Article

Factual Summary: Several Iranian firms not party to this action arranged for an Iranian bank to issue a series of eight letters of credit to finance the purchase of machinery from a Czech seller. A Czech bank was named as the advising and negotiating bank. Upon payment, it was authorized to obtain reimbursement from the Iranian issuer's New York agency.

The seller later assigned its rights to payment under the L/Cs to an assignee. Shortly after notifying the issuer of the assignment, the assignee attempted to sell the L/Cs back to the issuer at a discount. The issuer withdrew its initial offer after learning that six of the eight L/Cs remained subject to an agreement between Iran and the Czech Republic to reschedule debts. The issuer also asked the negotiating/ advising bank to certify that all of the beneficiary's rights had been validly assigned to the assignee. The negotiating bank reported that the assignment was not yet effective because the assignee had failed to perform its obligations under the assignment contract.

The assignee then made several requests for payment under the L/Cs to the issuer's New York agency. Since the assignment was "out of validity", the agency refused to make any payments. The negotiating bank then honored a drawing by the beneficiary and paid the proceeds to the beneficiary after obtaining an indemnity should the issuer have to pay the proceeds to the assignee and obtained reimbursement from the issuer's New York agency.

In the course of the bank to bank reimbursement, the New York agency executed one wire transfer. It transferred the sum owed by the issuer to the negotiating bank to its correspondent bank in New York, which transferred the funds to the negotiating bank. This was the only part of the transaction that took place in New York.

The assignee first sought legal relief in London by serving a notice of demand on the issuer's London agency. This agency successfully enjoined the assignee's actions against them in London and the assignee filed this action in New York. The defendants sought to dismiss on the ground of forum non conveniens and sovereign immunity. The trial court denied this motion. The appellate court reversed.

Legal Analysis:

1. Forum Non Conveniens: The appellate court held that New York was not a convenient forum for this dispute. In its reasoning, the court noted that the issuer's New York agency had played a minute role in the transactions, all of the parties were foreign, and the result would turn on the validity of the assignment contract which was subject to Swiss law. Most notably, the court stated that the L/Cs were subject to the UCP which all courts are capable of interpreting, so that litigating in a different forum should not result in a differing outcome on the UCP issues.

2. Sovereign Immunity: The court rejected the issuer's argument that "publicly owned" meant owned by private members of the public. It ruled that Iran and the United States were parties to a treaty which waived sovereign immunity for publicly owned business. The court stated that the issuer's interpretation of "public" was completely inconsistent with the purpose of the treaty, waiver of sovereign immunity.

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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.