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Note: Ramada Trading Ltd (Reseller), an importer of food to the U.K, was financed by DCD Factors Plc (Financiers). DCD Trade Services (Issuer) provided LCs to Reseller for purchasing food, which they would then resell to third parties, which in this case would have been HFK General Trading LLC (Buyer). Mr. Baiyat (Fraudster), an officer for DCD Factors Plc, set up a fictional client account in the name of Buyer. Buyer was the "notify party" or the buyer named in the documents associated with Reseller's LCs.

Reseller would normally use an LC to make payments that were paid from Financier's internal nominal account, and that amount would later be credited to the account by Buyer after a transaction of goods from Reseller. Fraudster used the fictional account he set up under the Buyer's name to create an invoice of USD 1,600,000, using an LC intended for Reseller to finance the transaction. Ultimately Buyer ended up paying USD 1,600,000 directly to Financiers account without receiving any of the goods that Reseller would provide. There was no real transaction.

Initially, Financier and Issuer sued Reseller for fraud, since Buyer did not receive any goods for their money. However, upon further investigation, Reseller pointed out that the fraud actually resulted from Fraudster who worked in Financier's company, and not from any action of Reseller. A freeze order was placed on the assets of Reseller until the trial date.

Both Reseller and Financier had delayed the trial date resulting in the freeze order expiring first, so Financier brought an action to extend the freeze. Despite evidence of Fraudster's activities the court refused to discharge the freezing injunction or the underlying charges on the grounds that both parties had delayed the trial date and that the Reseller's evidence did not convince him that the freezing order had denied them opportunity to pursue any commercial transactions.

The High Court of Justice Queen's Bench division, Andrews, J., extended the freezing injunction. The Judge reasoned that the Resellers did not present evidence that materially altered the previous court's decision about the injunction, even if the evidence would support them in the fraud trial.

[HK]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.