[2] The time when the negotiating bank of an unrecied documentary credit must pay the purchase price to the beneficiary (=before five business days have elapsed from the day following the day on which the documents were delivered to the issuing bank)

[3] Whether an issuing bank may refuse to pay the letter of credit to the bank which presented the documents at the maturity of the letter of credit on the ground that the bank's fraudulent act was revealed in the letter of credit transaction (affirmative)

The so-called back-to-back L/C refers to a L/C which, in a brokerage trade, an intermediary trader provides as security the principal L/C of which the broker trader orders himself/herself to his/her bank and is issued by the actual exporter as the beneficiary in the brokerage trade. Even if a bank of a broker trader concludes an agreement on the purchase of a principal L/C while it opens a back-to-back L/C, such agreement cannot be deemed an agreement to definitely pay money to the beneficiary on a specified date, and thus, does not constitute an unconditional obligation to pay money in lieu of a real payment.

[2] A bank designated as a negotiating bank must pay or agree to pay to the beneficiary on or before the banking day on which the negotiating bank is obligated to pay the credit amount to the beneficiary, and the document review period is the maximum of five banking business days (Article 14(b) of the Uniform Customs and Practice for Documentary Credits 600). Therefore, in the case of an unrefilled documentary credit, the negotiating bank must pay the purchase amount to the beneficiary five banking days after the date following the date on which the documentary credit reaches the issuing bank.

[3] Even if a documentary credit transaction is revealed to be fraudulent after the lawful negotiation of the documentary credit, the negotiating bank may demand reimbursement of the documentary credit amount to the issuing bank unless it is recognized that the negotiating bank was involved in the fraudulent act, or was aware of, or had sufficient reasons to suspect the fraudulent act at the time of the payment or negotiation of the documentary credit. However, if the negotiating of the documentary credit by the bank is lawful, it cannot be a "purchase" as provided by the Uniform Customs and Practice for Documentary Credits 600 (UCP 600). In this case, the issuing bank may set up against the beneficiary any defense against the issuing bank that presented the documents at the maturity of the documentary credit. Accordingly, if the beneficiary's fraudulent act was revealed in the documentary credit transaction, the issuing bank may refuse to pay the documentary credit amount to the issuing bank on

1. Ground of appeal No. 1

A. The L/C transaction is a transaction by documents and is a separate and independent transaction from the underlying transaction, and in principle, the L/C issuing bank pays the L/C amount if the documents complying with the conditions stated in the L/C are presented.

Article 2 of the Uniform Customs and Practice for Documentary Credits (UCP 600) enacted by the International Commercial Conference provides, “The delivery of documents under a credit to the issuing bank or designated bank or the documents so delivered,” and “comly presentation” means a presentation that conforms to the terms and conditions of the credit, the provisions of the Uniform Customs and Practice for Documentary Credits (ISO) and the UCP 600.”

According to the Uniform Customs and Practice for Documentary Credits, in order to determine whether a presentation of a document accords with the presentation on the face of the document, an examination must be conducted on the basis of only the document on the face of the presentation (Article 14(a)). When an issuing bank determines that a presentation is consistent, it shall settle the case (Article 15(a)), and when it determines that a presentation does not coincide with the presentation, it may refuse settlement or negotiation (Article 16(a)).

Article 2 of the Uniform Customs and Practice for Documentary Credits provides, “If a presentation is made, the nominated bank shall purchase bills of exchange (not a nominated bank) and/or documents by giving consent to the payment to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.” The purchase of documents stipulated in this provision may be made by a nominated bank authorized to negotiate to the effect that it bears an obligation to pay the actual price to the beneficiary immediately or by paying the payment to the beneficiary by means of cash, account transfer, etc. The purchase of documents may be made by means of a nominated bank authorized to negotiate to the beneficiary immediately or by means of a cash, account transfer, etc. The purchase by the latter means must be able to substitute for a practical payment by bearing an unconditional obligation that the negotiating bank is obligated to definitely pay the price to the beneficiary on a specified date (see Supreme Court Decision 2009Da93817, Jan. 27, 2012).

The so-called back-to-back L/C refers to a L/C which, in a brokerage trade, an intermediary trader provides as security the principal L/C of which the broker trader orders himself/herself to his/her bank and is issued by the actual exporter as the beneficiary in the brokerage trade. Even if a bank of a broker trader concludes an agreement on the purchase of a principal L/C while it opens a back-to-back L/C, such agreement cannot be deemed an agreement to definitely pay money to the beneficiary on a specified date, and thus, does not constitute an unconditional obligation to pay money in lieu of a real payment.

In addition, a bank designated as an negotiating bank must pay or consent to the payment to the beneficiary on or before the banking day on which the negotiating bank is obligated to receive the reimbursement of the credit amount, and the examination period for documents is a maximum of five business days (Article 14(b)(b)(b) of the Uniform Credit Rules). Therefore, in the case of an unrepaid documentary credit, the negotiating bank must pay the purchase amount to the beneficiary before five banking days from the day following the date on which the documents are delivered to the issuing bank.

B. The lower court determined that the Plaintiff failed to obtain the status of the negotiating bank for each of the instant letters of credit on the following grounds:

(1) Each of the instant letters of credit stated that the latest amendments to the Uniform Customs and Practice for Documentary Credits and Practice for Documentary Credits shall apply, and at the time of the issuance of each of the instant letters of credit, the UCP 600, and the UCP 600 was in effect.

(2) When the Plaintiff opened a white documentary credit corresponding to each of the instant L/C, the Plaintiff agreed with the United Forces FZE (hereinafter “BE”) on the negotiation of each of the instant L/C. The content of each of the instant L/C, if the Plaintiff considers that the required documents of each of the instant L/C were presented in compliance with the law, is to negotiate the documents and to exempt the Plaintiff from the risk of not being paid due to the Plaintiff’s refusal to comply with the law, and to pay in the event of nonperformance of the bank’s obligation to establish and confirm the documents. It cannot be deemed that the Plaintiff bears an unconditional obligation to pay the purchase price in lieu of the actual payment.

(3) Negotiation under the Uniform Customs and Practice for Documentary Credits must be conducted on or before the banking day on which the L/C price is to be repaid to the designated bank. The Plaintiff paid the amount corresponding to the purchase price on February 19, 2013, which was far earlier than the five banking business day from February 1, 2012, after each of the instant L/C and relevant documents reached and presented to the Defendants. Accordingly, it cannot be deemed that the Plaintiff paid the purchase price of each of the instant L/C lawfully on the date of payment.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the record, the lower court did not err in its judgment by misapprehending the legal doctrine on the negotiation of documentary credit documents.

2. Ground of appeal Nos. 2 and 3

A. Even if a documentary credit transaction is revealed to be fraudulent after the lawful negotiation of the documentary credit, the negotiating bank may demand reimbursement of the documentary credit amount to the issuing bank, unless the negotiating bank is deemed to have been involved in the fraudulent act as a party at the time of the payment or negotiation of the documentary credit amount, or having been aware of, or had sufficient grounds to suspect the fraudulent act. However, if the negotiating bank’s negotiation is lawful, it may not constitute a “purchase” as provided by the Uniform Customs and Practice for Documentary Credits even if it is paid the price. In this case, the issuing bank may set up against the beneficiary any defense against the issuing bank that presented the documents at the maturity of the documentary credit. Accordingly, if the beneficiary’s fraudulent act was revealed in the documentary credit transaction, the issuing bank may refuse to pay the documentary credit amount to the presenting bank (see, e.g., Supreme Court Decisions 200Da60296, Oct. 11, 202; 2001Da68266, Jan. 24, 2003).

B. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) Although StelM Co. Ltd (hereinafter “SteM”) directly negotiated with the Japanese scrap metal and set forth matters concerning the import transaction of the instant scrap metal, it decided to import the instant scrap metal by taking the form of purchasing the instant scrap metal from the Japanese scrap metal, and then importing ethylM again from the scrap metal.

(2) As a importer, Switzerland was issued a white L/C, and used this as an importer, caused the Japanese scrap metal to load and transport the instant scrap metal to Korea.

(3) On arrival of the instant scrap metal in Korea, Switzerland did not receive and use the authentic bill of lading required in each of the instant L/C through normal import payment settlement process, but rather carried out and sold the instant scrap metal in advance using the so-called bill of lading separately prepared.

(4) As such, since the instant scrap metal was removed and sold, the Defendants, the issuing bank of each of the instant L/C, could not acquire a security interest in the instant scrap metal even if it received documents consistent with the required documents in repayment of the amount of the L/C.

(5) The beneficiary of each of the instant L/C knew or could have been sufficiently anticipated that the ethylM would abuse each of the instant L/C as an unlawful fraudulent transaction method in light of the details of the transfer transaction with the ethylM, and the developments and purposes of the transaction involved in the instant scrap metal import transaction.

C. We examine these facts in light of the legal principles as seen earlier. Baba, the beneficiary, in collusion with the ethylM, the applicant for each of the instant L/C, and claimed the L/C payment against the Defendants, the issuing bank of each of the instant L/C, by abusing the independence and abstractness of the L/C transaction, even though all of the instant scrap metal were already taken out. This is not permissible as a fraudulent transaction which was involved in the L/C transaction, in light of the structure and nature of the L/C transaction. Accordingly, the Defendants may refuse to pay the L/C payment to the Plaintiff, who did not lawfully negotiate each of the instant L/C, on the ground of the beneficiary’

In the same purport, the lower court determined that the Defendants, as the issuing bank of each of the instant L/C, did not bear the duty of reimbursement of the L/C price on the L/C’s L/C’s L/C’s L/C’s L/C’s L/C’s L/C’s L/C’s L/C’s L/C’s holder or beneficiary’s transferee, may oppose the Plaintiff seeking reimbursement of the price of each of the instant L/C’s L/C’s L/C’s L/C’s L/C’s payment. In so doing, the lower court did not err by misapprehending the legal doctrine regarding the fraudulent claim and the scope of its application, an exception to

3. Conclusion

The Plaintiff’s appeal is dismissed as it is without merit. The costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Chang-suk (Presiding Justice)