Judgment in favour of The Gosford against Bank of China in sum of $37 million

Leading independent law firm Johnson Winter Slattery has achieved a win on behalf of The Gosford in a decision which provides greater certainty for the role of standby letters of credit in the international banking context.

The key facts

Shinetec (Australia) Pty Ltd (Shinetec) and The Gosford Pty Ltd entered into a construction contract pursuant to which Shinetec procured from Bank of China (BoC) in favour of The Gosford, a $37 million standby letter of credit (SBLC) governed by the International Standby Practices - ISP98. When the development stalled, The Gosford presented a demand on the SBLC to the Shanxi branch of BoC in China, which was stated to be presented by and on behalf The Gosford Pty Limited, being the beneficiary under the SBLC, but was sent on behalf of The Gosford Pty Ltd (Receivers & Managers Appointed), receivers and managers having been appointed at that time.

Despite the SBLC appearing otherwise valid on its face, BoC did not honour the demand for two reasons:

1. BoC sought to suspend its obligation to honour or dishonour the demand pending the receipt of a response to a SWIFT communication issued to The Gosford seeking documents and legal advice (purportedly pursuant to a provision of ISP98) in respect of the legal status of the alleged “claimed successor” of the beneficiary, being the Receiver & Manager of the company; and
2. after application by Shinetec’s parent company, the Taiyuan Intermediate People’s Court of Shanxi Province issued a “Civil Ruling” to suspend payment under the SBLC and served an Enforcement Assistance Notice on BoC to suspend the payment.

Shinetec brought proceedings in the Supreme Court of NSW alleging that The Gosford’s demand was invalid. The Gosford brought proceedings against BoC seeking payment pursuant to the SBLC, which BoC sought to defend by reference to the SWIFT communication and by arguing it was enjoined from making payment.

The key findings

Justice Stevenson dismissed Shinetec’s case.

On The Gosford’s claim against BoC, his Honour held:

1. the relevant provision of ISP98 was not enlivened, and so BoC was unable to request further documents and legal advice from The Gosford as the receivers and managers were not claiming to be “successors” of the beneficiary, they were officers of The Gosford and the rightful beneficiary of the SBLC;
2. the mere entry of judgment in favour of The Gosford would not cause BoC to contravene the Chinese Civil Ruling and BoC accepted that any response under compulsion of Australian law to steps taken to enforce the judgment would similarly not cause it to contravene the Chinese Civil Ruling.

The Court awarded judgment in favour of The Gosford as against both Shinetec and Bank of China (but has stayed Judgment pending further steps being taken in the Chinese Court proceedings)

Richard McHugh SC and Ryan May appeared for The Gosford.

Antoinette Migliorino (Partner), James Rallings (Senior Associate) and Angelina Lockley (Associate) formed the JWS team.

About Johnson Winter & Slattery

JWS is a leading independent Australian law firm engaged by major corporates and investment funds on their most challenging transactions and disputes.

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