Article

Note: In 1996, Indoafric Exports Private Ltd (Seller/Beneficiary) sold trucks to Kenya Digital Equipment, Ltd (Buyer/Applicant), which paid for the transaction through two commercial LCs subject to UCP500 (1995 revision) issued by Trust Bank Ltd (Issuer) and confirmed by Citibank, N.A. (Confirmer). Seller/Beneficiary presented documents to Confirmer after all trucks were shipped, and Confirmer subsequently dishonored the presentations under two LCs. Seller/Beneficiary pursued Issuer from 1997-2012, finally receiving copies in 2012 of Confirmer’s original telexes denying the presentations. Seller/Beneficiary then discovered that Confirmer had refused the presentations ten business days after receiving the documents; the rules governing the LCs, however, required either acceptance or refusal within seven business days of presentation.

In 2015, Seller/Beneficiary sued Confirmer for wrongful dishonor, unjust enrichment, and promissory estoppel. The United States District Court for the Southern District of New York, Marrero, J., granted Confirmer’s motion to dismiss all claims, ruling that the wrongful dishonor claim was time-barred due to the applicable six-year statute of limitations.

Seller/Beneficiary appealed the dismissal of its lawsuit, arguing that the statute of limitations should have been tolled since Seller/Beneficiary did not learn of Confirmer’s error until 2012. The United States Court of Appeals for the Second Circuit, Parker, Lynch, and Carney, JJ., affirmed.

The appellate court ruled that the statute of limitations was correctly applied rather than an equitable remedy because relief in equity requires due diligence, and Seller/Beneficiary’s failure to take formal action until 2015 amounted to an inexcusable lack of due diligence. The appellate court found that Confirmer’s three-day error and subsequent twenty years of silence were not nefarious acts of concealment warranting equitable tolling. Finally, the appellate court ruled that Confirmer’s silence was not active concealment because Confirmer did not know its refusal of the presentations had been disputed. The appellate court held that failure to disclose wrongdoing only triggers estoppel if an innocent party holds an explicit contrary assumption; in this case, Seller/Beneficiary did not make their challenge explicit until after the limitations period had lapsed.

Comment: The explanation for this quixotic action may lie outside the hope of recovery from the Confirmer. It has been suggested that pursuit of the action was necessary in order to claim export insurance in favor of the Seller/Beneficiary.

[EHM/JPJ]

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 the ICC or Coastline Solutions.