Type of Lawsuit: Confirmer sued issuers for reimbursement.

Parties: Plaintiff/Confirming Bank- First Union National Bank (Counsel: Lawrence E. Miller, Mark L. LoSacco of LeBoeuf, Lamb, Greene & MacRae, L.L.P.) Defendants/Issuing Banks- Paribas, ANZ Grindlays Bank, Emirates Bank International (Counsel: Martin Domb, John F. Keating, Jr. of Hill, Betts & Nash, LLP), Arab African International Bank (Counsel: David W. Rivkin, Suzanne M. Grosso of Debevoise & Plimpton)

Underlying Transaction: Purchase of high value non-ferrous metals and alloys.

LC: Various deferred payment LCs. Silent as to governing rules.

Decision: The U.S. District Court for the Southern District of New York, Kaplan, J., granted the issuers' motions of dismissal on the ground that the forum was inappropriate.

Rationale: Where another jurisdiction is deemed to be more suitable, the court will dismiss on the grounds of forum non conveniens.

Factual Summary: Several banks, organized under the laws of foreign nations other than the United Kingdom, and mainly located in the Middle East, issued dollar-denominated deferred payment LCs to enable applicant to purchase high value non-ferrous metals and alloys. Each LC was addressed to and provided that it was available with the London branch of the confirmer, a U. S. national bank headquartered in Charlotte. Each LC authorized the confirmer to confirm and to obtain reimbursement by drawing in U.S. dollars on the issuers' accounts in New York City. The confirmer added its confirmation. When the beneficiary presented the required documents to the confirmer in advance of the maturity dates, the confirmer discounted the presentations, relying on the obligation of the issuers to reimburse on maturity. Subsequently, the applicant became insolvent, leaving its more than 20 bankers, including issuers under these LCs, facing potential losses aggregating more than $300 million. Based on evidence that the bills of lading and other documents presented by the beneficiary fraudulently misstated the quality and quantity of the goods actually shipped, the issuers refused to reimburse the confirmer. "A number of issuers, including the issuers in this case, dispute their liability to the confirmer on the basis that the confirmer knew of or deliberately turned a blind eye toward the fraudulent activity before they discounted the LCs and therefore have no claims against the issuers." Although the confirmer had intended to bring the actions in London, it brought them in New York in order to avoid the impact of the recently decided English Court of Appeal case Banco Santander, S. A. v. Banque Paribas, All E.R. (Comm.) 776 (2000), abstracted at 2001 Annual Survey 194, full text at 288, which ruled that "a confirming bank that discounts a deferred payment LC in advance of maturity becomes the assignee of the claim of the beneficiary against the issuing bank and therefore is subject to whatever defenses the issuer may have against the beneficiary." Issuers moved to dismiss on the ground of forum non conveniens. The trial court granted their motions and dismissed.

Legal Analysis:

1. Forum Non Conveniens: Issuers argued that the actions should be dismissed on the grounds of forum non conveniens. The court stated that there exists a strong presumption in favor of a U.S. plaintiff's choice of a U.S. forum. Then the court weighed private interest factors such as plaintiff's choice of forum and its ties to that forum, the feasibility of alternative forums, including the reputation of the foreign judicial system, and other considerations such as expense of involving more attorneys and interest in consistency and efficiency in complex litigation. The court also considered the principal public interest factors as whether there is a local interest, the choice of law, and the burden on U.S. courts. The court noted that special weight was given to the fact that the proof, the location of the contacts, and the witnesses were all in England, where compulsory process was available. Taking into account all these factors, the court ruled that London would be a more suitable forum for this litigation.

2. Place of Payment/Repudiation as a Contact to a Forum: The confirmer claimed that "each issuer had only one explicit obligation to it - to pay U.S. dollars to the confirmer in New York." Based on this premise the confirmer argued that "the breach at issue - the failure to reimburse the confirmer - took place in New York" and, further, that New York law governs, citing J. Zeevi & Sons, Ltd. V. Grindlays Bank (Uganda), Ltd. 37 N.Y.2d 220, 371 N.Y.S.2d 892, 333 N.E.2d 168 (1975), because New York was designated the place of payment. The court disagreed, stating that the payment under the LC was not required to take place in New York City. It stated, "contrary to confirmer's misstatements, none of the LCs required payment in New York, and none limited confirmer's claim against its issuer to the specified New York account." Thus, the court found place of payment/ repudiation alone is not sufficient to prevent a transfer of forum.


This case raises the spectre of another English court decision along the lines of Banco Santander, one based on a fundamental misunderstanding of UCP500 Article 15, the nature of a deferred payment undertaking in LC practice, of the impact of fraud in LC transactions, and of what is being discounted. Should U.S. courts be unwilling to hear such cases, it argues for the inclusion of choice of law and forum clauses in all LCs touching on the UK and those countries adhering to its legal system.


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.