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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2007 LC CASE SUMMARIES 1009/2007, 2007 NSWSC 4, LEXIS BC200700113 (3 January 2007) [Australia]
Topics: Fraud; Injunction; Injunction Relief; Ex Parte
Type of Lawsuit: Ex parte application by Applicant to enjoin payment under an LC.
Parties: Plaintiff/Applicant/Buyer- Quiktrak Networks Pty. Ltd., Australia (Counsel: E. Cox of Somerville & Co.)
Defendant/Beneficiary/Seller- Housely Technology Ltd., Hong Kong (No Counsel Present)
Issuing Bank- National Australia Bank Ltd.
Underlying Transaction: Sale of telecommunications equipment.
LC: Standby LC for US$500,000. The opinion is silent as to the governing rules and law. Although the opinion describes the LC as a "standby", it also indicates that payment was to be made in the regular course by drawing on the LC, suggesting that it operated as a commercial LC.
Decision: The Supreme Court of New South Wales (Equity Division), Adams, J., granted Applicant's application for an injunction.
Rationale: Injunctive relief against drawing on an LC is appropriate where there is convincing evidence that the invoice produced to tender payment under the LC was fraudulent.
Article
Factual Summary: To assure payment for telecommunications equipment from China, Australian Applicant obtained a standby LC from an Australian bank in favor of Beneficiary located in Hong Kong. The arrangement was "that goods to be supplied were tested to ensure compliance with specification, an invoice was issued when delivery was accepted, and payment under the letter of credit made upon delivery of the invoice to the paying bank". The court stated that the LC required that drawings must represent "Funds due and payable in connection with a certain invoice issued by [Beneficiary/Seller], which is past due and remains unpaid as of the date of this drawing" but it is unclear from the opinion whether this statement must be contained in the invoice or other drawing documents.
Applicant became aware of the drawing accompanied by an invoice for US$223,131.76 although Applicant had not been notified of any shipment and had not requested delivery of any goods according to the terms of the agreement. Moreover, there was testimony from an official of a subsidiary of Applicant that "no moneys are currently outstanding" to Beneficiary.
Applicant sought an ex parte order enjoining payment to the Beneficiary under the LC which was granted by the trail court.
Legal Analysis:
1. Injunction: Relying on Inflatable Toy Co v. State Bank of New South Wales, [(1994) 34 NSWLR 243], the court noted that an injunction to prevent payment under an LC by a bank is "exceptional" and turns on "whether in all circumstances the uttering of the documents involves actual fraud." Concluding that in the limited ex parte context the evidence given was true, the judge stated that "I am satisfied that in all probability the uttering of the invoice involves actual fraud. Accordingly, it seems to me appropriate that the injunction sought should be granted."
2. Injunction, Relief: The court noted that "it will often be more appropriate to injunct the disbursement of the funds by the receiving party rather than prevent the bank from honouring the letter of credit." However, taking into account that payment was to be transferred to New York and that the Beneficiary is situated in Hong Kong, the court concluded that "of any orders in those circumstances must be regarded as fraught" and enjoined the Issuing Bank from making payment on the LC pending an application from Beneficiary to life the injunction.
[JEB/bain]
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