Laws of the People's Republic of China

the Supreme People's Court

Notice of the Supreme People's Court on Strictly Prohibiting the Random Stop Payment for Letters of Credit

Fa [2003] No.103

July 16, 2003

The higher people's courts of all provinces, autonomous regions and municipalities directly under the Central Government, the intermediate people's courts that accept and hear foreign commercial cases, and all admiralty courts:

This steel price has witnessed a sharp decrease in the international market since this year. Consequently, the price of some of domestic steel products tends to decrease with it. The shrinking of the margin between the price in domestic market and the import cost has directly affected the interests of the steel importers. Therefore, some importers requested the banks to refuse payment on account of inconsistency between bills of documents, or applied to the court for order of stop payment for letters of credit under some farfetched pretexts such as fraud. Some courts randomly ordered stop payment for letters of credit, which has resulted in adverse influence abroad. With the view to maintaining the international status of the courts and the banks of China, the relevant regulations are notified hereby as follows.

1.

The principle of independence of letters of credit shall be strictly abided by. The letter of credit falls within document transaction independent from the underlying transaction. As long as the documents provided by the beneficiary apparently accord with the requirements of the letter of credit, the issuing bank is obligated to pay within the specified time limit. Since the letter of credit and the underlying transaction belong to different legal relations, the court is not allowed generally to order stop payment for the letter of credit issued by the issuing bank simply because of disputes resulting from the basic transaction.

2.

The conditions of application of the principle of exception of fraud on letters of credit shall be strictly adhered to. Only when there are sufficient evidences to prove the fraud through letters of credit and the bank has not yet paid in a reasonable period, the people's court may order stop payment in the light of the request of the applicants and on condition that they provide guarantee. However, if the letter of credit has been accepted and transferred, or the payment has been negotiated, the court shall not order stop payment.

The people's courts at all levels shall think much of the order of stop payment for letters of credit. Random order of stop payment under unqualified conditions is prohibited. And the relevant people's courts shall immediately make correction to the stop payment order that has been improperly awarded.

It is hereby notified.