Advertisement
Advertisement
Bank of China (BOC)
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Japanese company Chiyoda sold 3,000 tonnes of steel to a Korean firm but Bank of China Hong Kong is refusing to honour the letter of credit used as payment. Photo: Bloomberg

Chiyoda Steel to sue Bank of China Hong Kong in steel finance case

Firm seeks about HK$12m from the bank from a disputed letter of credit

CHIM SAU-WAI

Japanese firm Chiyoda Steel plans to proceed to a full trial against Bank of China (Hong Kong) for not honouring its letter of credit because the words "steel grade" were missing in the trade document.

"Chiyoda Steel is minded to proceed to full trial," Fred Kan & Co, the law firm representing Chiyoda, told the in an email.

The High Court in August rejected Chiyoda's application for summary judgment when the steel firm tried to collect the money from the bank.

The case, filed last year, revolves a deal in which Chiyoda sold 3,000 tonnes of steel bars to a Korean company for 161.8 million yen (HK$10.9 million). It was paid for with a letter of credit issued by Bank of China (Hong Kong).

The bank argued that the words "steel grade" were missing in the trade document even though the letter of credit specified the delivery as such.

Chiyoda said the "steel grade" information was in the trade document but was classified under the "description of goods" rather than being explicitly stated in those exact words.

"BOC has clearly raised a triable issue as to whether the bank should be placed with such a burden whether to honour a letter of credit upon presentation of documents," said Deputy High Court Judge Poon Siu-tung in the judgment in August.

He also said "the bank will be placed with too heavy a burden to possess the technical knowledge on steel bar trading" if it were expected to know how steel grade was denoted in trade documents.

"Metal traders need to be more careful in complying with bank requirements in doing business involving letters of credit," said Fred Kan in a document prepared for its clients, adding the final judgment might have implications for trade with letters of credit.

"Refusal of payment by banks and disputes in international trade are not uncommon, but taking the matter to court is not common," said Ginger Cheng, the managing director and large Hong Kong & China corporates head at DBS Hong Kong.

"After the huge amount of fake trade uncovered in China last year, banks in Hong Kong have become more cautious on discrepancies in trade documents," said a banking source.

The Qingdao port fraud uncovered in June found metal inventories were pledged several times as collateral for loans.

Bank of China (Hong Kong) said it does not comment on cases.

This article appeared in the South China Morning Post print edition as: Chiyoda seeks full trial over BOCHK pledge
Post