The independent guarantee fraud dispute between China CAMC Engineering Co., Ltd. (CAMCE) and Sinohydro Engineering Bureau 4 Co., Ltd. (Sinohydro Bureau 4) which was advised by King & Wood Mallesons was included in the third batch of typical cases related to the Belt and Road Initiative released by the Supreme People's Court (SPC). According to the remarks of the SPC, these typical cases will provide reference for the trial of similar disputes in the future, specifically: correctly adjudicating independent guarantee fraud disputes, identifying the nature of the advance payment for the project and the scope of the advance payment guarantee, and accurately determining whether the beneficiary's demand for full payment under the advance payment guarantee constitutes a fraud, thus maintaining the financial credit of banks and non-bank financial institutions.
On 2 October 2013, CAMCE entered into an EPC contract with a Bolivian owner for Section I of Montero-Bulo Bulo Railway. On 4 April 2014, CAMCE and Sinohydro Bureau 4 signed a subcontract. Upon the request of Sinohydro Bureau 4, China Construction Bank (CCB) Railway Sub-branch issued an Advance Payment Guarantee to CAMCE. On 3 November 2015, however, the Bolivian owner terminated the EPC Contract. In that same month, CAMCE issued a Written Claim Notice to the CCB Railway Sub-branch who subsequently sent a Collection Notice to Sinohydro Bureau 4. Then, Sinohydro Bureau 4 filed a lawsuit, claiming that the CAMCE's demand for payment under the Advance Payment Guarantee and the Performance Guarantee constituted a fraud and the payment under the Guarantees should be terminated.
The SPC held that the advance payment for the project in question was the financing provided by CAMCE for Sinohydro Bureau 4 to commence the works of the project. If the advance payment was not fully deducted, the exercise of the right of claim by CAMCE would not be affected regardless of whether the advance payment had been fully used for the project. As the Advance Payment Guarantee contained no provision on reduction of the guarantee amount, such amount should not be automatically adjusted due to the performance of the contract by Sinohydro Bureau 4. CAMCE, as the beneficiary, should not be required to prove that the claimed amount was the amount payable under the underlying relationship, and its demand for full payment under the Advance Payment Guarantee did not constitute any fraudulent claim.
The lead partner Wang Yue, working closely with partners Tian Wenjing, Huang Tao and Dai Yue, advised on the case, providing comprehensive and efficient legal services to the client.
