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Note: In connection with the shipment of goods, a standby letter of credit in the amount of US$5,950,000 was issued to pay for a vessel charter. The opinion suggests that the LC was transferred by the advising and transferring bank (Transferring Bank), Banca Monte, in favor of MAP Marine Ltd. (Transferee/Beneficiary's). At the time of transfer, Transferee unsuccessfully sought an amendment of the LC "to reflect that it was for the shipping service rather than for the cargo". Alleging that this request signaled that a drawing on it would be fraudulent, Transferring Bank refused to honor the demand.

Transferee/Beneficiary sued Transferring Bank for wrongful dishonor. The Supreme Court, New York County, Lowe, J., granted Transferee's/Beneficiary's motion for summary judgment. On Appeal, the Supreme Court of New York, Appellate Division, Friedman, Catterson, Acosta, DeGrasse, Abdus- Salaam, JJ., affirmed in a per curiam opinion, (2010 N.Y. App. Div. LEXIS 8897 (N.Y. App. Div. 1st Dep't, Nov. 30, 2010).

It appeared that Transferring Bank referred to and relied on a website which indicated that the chartered vessel was located elsewhere on the date indicated in the document. The appellate opinion stated that "[t]he authoritativeness of the Web site on which [Transferring Bank] relied regarding the location of [Transferee's/Beneficiary's] vessel was questionable and not an appropriate subject of judicial notice."

The appellate court also stated that Transferring Bank's allegations about requests for amendment did not rise to a question of fact. Specifically, it noted that the requested amendments were consistent with the expectations accompanying a charter agreement. It also noted that the differences in the volume and extent of documentation required in a charter party LC (as opposed to a commercial LC to pay for the goods) did not signal an improper attempt by the Transferee/Beneficiary since the two transactions were independent.

Transferring Bank also asserted that a statement in the required invoice, namely that the vessel had been "delivered", meant that it must have been loaded or have completed its journey.

The appellate court also ruled that the term "delivery" with respect to a chartered vessel in the LC referred to "availability of the vessel" and not its loading or the completion of its journey.

Comments:

1. The opinion refers to Banca Monte as the "advising and transferring bank" but the bank must have also added its confirmation since it would not be liable for wrongful dishonor if it had merely advised or effected a transfer. It would not have been entitled to act as a transferring bank without a special term in the LC unless it had been nominated to act and not merely named as advising bank. There is no indication of how or why a transferring bank other than an issuer or confirmer should be held liable for wrongful dishonor.

2. One of the arguments raised by Transferring Bank was that a website revealed that on the date that the document indicated the vessel was in one place, the vessel was actually somewhere else. If true, this information would reinforce the allegation of LC fraud, namely, that the charter document was fraudulent. However, the Judge refused to give credence to the website. In the battle against commercial fraud, the use of electronic registries gives banks and appellants a valuable weapon, as do services such as the ICC Commercial Crime Bureau's registry. Such sites do not by themselves constitute admissible evidence and banks considering refusal based on LC fraud including fraudulent documents should recognize that they bear the burden of proof on this issue.

[JEB/jcg]

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