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Note: On the application of AWB (Geneva) (Applicant), ANZ Banking Group Ltd. issued an LC payable to Standard Chartered Bank (Beneficiary) to provide security for recourse for 35% of the amount by which Beneficiary had discounted 180-day promissory notes to the order of AWB (USA) Ltd., the US exporter (Exporter) issued by Indonesian importers (Importers) of US soy beans. To provide security for the other 65%, Exporter assigned a US government export insurance guarantee issued in its favor by the US Commodity Credit Corporation (Insurer). Exporter also guaranteed repayment and undertook to indemnify Beneficiary.

When Importers defaulted on the notes, Beneficiary drew on the letter of credit and was paid. It also claimed on the Insurer's guarantee. Although Insurer made initial payments, it reduced them when it discovered the existence of the letter of credit. Under its regulations, Insurer was only liable for a limited portion of the loss, an amount into which the letter of credit proceeds had to be calculated. As a result, Beneficiary suffered a loss of US$23,859,775.70 including interest.

Since Beneficiary was not fully reimbursed by the letter of credit proceeds and the export insurance, it sued Exporter on its guarantee and indemnity.

The United States District Court, Southern District of New York, Hellerstein, J., ruled that Exporter was liable to Beneficiary for the full US$23,859,775.70, because AWB (USA) "risked a material impairment of the protections that [Exporter] had assigned to [Beneficiary] and which were the basis of the bargain that advanced the full sales price to [Exporter]". The Judge subsequently denied post trial motions of both Beneficiary for attorney fees, and Exporter for a new trial.

[JEB/mcb]

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