Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 2)

The case of Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 2) involved a dispute between Shinetec, a builder, The Gosford, a developer, and the Bank of China, which had issued a standby letter of credit. The builder had agreed to fund the first $37 million of a residential unit development in Gosford. To secure this obligation, the builder procured its Chinese parent company to cause the bank to issue a standby letter of credit. The builder contended it had provided the finance by entering into a loan agreement. The developers, by receivers appointed to them, made a demand under the letter of credit. The builder argued that the demand was invalid and of no effect, as it had provided the finance by entering into the loan agreement.
The court was required to decide whether the builder had performed its obligation to finance the development, and if the demand made by the receivers was valid. The court also needed to determine the proper law of the letter of credit, how the ISP98 rules should be construed, and whether the Official Commentary was available in aid of construction of ISP98. The court needed to consider whether the rules in ISP98 concerning transfer by operation of law engaged, and if the bank was entitled to suspend payment pending provision of documents by the beneficiary.
The court held that the builder had not performed its obligation to finance the development as it had not provided the $37 million finance by entering into the loan agreement. The demand made by the receivers was valid, and the builder was required to make payment under the standby letter of credit. The proper law of the letter of credit was Chinese law, and the ISP98 rules should be construed in accordance with the Official Commentary. The rules in ISP98 concerning transfer by operation of law did not engage, and the bank was not entitled to suspend payment pending provision of documents by the beneficiary. The court declined to make an order with extraterritorial effect and to recognise the Chinese court's ruling, as it was not satisfied that the Chinese court had jurisdiction to make the ruling.