Article

Factual Summary: Applicant contracted to buy scrap metal from Beneficiary and arranged for Issuer to issue the LC. The cargo originated in Central America but Applicant's business partner never received the cargo.

Beneficiary presented documents which Issuer honored. It included, in part, an ocean bill of lading and an inspection certificate. The bill of lading did not list a consignee and contained two different shipping dates. A stamped date read "Clean On Board 11 ENE 2001" (ENE is the Spanish abbreviation for January) while a typed date read "January 11, 2000". The shipping date was in 2001, as indicated by the stamped date.

The inspection certificate listed two different points of origin. Under the heading "Location" on the certificate's first page, the document read "Almacen General de Occidente S.A. Zona Franca, Carretera Leon, Nicaragua". On the next page, the "Port of Loading" was described as "Corinto Port, Nicaragua".

The LC did not list the consignee that should appear on the bill of lading. In addition, the reimbursement agreement required the documentary presentation "substantially complied with the terms and conditions of the Credit."

After an unknown party made a documentary presentation to Issuer, Issuer honored without seeking Applicant's waiver. Applicant brought suit for wrongful honor and alleged that Issuer failed to review documents with reasonable care to ensure the documents substantially complied with the terms of the LC. The trial court granted Issuer's motion to dismiss and denied Applicant's motion for a rehearing. Applicant appealed both decisions. Held: Appeal denied.

Legal Analysis:

1. Standard of Review; Substantial Compliance: Applicant argued that Issuer wrongfully honored the documentary presentation after Issuer "failed to examine the documents presented with reasonable care so as to ensure that they were in substantial compliance with the terms and conditions of the letter of credit."

Issuer, in a pre-answer motion, moved to dismiss Applicant's claim of wrongful honor. The motion court found "the supporting documents presented to [Issuer] substantially complied with the terms of the letter of credit, in accordance with the [UCP]".

Andrias, J., writing for the majority, stated the relevant issue on appeal was the "motion to dismiss the complaint". Or, in the alternative, for summary judgment dismissing Applicant's action for wrongful honor.

Tom, J.P., the lone dissenter, disagreed on procedural grounds. He urged that to "warrant dismissal, the documentary evidence must clearly negate an essential element of the cause of action."

2. LC Interpretation; Expert Witness; Material Discrepancies; Bill of Lading, Consignee; Bill of Lading, Ship Date; Waiver; Consistency; Strict Compliance: Applicant did "not question the motion court's action in deciding [Issuer's] motion on the evidence before it, but contends that the [motion] court erred by substituting its own interpretation of what constitutes international standard banking practice for that of [Applicant's] expert with 30 years' experience in the field. [Applicant] claims that while international standard banking practice cannot contradict the UCP, the UCP does not exclude those items of custom and practice in international banking that are consistent with the UCP but not specifically spelled out therein."

To support their position, Applicant relied on the opinion of a document expert whose affidavit said, in effect, that "he had never seen a bill of lading without a named consignee and that the document at issue 'does not constitute a Bill of Lading as that term is used in the International Standard Banking Practice'".

The trial court paraphrased the expert's opinion as follows: "such discrepancies were material and should have alerted defendant not to make payment on the [LC] without first seeking a waiver of discrepancies from [Applicant]."

The appellate court deferred to the motion court's interpretation of the UCP, noting that the Applicant's "expert cited no authority, including the UCP, or any treatise, standard, article or other corroborating evidence to support his conclusory assertions".

The appellate court further noted that "the motion court properly relied upon the unambiguous terms of the letter of credit, as amended, which specifically provided that it was subject to the UCP and, as to matters not addressed by the UCP, it was to be governed by and construed in accordance with New York law and applicable federal law."

The appellate court also stated "[w]hile the existence and scope of such a usage ordinarily present factual issues, where such a usage is embodied in a trade code such as the UCP or other writing, 'the interpretation of the writing is for the court' (UCC 1- 205[2]). Thus, any interpretation of the UCP was properly made by the motion court, which properly refused to allow the expert to usurp its function as the sole determiner of law".

Construing the LC in the same manner as it would a contract, the appellate court stated that "'[w]here the intention of the parties is clearly and unambiguously set forth in the agreement itself effect must be given to the intent as indicated by the language used without regard to extrinsic evidence [citation omitted]' such as the opinion of [Applicant's] expert."

To address Applicant's argument that a bill of lading without a consignee is not a bill of lading under international banking standards, the appellate court first noted that the LC did not require the bill of lading to include a consignee but "merely required '1 copy of the bill of lading evidencing freight prepaid and shipment from Corinto Port, Nicaragua to Rotterdam, Netherlands.'"

The motion court quoted to the effect that "[w]hether a consignee is named or not goes only to the issue of whether the bill of lading is negotiable or not, and the failure of a bill of lading to name a consignee does not, as [Applicant's] expert suggests, make the bill of lading so defective that it is no longer even a bill of lading."

The appellate court also cited International Chamber of Commerce Banking Commission opinions to reject the proposition "that all of the documents should be exactly consistent in their wording." Instead, "'consistency'...means that the 'whole of the documents must obviously relate to the same transaction, that is to say, that each should bear a relation (link) with the others on its face.' (International Chamber of Commerce Banking Commission Publication No. 371, Decisions [1975- 1979] of the ICC Banking Commission R. 12 [1980])."

In dismissing the argument that there was a conflict between the "Port of Loading" which was listed as "Corinto Port, Nicaragua" and the "Location" stated as "Almacen General de Occidente S.A. Zona Franca, Carretera Leon, Nicaragua", the court stated this potential discrepancy provided "no basis for any conjecture that it designates a different port of loading." Similarly, the difference between the typed and stamped dates "is an understandably common mistake at the beginning of a new year" and that the "stamp clearly meets the UCP requirement" stated in UCP500 Article 23(a)(ii). Having addressed all three alleged documentary errors, the court affirmed the dismissal of Applicant's action for wrongful honor and concluded "[a]s the motion court correctly found, the documents presented by the beneficiary substantially complied with the terms and conditions of the letter of credit."

Tom, J.P., in dissent, wrote that "[i]n the instant matter, the documentary evidence fails to clearly negate any essential element of [Applicant's wrongful honor claim]." The dissent further opined "[t]he motion court's decision indicates only that, upon a probing analysis on the merits, the court was persuaded that the evidence adduced thus far is insufficient to support judgment in favor of [Applicant]" despite the fact that "a complaint should not be dismissed on a pleading motion so long as, when the plaintiff is given the benefit of every possible favorable inference, a cause of action exists (Rovello v. Orofino Realty Co., 40 NY2d at 634)." The dissent thought the motion court mistakenly "drew all factual inferences in favor of [Issuer] - in particular, resolving questions concerning the [Issuer's] duties under international standard banking practice as a matter of law ... ."

3. Reasonable Care; On Their Face; Burden of Proof: After citing UCP500 requirements that Issuers examine documents "on their face" with "reasonable care" to ensure the documents comply with the LC, the appellate court quoted the motion court with approval:

"[t]hat determination must be made in accordance with 'international standard banking practice as reflected in these Articles' (emphasis added [by motion court]). [Applicant's] omission of that last phrase ... and [Applicant's] insistence that the [Issuer] 'fail[ed] to meet its initial burden' on its motion ... because [Issuer] did not submit evidence concerning 'International Standard Banking Practice', demonstrate that [Applicant's] argument is completely without merit."

The dissent, after noting that Applicant was not required to submit evidence in a pre-answer motion, highlighted the fact that the affidavit of Applicant's expert was "uncontroverted by any opposing expert opinion offered by [Issuer]. Thus, even if the complaint can be regarded as facially insufficient, which it is not, the expert's affidavit supports a 'potentially meritorious' claim sufficient to defeat [Issuer's] dismissal motion."

Note: The International Financial Services Association (IFSA) and the Institute of International Banking Law & Practice (IIBLP) filed a Brief of Amici Curiae in the appeal of this decision to the highest New York Court, the Court of Appeals but the parties settled the matters and dismissed the appeal before it was heard.

[JEB/ejh]

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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.