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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1998 LC CASE SUMMARIES 1998 WL 199937 (S.D.N.Y. 1998)
Topics:
Sovereign Immunity; Jurisdiction; Foreign Sovereign Immunities Act.
Type of Lawsuit:
Action by seller against buyer for breach of contract.
Parties:
Plaintiff/Seller/Beneficiary- Chemarketing Industries (Counsel: Lawrence W. Newman of Baker & McKenzie).
Defendant/Buyer/Applicant- C.V.G. Industria Venezolana de Alumino, C.A. (Counsel: Robert L. Weigel, Marshall R. King of Gibson, Dunn& Crutcher LLP).
Underlying Transaction:
Purchase of liquid caustic soda.
LC:
Commercial LC payable in Panama. Silent as to governing rules.
Decision:
The U.S. District Court for the Southern District of New York, Duffy, J., granted buyer's motion to dismiss for lack of subject matter jurisdiction.
Rationale:
Although wholly owned subsidiaries of a sovereign government pursued a commercial activity, they were not subject to the jurisdiction of a U.S. court where they did not cause the requisite direct or indirect effect in the U.S. required under the Foreign Sovereignty Immunities Act by virtue of the confirmation of an LC by a U.S. bank in the U.S. where the credit, though issued by a bank subject to U.S. law, was neither issued nor payable in the U.S.
Article
Factual Summary: The contract for the sale of liquid caustic soda, between the buyer, a wholly-owned subsidiary of the Venezuelan government, and seller, a British West Indies corporation, required payment by an LC opened at an acceptable "first class U.S. bank". To pay for the first installment, the buyer opened an LC with a U.S. bank located in the Cayman Islands, payable in Panama, and confirmed by the New York office of a US bank. After it was paid, the buyer claimed that the merchandise was defective and refused to open a credit to pay for the second installment. The seller, alleging breach of contract, sued in the U.S. The buyer moved to dismiss, claiming lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act and the trial court granted the motion.
Legal Analysis:
1. Confirmation Does Not Give Rise to Jurisdiction:The court noted that while there was commercial activity on the part of the subsidiary, meeting one requirement for subject matter jurisdiction, the case lacked a requisite direct or indirect effect in the U.S. It concluded that "[t]he [applicant/buyer's] failure to open a letter of credit cannot constitute an "act" that occurred in the United States." Moreover, it ruled that the contract did "not require that payment be made in the United States, nor [did] it even require that the letter of credit be issued by a bank located in the United States." As to the confirmation by a U.S. bank, it stated that "[t]he mere assumption of such secondary liability on a letter of credit opened and made payable elsewhere cannot result in a direct effect in the United States."
©1999 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.