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Industrial and Commercial Bank of China (ICBC) and Taiwan’s CTBC Bank have filed competing legal claims over a US$8.8mn financing for a shipment of Venezuelan petroleum coke that is mired in allegations of fraud.

CTBC has asked a court in Hong Kong to order ICBC to pay the sum under a negotiated letter of credit the bank says was issued in 2023, a Hong Kong High Court judgment published on October 21 shows.

The irrevocable nature of letters of credit means there are only exceptional circumstances in which banks do not have to make payment after supporting documentation has been accepted. The main exception is in cases of fraud.

CTBC claims that ICBC is required to honour the letter of credit because there was a complying presentation of documents, which ICBC accepted.

But ICBC alleges that CTBC’s client carried out a fraud, and that payment would violate a temporary Chinese court injunction restraining the bank from honouring the letter of credit.

The bank also argues, according to the judgment, that CTBC did not technically negotiate the letter of credit because the original bills of lading are still held by ICBC.

ICBC has also sued CTBC and its client in mainland China for conspiracy to defraud it, the judgment shows.

The Chinese lender asked the Hong Kong court to stay CTBC’s claim, arguing that it should instead be heard on the mainland, a request rejected by Judge Anthony Chan.

Although the judgment deals solely with the question of whether the Hong Kong suit should be stayed, it also reveals details of the Chinese legal proceedings that have ensnared both banks.

ICBC’s client, Guizhou New Era Union Import and Export Co Ltd, sought the letter of credit in May 2023 to buy a shipment of petroleum coke from VLSA Enterprise, a Seychelles company which used CTBC as its negotiating bank.

CTBC paid VLSA US$8.77mn after ICBC accepted the presentation of documents.

Shortly before ICBC was due to pay its Taiwanese counterpart under the letter of credit, New Era sought an injunction from a court in the Chinese city of Guiyang, restraining ICBC from honouring the letter of credit.

According to the Hong Kong judgment, New Era alleged it had not yet received the goods from VLSA as expected, and had received conflicting information about the vessel, including that “the ship’s speed was too fast and its water line was too shallow for the amount of coke being shipped”.

This suggested “that the coke had not in fact been loaded and the representations made in the [bill of lading] were untruthful”,  the judge said.

VLSA has denied the accusations, according to the Hong Kong judgment, claiming that the coke was loaded in May 2023 but the vessel only departed in October.

It said the goods were delivered to China in December 2023, but were left at the port because no-one accepted delivery.

It also said its role in the deal was as a trade service provider, acting on behalf of the true seller.

The mainland cases are ongoing and New Era and VLSA could not be reached for comment.

In December last year, ICBC launched its own case against CTBC and VLSA in China, the judgment says.

“ICBC relies on the [letter of credit] fraud alleged by New Era and further argues that CTBC and VLSA had maliciously conspired to defraud it and New Era,” the judgment says of ICBC’s claim in China.

Chan wrote that while details of ICBC’s Chinese claim are not known, “on the evidence before the court, it is difficult to escape the conclusion that the fraud claim is sketchy”, because ICBC had not attempted to verify VLSA’s claim that the goods had been shipped.

ICBC’s Hong Kong barrister did not respond to a request for comment. CTBC declined to comment on the case.