On 2 January 2021 Sunny Toys Australia contracted to sell to Taipei Tinny World (“TTW”), a children’s toys store in the city of Taipei, Taiwan, 250 solar-powered walking crocodile toys.
The price was AUD 5,000 for delivery FOB any port in Australia. Since TTW was the first-time
customer, payment would be by letter of credit. On 9 January, Sunny Toys Australia received an
advice from Austral Bank that China Bank in Taiwan had issued a letter of credit in favour of
Solar Toys as beneficiary. The letter of credit was payable upon presentation of the beneficiary’s
bill of exchange drawn on China Bank together with the following documents:
- Commercial Invoice;
- Full set of clean on board negotiable marine bills of lading consigned to order blank
endorsed marked freight pre-paid;
- Certificate of origin signed by Australian Customs or its authorized agency;
- Certificate of quality issued by local authority;
- Packing list in duplicate.
Austral bank has been authorized to act as advising and negotiating bank. On 10 January, the
goods were loaded on board the ship and a clean bill of lading was issued. The shipping
documents together with a bill of exchange drawn on China Bank were presented to Austral
Bank on 14 January. The beneficiary presented documents within the expiry date of the L/C
but they contain discrepancies. The beneficiary collected the offending documents for
correction (leaving the rest with the bank) and then in due course presented correct
documents, however, in the interim the L/C had expired. On 20 January Austral Bank
indicated that it refused to pay because the documents presented did not conform to the
requirements of the letter of credit. Discuss the following questions and give your arguments:
2.1 (1.5 marks) Should Austral Bank now reject the documents for “credit expired”?
2.2 (1.5 marks) It appears that the problem with the documents is that the bill of lading
presented by Sunny Toys is marked “Freight to be Collected” instead of “Freight Prepaid”
as required under the terms of the letter of credit. Is this a discrepancy?
2.3 (1.5 marks) If L/C (which allows transshipment) calls for shipment from an Australian
seaport, the Bill of lading shows goods were loaded on a vessel from Nothport (NewZealand) to Sydney then their transshipment to another vessel from Sydney to the ultimate
destination as specified in the L/C. Is this acceptable?
2.4 (1.5 marks) L/C issued in favour of a beneficiary in Sydney, Australia calls for a certificate
of quality issued by the “local authority”, when presented it has been issued by the
authority in Brisbane, Australia Would this be acceptable?
2.5 (1.5 marks) When Austral Bank contacted China Bank to request a waiver of the
discrepancies, China Bank refused. The reason for the refusal soon becomes clear – senior
executives within TTW have absconded with nearly all of the firm’s liquid assets, and the
firm has been placed in liquidation. Discuss Sunny Toys’ rights, if any, in relation to
Austral Bank and China Bank.