Forgot your password?
Please enter your email & we will send your password to you:
My Account:
Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2012 LC CASE SUMMARIES 94 A.D.3d 638, 942 N.Y.S.2d 356 (N.Y. App. Div. 2012) [USA]
Topics: Transfer; UCP500 Art. 48(c)
Prior History: Networks USA, LLC v. HSBC Bank USA, N.A. , 94 A.D.3d 638, 942 N.Y.S.2d 356 (N.Y. App. Div. 2012) [USA], abstracted at 2011 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE 535.
Type of Lawsuit: Transferor Beneficiary/Intermediary sued Confirming Bank for breach of contract, promissory estoppel, and unjust enrichment for refusing to effect a transfer.
Parties: Plaintiff/Transferor Beneficiary/Intermediary - Networks USA, LLC (Counsel: John G. Balestriere of Balestriere Fariello)
Defendant/Confirming Bank - HSBC Bank USA, N.A. (Counsel: Paul K. Stecker of Phillips Lytle LLP)
Issuer - Burgan Bank S.A.K.
Applicant/Ultimate Buyer - City Centre
Transferee Beneficiary/Ultimate Supplier - RBM Corporation etc.
Underlying Transaction: Sale of white refined cane sugar.
LC: Commercial LC in the amount of USD 8,625,000. Subject to UCP500.
Decision: The Supreme Court, Appellate Division, First Department, New York, Tom, J.P., Friedman, J.P., Acosta, and Freedman, JJ., in a per curiam order affirmed the decision of the Supreme Court of New York, Kornreich, J., granting partial summary judgment in favor of Confirming Bank and dismissing the breach of contract claim.
Rationale: Confirmer of UCP500 commercial LC not obligated to beneficiary to effect transfer where no evidence of approval of proposed transferee even though there was approval of transferring bank.
Article
Factual Summary: To assure payment for the sale of cane sugar, Ultimate Buyer obtained a USD 8,625,000 transferable commercial LC from Issuer in favor of Intermediary. The LC was then advised by Confirming Bank. Intermediary planned to use some of the proceeds of the LC to pay a yet-to-be determined Ultimate Supplier of cane sugar.
When Intermediary reached an agreement with Ultimate Supplier to purchase sugar, Intermediary requested Confirming Bank to effect a partial transfer of the LC to the Ultimate Supplier. Allegedly, after assuring Intermediary that the transaction was acceptable, Confirming Bank refused to effect the transfer, purportedly stating that "it would not have agreed to the transaction if it had known sugar was involved."
As a result, the transaction with Ultimate Supplier was not consummated. When Intermediary found another Ultimate Supplier, Confirming Bank again refused to effect the transfer request, stating "that accepting a nontransferable Letter of Credit and paying it to a third party might be illegal." The failure to effect a transfer resulted in the cancellation of the sale agreement between Intermediary and the new Ultimate Supplier.
Over the next few months, Intermediary and Ultimate Buyer amended their agreement twice and Intermediary made deals with several other suppliers. Lack of response and other delays on the part of Confirming Bank caused these deals to fall through. Ultimately, these delays caused Intermediary to lose its performance bond in the amount of USD 176,000 which it had obtained as security in favor of Ultimate Buyer.
Claiming that it was wronged by Confirming Bank's refusal to effect a transfer, Intermediary sued Confirming Bank for breach of contract, promissory estoppel, and unjust enrichment. In the complaint, Intermediary alleged that Confirming Bank had agreed "to provide [Intermediary] with banking services which included [the] transfer and assignment of LCs". Confirming Bank moved to dismiss on the ground that the complaint failed to state a cause of action. The trial court dismissed the cause of action based on a theory of breach of contract. On appeal, affirmed.
The appellate opinion noted that Confirming Bank "did not expressly consent to transfer of the letter of credit at issue" and so was not obligated to effect a transfer under UCP500 Article 48(c) which provides that a bank has no obligation to effect a transfer "except to the extent and in the manner expressly consented to by such bank." The appellate opinion stated that "[a]lthough there is evidence that [Confirming Bank] approved of the transferee's bank, it is insufficient since it is undisputed that [Confirming Bank] has a 'know your client' responsibility with respect to both the transferee (which was as yet unknown) and its bank. Thus, consenting to the transferee's bank without knowledge of the transferee does not establish [Confirming Bank]'s express consent." In addition, the opinion noted that the additional lost profits claimed by Intermediary/Transfer or Beneficiary from a second attempt to obtain a transfer were not within the contemplation of the parties when the credit was confirmed.
[JEB]
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.