Liability Company A.

Order Company B to retrieve the entire shipment of 1,000 tons of raw cashew nuts from the Ivory Coast delivered under Sale Contract No. FARCOM/RCN/IVC/036/2011 at the address: warehouse of One-member Limited Liability Company A, Hamlet C2, National Highway 1A, Commune C, District L, Đồng Nai Province. After 30 days from the effective date of the judgment, if Company B does not retrieve the shipment, the Enforcement Agency has the right to auction the goods according to the law to return the warehouse space to One-member Limited Liability Company A.

2. The deferred payment L/C No. 1801ILUEIB110002 issued by Joint Stock Commercial Bank E, Branch Đon July 7^th, 2011, is no longer valid for payment. Joint Stock Commercial Bank Eis not obliged to pay Bank N under the deferred payment L/C No. 1801ILUEIB110002 issued by Joint Stock Commercial Bank E, Branch Đ on July 7^th, 2011.

Order Joint Stock Commercial Bank E to return to One-member Limited Liability Company A the deposit securing the L/C payment of USD 1,313,308.85.

3. Maintain the provisional emergency measure applied by Decision No. 101/2011/QĐ-BPKCTT dated September 23^rd, 2011, of the People’s Court of Hồ Chí MinhCity and the securing measure applied by Decision No. 100/2011/QĐ-BPĐB dated September 23^rd, 2011, of the People’s Court of Hồ Chí MinhCity until the judgment takes effect. One-member Limited Liability Company A is entitled to recover the full amount of VND 1,500,000,000 (one billion five hundred million dongs) deposited in frozen account No. 1022130.3441.012 at Bank T, Branch P, which One-member Limited Liability Company A deposited as security according to Decision No. 100/2011/QĐ-BPĐB dated September 23^rd, 2011, of the People’s Court of Hồ Chí Minh City when the judgment takes effect.
4. Reject Bank N’s claim demanding One-member Limited Liability Company Acompensate for damages of USD 33,270.49, equivalent to VND 694,188,774.”

Additionally, the Court addressed court fees, late payment interest, and the appeal period.

On April 21^st, 2014, Joint Stock Commercial Bank E filed an appeal against the entire content of the aforementioned First-instance Business and Commercial Judgment.

At Appellate Trial Suspension Decision No. 29/2015/QĐPT-KDTM dated August 26^th, 2015, the High People’s Court in Hồ Chí Minh City ruled:

1. To suspend the appellate trial of business and commercial case No. 40/2014/TLKDTM-PT dated August 18^th, 2014on “Dispute overa Sale of Goods Contract”.
2. The First-instance Business and Commercial Judgment No. 356/2014/KDTM-ST dated April 7^th, 2014of the Hồ Chí MinhCity People’s Court takes effect from August 26^th, 2015.

In addition, the Court also ruled on court fees.

On September 10^th, 2015, Joint Stock Commercial Bank E appealed to the Chief Justice of the Supreme People’s Court to review the First-instance Business and Commercial Judgment and the Appellate Trial Suspension Decision mentioned above according to the cassation procedure.

At Decision No. 11/2016/KN-KDTM dated March 7^th, 2016, the Chief Justice of the Supreme People’s Court appealed against the Appellate Trial Suspension Decision No. 29/2015/QĐPT-KDTM dated August 26^th, 2015 of the High People’s Court in Hồ Chí Minh City; proposed that the Judicial Council of the Supreme People’s Court conduct a cassation trial to vacate the Appellate Trial Suspension Decision No. 29/2015/QĐPT-KDTM dated August 26^th, 2015 of the High People’s Court in Hồ Chí Minh City and vacate the First-instance Business and Commercial Judgment No. 356/2014/KDTM-ST dated April 7^th, 2014 of the Hồ Chí Minh City People’s Court; remand the case file to the Hồ Chí Minh City People’s Court for a new first-instance trial in accordance with the law.

At the cassation trial, the representative of the Supreme People’s Procuracy proposed that the Judicial Council of the Supreme People’s Court accept the appeal of the Chief Justice of the Supreme People’s Court.

COURT’S OPINION:

[1] On June 7^th, 2011, One-member Limited Liability Company A (Buyer) and Company B (Seller) signed a Sale Contract dated June 7^th, 2011 with the following content: Buyer purchases 1,000 tons of cashew nuts with the payment method of 98% L/C deferred payment within 90 days from the date of shipment based on the bill of lading.

[2] In the course of contract performance, Company A requested and deposited USD 1,313,308.85 for Joint Stock Commercial Bank E to issue L/C No. 1801.

[3] When the goods arrived at Hồ Chí Minh City port, the Buyer requested Vinacontrol Hồ Chí Minh City to inspect the quality and condition of the goods according to Articles 8 and 11 of the contract.

[4] According to the inspection certificate on quantity, quality, and condition of goods dated August 31^st, 2011 by Vinacontrol: The recovery rate of cashew nuts for two sample cuts: First time was 38.2 lbs/80kg; Second time was 37.03 lbs/80kg.

[5] As the recovery rate of cashew nuts was lower than agreed in the Contract, the Buyer complained via email to the Seller, but the Seller did not cooperate. Therefore, the Buyer filed a lawsuit requesting the cancellation of the Sale Contract dated June 7^th, 2011, returning the entire batch of goods to the Seller, and canceling the payment obligation under L/C No. 1801 issued by Joint Stock Commercial Bank E on July 7^th, 2011, and requested Joint Stock Commercial Bank E to refund the deposit of USD 1,313,308.85, which was used to secure payment of L/C No. 1801 dated July 7^th, 2011.

[6] Based on the documents and evidence in the case file, it is found that: The form and content of the Sale Contract dated June 7^th, 2011 do not violate legal regulations, conforming to the provisions in Articles, Clauses, Section 2 on the rights and obligations of the parties in the sale of goods contracts under the Commercial Law 2005; at Article 15 of the contract, the two parties agreed to apply Vietnamese law to resolve disputes.

[7] During the resolution process, the first-instance court performed the letters rogatory procedure correctly in summoning the defendant (Seller), informing the defendant of the plaintiff’s claim; while requesting the defendant to send a written opinion on the plaintiff’s claim; although the defendant received the summons and notifications, the defendant did not object to the plaintiff’s claim.

[8] Based on the two Vinacontrol inspection certificates provided by the Buyer, it is evident that the Seller delivered goods that did not comply with the June 7th, 2011, Sale Contract. Under Article 39 of the Commercial Law, the Buyer has the right to reject these non-compliant goods. Furthermore, the Seller failed to cooperate when the Buyer raised concerns about the quality of the goods, further demonstrating the Seller’s breach of contract. The Seller’s delivery of substandard goods prevented the Buyer from achieving the contract’s intended purpose, constituting a fundamental breach of contract obligations. Therefore, the first-instance court’s decision to terminate the contract is valid and in accordance with Clause 13 Article 3 and Article 312 of the Commercial Law.

 However, in resolving the legal consequences resulting the termination of the contract, the first-instance court erred in failing to address the Seller’s obligation to refund any received payments and compensate the Buyer for damages resulting from the breach. This omission requires a revised resolution of the case.

[9] Regarding the request to cancel L/C No. 1801:

[10] Based on the Buyer’s request for a deferred payment L/C, Joint Stock Commercial Bank E Branch Đ issued L/C No. 1801 on July 7^th, 2011, specifically:

[11] – L/C value: USD 1,357,790;

[12] – Document form: Irrevocable;

[13] – Purpose: purchase of 1,000 tons of raw cashew nuts from the Ivory Coast;

[14] – Beneficiary bank: Bank N, Branch Singapore;

[15] – Beneficiary: Company B;

[16] – Applicant: Company A;

[17] – Applicable rules: the latest version of UCP.

[18] Subsequently, Joint Stock Commercial Bank E received three sets of documents claiming payment from Bank N, with a total value of USD 1,313,308.85, specifically:

[19] On July 25^th, 2011: Set of documents USD 961,813.66, due on September 29^th, 2011;

[20] On July 29^th, 2011: Set of documents USD 312,517.11, due on October 17^th, 2011;

[21] On August 9^th, 2011: Set of documents USD 38,978.08, due on October 17^th, 2011.

[22] After receiving the document sets compliant with L/C conditions, Joint Stock Commercial Bank E sent an official letter and the document sets to the Buyer and was confirmed by the Buyer as “Received the complete documents and committed to pay the full value on time”; on this basis, Joint Stock Commercial Bank E sent a payment acceptance notification on the due dates of the above three document sets to Bank N.

[23] According to the provisions of Vietnamese law on documentary payment:

[24] Clause 4, Article 3 of the Law on Credit Institutions 2010 stipulates: “Organizations and individuals participating in banking activities have the right to agree to apply commercial practices, including: International commercial practices issued by the International Chamber of Commerce; other commercial practices not contrary to Vietnamese law.”

[25] Clause 1, Article 16 of Decision No. 226/2002/QĐ-NHNN dated March 26^th, 2002 of the State Bank of Vietnam on “Regulations on payment activities through payment service providers” stipulates: “A letter of credit is a conditional commitment document issued by the Bank at the request of the service user (the applicant) to:

[26] Pay or authorize another bank to pay immediately at the request of the beneficiary upon receipt of documents presented in compliance with the terms of the letter of credit; or agree to pay or authorize another bank to pay at the request of the beneficiary at a specified future date upon receipt of documents presented in compliance with the payment terms of the letter of credit.”

[27] Clause 1, Article 19 of the aforementioned Decision 226 stipulates: “Payment by letter of credit: The issuance, amendment, notification, confirmation, examination of documents, payment, and rights and obligations of the parties involved in letter of credit payment shall be governed by the general rules on documentary credit issued by the International Chamber of Commerce (ICC), as agreed by the participating parties and according to the provisions of Vietnamese law.”

[28] Furthermore, in the letter requesting the opening of the L/C by the Buyer, it was agreed: The applicable rules are the latest version of the UCP. According to the 2007 revision of the Uniform Customs and Practice for Documentary Credits (UCP 600) by the International Chamber of Commerce:

[29] “Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation” (Article 2).

[30] “A credit is a separate transaction from the sale or other contract(s) on which it may be based. Banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to honour, negotiate or fulfil any other obligation under the credit, is not subject to claims or defenses by the applicant resulting from their relationships with the issuing bank or the beneficiary” (Article 4).

[31] “Banks deal with documents and not with goods, services, or performance to which the documents may relate” (Article 5).

[32] “An issuing bank is irrevocably bound to honour as of the time it issues the credit” (Article 7).

[33] “When an issuing bank determines that a presentation is complying, it must honour” (Article 15a).

[34] Therefore, according to the Buyer’s request to open an L/C and the contents of the issued L/C, L/C No. 1801 is a separate transaction from the Sale Contract dated June 7^th, 2011; governed and applied under UCP 600. According to the provisions of UCP 600, Joint Stock Commercial Bank E, as the issuing bank, must honour the payment when determining that the documents presented comply with the terms of the L/C.

[35] Regarding the documentary set of the aforementioned L/C: The documentary set includes a weight and quality certificate issued by an independent inspector (it is not stipulated that the goods must be re-inspected at the destination port by any inspection agency).

In the presented documentary set, there is a weight and quality certificate issued by a foreign independent inspector which complies with the L/C terms; additionally, the Buyer has signed to accept the document set and committed to paying the full amount on time, but the first-instance court based its judgment on the inspection conclusion of Vinacontrol Hồ Chí Minh City (at the destination port) to conclude that the document set was not valid, which is not in accordance with the L/C terms and the Buyer’s commitment.

[36] During the proceedings, Bank N asserted that it had discounted the compliant document set and made payments to the Seller on July 25^th, 2011, July 28^th, 2011, and August 8^th, 2011, presenting export invoice discount notices as evidence of such payments. However, Bank N failed to provide any additional documentation substantiating these payments. Therefore, the first-instance court should have thoroughly examined all relevant evidence to ascertain whether Bank N had indeed made payments to the Seller and, if so, the precise amount paid.

If Bank N’s payments under L/C No. 1801 were confirmed, Joint Stock Commercial Bank E would be obligated to comply with Bank N’s reimbursement request. Due to the lack of clarity surrounding these payment issues, the court of first-instance erroneously determined that the payment method under L/C No. 1801 was an integral part of the Sale Contract dated June 7^th, 2011.

Consequently, the court incorrectly concluded that upon termination of the contract, the parties were released from their obligations, including payment under the L/C. This led to the erroneous decision that L/C No. 1801 was no longer valid for payment, that Joint Stock Commercial Bank E was not obligated to pay Bank N under the L/C, and that Joint Stock Commercial Bank E was required to refund the buyer’s deposit of USD 1,313,308.85. This determination lacks sufficient basis and contradicts the provisions of UCP 600.

[37] After the first-instance trial, Joint Stock Commercial Bank E appealed the entire First-instance Judgment. The appellate court decided to bring the case to trial and served the Summons to the litigants to participate in the trial on September 25^th, 2014, October 27^th, 2014, October 31^st, 2014, April 16^th, 2015, but these trials were postponed for various reasons, such as the absence of litigants, absence of the Procuracy representative, time needed for letter rogatory, etc.

[38] In Decision No. 09/2015/QĐPT-KDTM dated May 29th, 2015, the Appellate Court of the Supreme People’s Court in Hồ Chí Minh City suspended the appellate trial pending the completion of a letters rogatory procedure to summon Company B as a participant.

[39] In the Decision without number dated August 10^th, 2015, the High People’s Court in Hồ Chí Minh City ruled to bring the case to appellate trial on August 26^th, 2015.

[40] On August 19^th, 2015, Joint Stock Commercial Bank E received a Summons to attend the above-mentioned trial; on August 24^th, 2015, Joint Stock Commercial Bank E submitted a request to postpone the trial on the grounds that the authorized representative of Joint Stock Commercial Bank E, Mr. Hứa Anh K, was on a business trip. At the trial on August 26^th, 2015, the appellate court did not accept Mr. K’s request for a postponement and held that Joint Stock Commercial Bank E (the appellant) had been duly summoned for the second time but was still absent. Consequently, it issued a decision to suspend the appellate trial.

[41] The decision of the High People’s Court in Hồ Chí Minh City to suspend the appellate trial was not in accordance with the law, as stipulated in Clause 2, Article 13 of Resolution No. 06/2012/NQ-HĐTP dated December 3^rd, 2012 of the Judicial Council of the Supreme People’s Court: “In case a decision is made to temporarily suspend the appellate trial of a civil case, the time limit for preparation for trial ends on the date of the decision to temporarily suspend the case was issued. The time limit for preparation for the appellate trial starts again from the date the appellate court continues the appellate trial of the case when the reason for the temporary suspension no longer exists.” Shorten with AI

Therefore, due to the Decision to temporarily suspend the case, when the appellate court continued the appellate trial, the time limit for preparation started again from the date the appellate court issued the Decision to bring the case to trial (i.e., August 10^th, 2015).

Consequently, the appellate trial was reopened on August 26^th, 2015, where the appellant (Joint Stock Commercial Bank E) was absent, should have been considered as the appellant being duly summoned for the first time and absent. Regardless of whether there was a valid reason or not, the court had to postpone the trial according to the provisions of Article 266 of the amended and supplemented Civil Procedure Code 2011 and Article 16 of Resolution No. 06/2012/NQ-HĐTP dated December 3^rd, 2012 of the Judicial Council of the Supreme People’s Court.

However, the appellate court considered that the representative of Joint Stock Commercial Bank E had been duly summoned for the second time and was still absent without a force majeure reason, thereby deciding to suspend the appellate trial, which was incorrect; the decision of the appellate court to suspend the appellate trial was a serious procedural violation, adversely affecting the legitimate rights and interests of the litigants.

In light the foregoing, pursuant to Clause 2, Article 337, Clause 3, Article 343, Article 345 of the Civil Procedure Code.

DECISION:

1. To accept the Cassation Decision No. 11/2016/KN-KDTM dated March 7^th, 2016 of the Chief Justice of the Supreme People’s Court.
2. To vacate the Appellate Trial Suspension Decision No. 29/2015/QĐPT-KDTM dated August 26^th, 2015 of the High People’s Court in Hồ Chí Minh City and vacate the First-instance Business and Commercial Judgment No. 356/2014/KDTM-ST dated April 7^th, 2014 of the People’s Court of Hồ Chí Minh City.
3. To remand the case file to the People’s Court of Hồ Chí Minh City for a new first-instance trial in accordance with the law.

CONTENT OF THE CASE LAW:

“[34] Therefore, according to the Buyer’s request to open an L/C and the contents of the issued L/C, L/C No. 1801 is a separate transaction from the Sale Contract dated June 7^th, 2011; governed and applied under UCP 600. According to the provisions of UCP 600, Joint Stock Commercial Bank E, as the issuing bank, must honour the payment when determining that the documents presented comply with the terms of the L/C.

[36]…The court incorrectly concluded that upon termination of the contract, the parties were released from their obligations, including payment under the L/C. This led to the erroneous decision that L/C No. 1801 was no longer valid for payment, that Joint Stock Commercial Bank E was not obligated to pay Bank N under the L/C, and that Joint Stock Commercial Bank E was required to refund the buyer’s deposit of USD 1,313,308.85. This determination lacks sufficient basis and contradicts the provisions of UCP 600.”

If you need more consulting, please Contact Us at TNHH NT International Law Firm (ntpartnerlawfirm.com)

You can also download the .docx version here.