Article

Factual Summary: The advising bank, located in London, received instructions from the issuing bank in Nepal to advise a letter of credit for $2.35 million (increasing to $1 1.75), which nominated a Dutch bank as negotiating bank, in favor of the plaintiff/ beneficiary, a New Jersey Corporation whose president maintained an of fice in New York. The beneficiary then paid the fee into an account held by the advising bank in a New York bank. The advising bank, however, neither added its confirmation to the credit nor took "other steps prerequisite to the [beneficiary's] being able to draw," for which the beneficiary brought this action in a federal court in New York.

The advising bank moved to dismiss the action for lack of personal jurisdiction and the trial court granted the motion.

Legal Analysis:

1. Jurisdiction: Personal: Under New York's general jurisdiction provision, the beneficiary had to make only a prima facie showing of personal jurisdiction over the advising bank. To do so, the beneficiary had to prove that the advisor did business in New York by showing that any of the following took place in New York: the existence of of fices, the solicitation of business, the existence of bank accounts or other property, or the presence of employees. The only showing that the beneficiary could make was that the advisor had four bank accounts in New York. The court ruled that this showing was not enough because courts have repeatedly found such correspondent banking relationships with New York banks not to be sufficient for establishing personal jurisdiction over foreign banks.

2. Jurisdiction: Long Arm Statute: The beneficiary next argued that the advisor had conducted business in New York for the purposes of this transaction. Specifically, the advisor had sent several telefaxes to the beneficiary in New York, received the confirmation fee in New York, and, by advising and agreeing to confirm the letter of credit, knew that its actions were for the benefit of a beneficiary doing business in New York. The court rejected this argument by noting that mere telefaxes have never been found to be a basis for jurisdiction unless they were used by the advisor to "project" itself into New York and "purposefully avail" itself of the benefits of New York law. Additionally, the court ruled that the advisor's knowledge that the beneficiary did some business in New York was irrelevant to the inquiry because it did not itself support a finding that the advisor did business in New York for the purposes of this transaction. In passing, the court commented that the beneficiary had not even established that it did business in New York. As a New Jersey corporation, the beneficiary had only pointed to an of fice and phone number maintained by its president in New York.

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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.