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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2005 LC CASE SUMMARIES [2005] EWHC 2827 (Q.B. Comm.) [England]
Topics: Fraud; Responsibilities of a Confirmer; Commercial Fraud; Pre-Action Disclosure; Discovery; Solo Industries Fraud
Type of Lawsuit: Under UK procedural law, Issuer applied for pre-action disclosure of information regarding knowledge of Buyer's business practices from Confirmer regarding the massive Solo Industries commercial fraud.
Parties: Plaintiff/Issuer - First Gulf Bank (Counsel: Clare Ambrose)
Defendant/Beneficiary/Confirmer - Wachovia Bank National Association, known as First Union National Bank when it was Confirmer (Counsel: Richard Slade)
Applicant - Zeeba Metal Company Limited
Buyer/Original Beneficiary - Simetal Limited
Underlying Transaction: Sale of goods.
LC: Twelve Deferred Payment LCs totaling over US$6,750,000. Silent as to governing rules.
Decision: The Queen's Bench Division, Clarke, J., declined to order pre-action disclosure by Confirmer.
Rationale: Where the disclosure requested is not necessary to the ability of a plaintiff to state a case, as when the transactions for which Issuer is suing Confirmer were the subject of a previous suit of which Issuer had notice and in which it was invited to participate, and where it appears that a full trial will be necessary, pre-action disclosure is not necessary.
Article
Factual Summary: Buyer was controlled by its principal, Solo Industries Ltd., which had engaged in a massive fraud that involved kiting of commodities involving a number of banks in the Middle East that had issued LCs. Claiming that Confirmer had either facilitated the fraud or had been reckless, many of these banks brought an action against Confirmer in the UK. In a pre-trial hearing, a judge had asked counsel for the banks to inform other potential claimants of the action and to invite them to participate. The court stated that "in the course of the trial, some of [Confirmer's] staff accepted in cross examination that [Confirmer's] conduct was reckless and that [Confirmer] had recklessly ignored obvious indications of fraudulent activity on the part of [Solo Industries-controlled] companies." The trial was settled before completion.
Issuer, who had received notice of the trial but had not joined in the action, subsequently retained counsel with the intent to litigate against Confirmer regarding twelve LCs it had issued that Confirmer had discounted. In order to obtain evidence proving fraud, Issuer sought pre-action disclosure of various documents of which it had indirect knowledge as a result of the previous litigation. The trial court denied this application.
Legal Analysis:
1. Commercial Fraud: The trial court noted that, while the evidence that would be available is likely to establish fraud on the part of Confirmer, Issuer had not made a case to require pre-action disclosure since it was able to state a case without such disclosure, based on the information obtained from the prior trial. The court noted that such an order was unusual, that proceedings could be started without pre-action disclosure, and that such a disclosure would give Issuer an unfair advantage over Confirmer, especially in light of the fact that Issuer could have participated in the prior action.
[JEB/dgd]
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