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Abstract
By studying finality rules in English law and UNCITRAL Model Law on International Credit Transfers, and considering China's banking practice, this paper distinguishes four aspects of finality rules, which are time of completion of payment, discharge of underlying obligation owed by the originator to the beneficiary, access to funds, and revocation. To deal with these four aspects, private agreements, Model Law, civil law theory and electronic funds transfers (EFT) statutes should be applied flexibly and comprehensively, and successful banking law approaches from developed countries need to be borrowed by Chinese lawmakers with a broad heart.
Notes
1 ‘Stones from other hills may serve to polish the jade (
)’, originally from 
is a well-known Chinese saying, which means advice or suggestions from others may help one overcome one's shortcomings or resolve one's difficulties. Here, the stones refer to finality rules in UNCITRAL Model Law and finality rules in English law.
2 Thereafter, ‘payment instruction’ has the same meaning as ‘payment order’.
3 C Reed, I Walden and L Edgar Cross-Border Electronic Banking: Challenges and Opportunities 2nd edn, pp 2–3, Lloyd of London Press, London, 2000.
4 This explanation was kindly suggested by the author's supervisor, Prof. Chris Reed, and the whole paper has been carefully commented on by Prof. Chris Reed. The author is expressing his deep appreciation here.
5 B Geva Bank Collections and Payment Transactions: A Comparative Legal Analysis, p 186, Oxford University Press, Oxford, 2001.
6 Renminbi (literally ‘people's currency’) or the Yuan is the official currency in the mainland of the People's Republic of China (PRC). See more information at http://www.chinadaily.com.cn/bizchina/2006-09/29/content_699307.htm (accessed 11 June 2007).
7 This definition and classification originally appeared in B Geva The Law of Electronic Funds Transfers, §4.02, Mattew Bender, New York, 1992–2000, and subsequently followed in M Hapgood Paget's Law of Banking 11th edn, pp 272–276, Butterworths, London, 1996.
8 Op cit, note 3 at p 188.
9 Ibid.
10 Herstatt risk arises in foreign exchange transactions, i.e. where two currencies are traded. The transaction involves the exchange of two credit transfers, one in each currency, between two banks. Each transfer is made on the same day as determined by the underlying foreign exchange contract made between the banks. In theory, each delivery obligation is concurrent, but in practice there may be a time delay between the two transfers as each one is carried out separately. This time delay means that a bank that has completed its transfer of funds runs the risk that its counterparty may fail to complete its side of the bargain. The risk is known as ‘Herstatt risk’ following the collapse of the German bank Bankhaus ID Herstatt KGaA in June 1974.
-
The explanation of Herstatt risk is given by M Brindle and R Cox (eds) Law of Bank Payments 3rd edn, p 64, Sweet & Maxwell, London, 2004.
11 Ibid, at p 58. See also generally, L G Radicati Di Brozolo ‘International payments and the conflicts of laws’, 48 American Journal of Comparative Law 307, 2000.
12 R B Jack (Chairman) Banking Services: Law and Practice Report by the Review Committee, at 107, around note 6 and more in general, throughout ch 12, Her Majesty's Stationery Office, London, 1989.
13 R Cranston ‘Law of international transfers in England’ in W Hadding and U Schneider (eds) Legal Issues in International Credit Transfers, Duncker & Hamblot, Berlin, 1993, p 228.
14 Op cit, note 5 at p 270.
15 Op cit, note 5 at p 272.
16 Op cit, note 5 at p 271.
17 P R Wood Comparative Financial Law, pp 28–1, Sweet & Maxwell, London, 1995.
18 Art 19(1), UNCITRAL Model Law on International Credit Transfers.
19 L Ying Legal Issues Research on Electronic Funds Transfers, p 336, Law Press China, Beijing, 2001.
20 This argument is suggested by ‘International Credit Transfers: major issues to be considered by the working group’, UNCITRAL Doc. (A/CN. 9 /WG. IV/Wp. 42), para 35 (not available on the UNCITRAL official website).
21 Op cit, note 19 at p 356.
22 UNCITRAL working group on international payments ‘Draft model rules on electronic funds transfers’, (A/CN. 9/WG. IV/WP. 39), p 88. Available at http://www.uncitral.org/pdf/english/yearbooks/yb-1989-e/vol20-p88-102-e.pdf (accessed 27 March 2007).
23 UNCITRAL working group on international payments, compilation of comments by governments and international organizations (A/CN. 9/347 and Add. 1), p 107. Available at http://www.uncitral.org/pdf/english/yearbooks/yb-1991-e/vol22-p102-144-e.pdf (accessed 27 March 2007).
24 Ibid, p 125.
25 Because the author does not read German, therefore, the legal ideas from German jurists were learnt from either its Chinese version or English version. W Zejian General Principles of Civil Law (
), p 262, China University of Political Science and Law Press, Beijing, 2001.
26 Ibid at p 270.
27 Ibid at p 262.
28 China's payment systems consist of China National Advanced Payment Systems (CNAPS) (the most important system), regional (cities and counties) payment systems (LCHS), and commercial banks' intra-bank payment systems. CNAPS is the main body responsible for large value Renminbi electronic funds transfers. See more CNAPS information at http://www.pbc.gov.cn/zhifutixi/zhifuqingsuanxitong/zhifuxitong/ (accessed 2 June 2007).
29 In article 19 of the Model Law, the Commission only suggested the following text for States that might wish to adopt it:
-
If a credit transfer was for the purpose of discharging an obligation of the originator to the beneficiary that can be discharged by credit transfer to the account indicated by the originator, the obligation is discharged when the beneficiary's bank accepts the payment order and to the extent that it would be discharged by payment of the same amount in cash.
30 A third possibility that availability of funds is not equivalent to access to funds, in English law, is that a bank may be estopped from denying access to an account, having represented to the beneficiary that funds are available, even though in fact they are not. For estoppel to arise, however, the beneficiary must have relied somehow on the representation. In Chinese law, however, there is no such kind of estoppel principle.
31 Gibson v. Minet (1824) 130 E R 206.
32 Warlow v. Harrison (1859) 120 E R 920.
33 Astro Amo Compania Naviera S. A. v. Elf Union S. A. (The ‘Zographia M’) [1976] 2 Lloyd's L R 382.
34 Op cit, note 13 at p 233.
35 Op cit, note 17 at pp 28–2.
36 The discussion can be read in UNCITRAL documents, U. N. Doc. A/CN. 9/WG. IV/Wp. 39, Art 8. Available at http://www.uncitral.org/pdf/english/yearbooks/yb-1989-e/vol20-p88-102-e.pdf (accessed 1 June 2007).
37 Art 12(1), UNCITRAL Model Law on International Credit Transfers.
38 Art 12(2), UNCITRAL Model Law on International Credit Transfers.
39 In the UK, Cross-Border Credit Transfers Regulations 1999 and case law, e.g. Momm v. Barclays Bank International Ltd [1977] and Libyan Arab Foreign Bank v. Manufacturers Hanover Trust Co. [1989], constitute the backbone of the law of international credit transfers. In the USA, Uniform Commercial Code Article 4A, Federal Reserve Regulation J and case law, e.g. Delbrueck & Co v. Manufacturers Hanover Trust Co. [1979], constitute the legal framework of international credit transfers.
40 China's domestic revocation rules stipulated by ‘Measures on domestic large value payment system (trial)’ are:
-
Article 23, a payment transaction, initiated by originator's bank or chartered participant, can be cancelled by sending cancellation request to the large value payment system. National Process Centre (NPC) bears the responsibility to cancel the payment immediately as long as the fund has not been cleared yet; once it has been cleared, no cancellation applies any more.
and
Article 24, a payment withdrawal request has to be sent to the large value payment system. The receiving bank bears the responsibility to reverse the fund as long as the beneficiary's bank account has not been credited. If the beneficiary's bank account has been credited already, the originator's bank needs to inform both originator and beneficiary to negotiate and reach an agreement if the withdrawal request was initiated by the originator; on condition that the withdrawal request was initiated by the originator's bank, then such agreement shall be made between the originator's bank and receiving bank by negotiation.
41 UNCITRAL Legal Guide on Electronic Funds Transfers, p 82.
42 Op cit, note 13 at p 235.