the Supreme People’s Court

Announcement of the Supreme People’s Court of the People’s Republic of China

Interpretation of the Supreme People’s Court [2005] No. 13

The Provisions of the Supreme People’s Court on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit, which
were adopted at the 1368th meeting of the judicial committee of the Supreme People’s Court on October 24, 2005, are hereby promulgated
and shall go into effect as of January 1, 2006.

the Supreme People’s Court

November 14, 2005

Provisions of the Supreme People’s Court on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit

According to the General Principles of the Civil Law of the People’s Republic of China, Contract Law of the People’s Republic of China,
Guaranty Law of the People’s Republic of China and Civil Procedural Law of the People’s Republic of China, and in light of the Uniform
Customs and Practice for Documentary Credits of the International Chamber of Commerce and other relevant international practices,
and by taking into consideration the adjudication practices, these Provisions are formulated to address some issues concerning the
trial of cases of disputes over letter of credit.

Article 1

For the purposes of these Provisions, the term “case of dispute over the letter of credit” shall mean the case of dispute arising
in the links such as issuance, notification, revision, revocation, confirmation, negotiation and acceptance of letter of credit.

Article 2

When the people’s court hears a case of dispute over letter of credit, if any stipulation is made by the parties concerned that the
relevant international practices or other provisions should be applicable in the case of dispute over letter of credit, such stipulation
shall prevail; if no stipulation is made by the parties concerned, the Uniform Customs and Practice for Documentary Credits of the
International Chamber of Commerce and other relevant international practices shall be applicable to the case.

Article 3

These Provisions shall apply to the arrearage disputes between an applicant for the issuance of a letter of credit (hereinafter referred
to as the applicant) and the issuing bank which arise from the application for the issuance of a letter of credit, disputes between
an entrusting party and the entrusted party which arise from the entrustment for the issuance of a letter of credit, disputes over
the guarantor’s provision of a guaranty for the application for the issuance of a letter of credit, or for the issuance of a letter
of credit upon entrustment, as well as the disputes over the financing under a letter of credit.

Article 4

The relevant laws of the People’s Republic of China shall be applicable to the arrearage disputes arising from the application for
the issuance of a letter of credit, disputes arising from the entrustment for the issuance of a letter of credit, disputes arising
from the guaranty therefore as well as the disputes over the financing under a letter of credit, unless the parties to a foreign-related
contract stipulate otherwise for the application of law.

Article 5

After the issuing bank makes a commitment on the payment or acceptance of a letter of credit or performance of other obligations under
the letter of credit, the issuing bank shall perform the payment obligation within the time limit as specified in the letter of credit
as long as the documents conform to the clauses of the letter of credit and the documents conform to each other on the surface. If
a party concerned initiates a protest for the reason of the basic transaction between the applicant and the beneficiary, the people’s
court shall not support it, except under the circumstances as prescribed in Article 8 of these Provisions.

Article 6

When the people’s court needs to check the documents in hearing the case of dispute over the letter of credit, it shall comply with
the relevant applicable international practices or other provisions as stipulated by the parties concerned. If the parties concerned
fail to make any stipulation, it shall, in accordance with the Uniform Customs and Practice for Documentary Credits and other relevant
standards provided for by the International Chamber of Commerce, determine whether or not the documents conform to the clauses of
the letter of credit and whether or not the documents conform to each other on the surface.

If the documents under a letter of credit do not completely conform to the clauses of the letter of credit, and the documents do not
completely conform to each other on the surface, but there is no discrepancy between them, the people’s court shall not deem that
any discrepancy has constituted.

Article 7

An issuing bank shall have the right and obligation to check the documents independently. It shall have the right to decide, on its
own initiative, whether or not the documents conform to the clauses of the letter of credit and whether or not the documents conform
to each other on the surface, and whether to accept or reject the discrepancies between the documents and clauses of the letter of
credit or between the documents.

After the issuing bank finds that there is a discrepancy under the letter of credit, it may, on its own initiative, decide whether
or not to contact the applicant to accept the discrepancy. The applicant’s decision of whether or not to accept the discrepancy will
not have any influence on the issuing bank’s final decision of whether or not to accept the discrepancy unless the issuing bank and
the applicant have stipulated otherwise.

If the issuing bank clearly expresses to the beneficiary its acceptance of the discrepancy, it shall bear the payment obligation.

If the issuing bank refuses to accept the discrepancy and if the beneficiary requests the issuing bank to bear the payment obligation
the under the letter of credit on the grounds that the applicant has accepted the discrepancy, the people’s court shall not support
the request.

Article 8

The letter of credit fraud shall be determined as constituted under any of the following circumstances:

(1)

The beneficiary forges documents or provides documents containing false information;

(2)

The beneficiary maliciously refuses to deliver the goods, or delivers goods of no value;

(3)

The beneficiary provides false documents by colluding with the applicant or a third party and there isn’t any true basic transaction;
or

(4)

Other circumstances under which letter of credit fraud is conducted.

Article 9

If the applicant, issuing bank or any other interested party finds any of the circumstances as prescribed in Article 8 of these Provisions,
and believes that irremediable losses will be caused to it, it may file an application with the competent people’s court for suspending
the payment under the letter of credit.

Article 10

If the people’s court maintains the occurrence of the letter of credit fraud, it shall make a ruling on suspending the payment or
a judgment on terminating the payment under the letter of credit, except for any of the following circumstances:

(1)

The nominee or entrusting party of the issuing bank, in bona fide, has made the payment according to the instructions of the issuing
bank;

(2)

The issuing bank or the nominee or entrusting party thereof, in bona fide, has honored the instrument under the letter of credit;

(3)

The confirming bank, in bona fide, has performed the payment obligation; or

(4)

The negotiating bank, in bona fide, has negotiated the payment.

Article 11

Where a party concerned files an application for suspending the payment under the letter of credit before it initiates legal proceedings,
and if the following conditions are met, the people’s court shall accept the application:

(1)

The people’s court that accepts the application has the jurisdiction over the case of dispute over the letter of credit;

(2)

The evidential materials presented by the applicant prove the existence of any of the circumstances as prescribed in Article 8 of
these Provisions;

(3)

If no measure is taken to suspend the payment under the letter of credit, the legitimate rights and interests of the applicant will
be damaged beyond remedy;

(4)

A reliable and full guaranty has been provided by the applicant; and

(5)

None of the circumstances as mentioned in Article 10 of these Provisions exists.

A party concerned shall satisfy the conditions as prescribed in Items (2) through (5) of the preceding paragraph if it, in the court
action, applies for suspending the payment under the letter of credit.

Article 12

The people’s court should make a ruling within 48 hours after accepting the application for suspending the payment under the letter
of credit. Such a ruling, if made by the people’s court, shall be executed at once.

The people’s court shall state the applicant, the party against whom the application is filed and the third party in the ruling on
suspending the payment under the letter of credit.

Article 13

Where a party concerned has any objections to the ruling made by the people’s court on suspending the payment under the letter of
credit, it may apply for reconsideration to the people’s court at the next higher level within 10 days from the day when the ruling
is served. The people’s court at the next higher level shall make a ruling within 10 days as of the date of receipt of the reconsideration
application.

The original ruling shall not be suspended from execution during the period of reconsideration.

Article 14

In the course of hearing a letter-of-credit fraud case, the peoples’ court may, where necessary, put on trial the dispute over letter
of credit together with the dispute over the basic transaction.

Where a party concerned initiates legal proceedings for basic transaction fraud, it may list the issuing bank, negotiating bank or
other interested parties, which are involved in the case for the legal relationship with the letter of credit, as third parties.
The third parties may apply for participating in the lawsuit. The people’s court may also notify them to participate in the lawsuit.

Article 15

In case the people’s court, through substantial trial, determines that a letter of credit fraud is constituted and that none of the
circumstances as prescribed in Article 10 of these Provisions exists, it shall make a judgment on terminating the payment under
the letter of credit.

Article 16

In case the guarantor makes the request of exempting it from the guarantee obligations on the grounds that the issuing bank or the
applicant accepts discrepancies without getting the consent of the guarantor, it shall not be supported by the people’s court, unless
it is otherwise stipulated in the guaranty contract.

Article 17

In case the applicant and the issuing bank revises the letter of credit without getting the consent of the guarantor, the guarantor
shall only assume the guarantee obligations on the basis of the time limit and scope as stipulated in the original guaranty contract
or provided for by the law, unless it is otherwise stipulated in the guaranty contract.

Article 18

These Provisions shall go into effect as of January 1, 2006.