Article

Note: In 2011, Mago International (Seller/Beneficiary), a company based in New York, contracted to sell meat products, such as chicken and beef, to NTP Genita (Buyer/Applicant), a company based in Pristina, Kosovo. To assure payment for the shipment of frozen meat products, Seller/Beneficiary obtained a standby letter of credit issued by Buyer/Applicant’s Bank for Business (Issuing Bank), a Kosovar bank, and confirmed by LHB AG (Confirming Bank). The terms of the standby required Seller/Beneficiary to present the documents including “a photocopy of the B/L evidencing shipment of the goods to the [Buyer/Applicant]” in the event that Buyer/Applicant failed to pay within forty-five days after the date of the invoice. The standby expressly incorporated UCP600.

When Buyer/Applicant failed to pay Seller/Beneficiary after twelve containers of products were shipped under four invoices, Seller/Beneficiary made four presentations of documents to Confirming Bank.

Confirming Bank dishonored the first and second presentations because the bills of lading were unsigned. The third presentation was dishonored because two telexes from Mediterranean Shipping Company (MSC), the carrier, were presented instead of the original photocopy of the bills of lading to explain the absence of the signed bills of lading. When Seller/Beneficiary presented documents for the fourth time on 11 October 2012 with the signed bills of lading, Confirming Bank dishonored because the standby had expired.

Seller/Beneficiary sued Confirming Bank and Issuing Bank for wrongful dishonor of the standby. Both Seller/Beneficiary and Confirming Bank moved for summary judgment. The Southern District Court of New York, McMahon, J., denied Seller/Beneficiary’s motion and entered summary judgment in favor of Confirming Bank. Seller/Beneficiary appealed from the judgment. On appeal, the U.S. Court of Appeals for the Second Circuit, Straub, J., Wesley, J., and Livingston, J., in an opinion by Wesley, J., affirmed.

Seller/Beneficiary argued on appeal that the terms of standby only required Seller/Beneficiary to present copies of bills of lading, signed or unsigned, because under UCP 600, and the International Chamber of Commerce Banking Commission’s interpretative guidance, signed bills of lading were not necessary when only a copy was explicitly required. The appellate Judge dismissed Seller/Beneficiary’s argument, stating that, even if Seller/Beneficiary interpreted the UCP 600 and the guidance correctly, the standby explicitly required a bill of lading that “evidenced” shipment of the goods to Buyer/Applicant. The Judge observed, “whatever general guidelines are applicable, the copies here were required to evidence shipment. Because the bill of lading at issue required a signature to evidence shipment, the presentation of those documents did not strictly comply with the terms of the letter.”

The Judge noted that, while Seller/Beneficiary’s reliance on telexes also evidenced shipment, it did not satisfy “the letter’s requirement that such evidence be contained in a bill of lading. For the same reason, [Seller/Beneficiary]’s argument that the SLOC did not explicitly require a signature is unavailing; it explicitly required evidence of shipment in the bill of lading, and the bill of lading at issue required a signature for confirmation of shipment.” The Judge further noted that Confirming Bank was obligated to fully pay Seller/Beneficiary only if “the terms of the letter have been complied with strictly.”

[JWC/GMC]

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