Forgot your password?
Please enter your email & we will send your password to you:
My Account:
Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1999 LC CASE SUMMARIES 681 N.Y.S.2d 21 (1998) [U.S.A.]
Topics:
Comity; Injunction; Forum Non Conveniens; Public Policy; Fraud; Choice of Law; Reimbursement
Type of Lawsuit:
Paying bank sues issuer for reimbursement.
Parties:
Plaintiff/Advising Bank/Paying Bank/Respondent- Cantrade Privatbank AG Zurich (Counsel: Philip L. Graham, Jr.)
Defendant/Issuing Bank/Appellant- Bangkok Bank Public Company Ltd. (Counsel: John B. Harris)
Underlying Transaction:
Contract for the sale of goods.
LC:
Letter of credit. Silent as to amount and governing rules.
Decision:
The Supreme Court of New York, Appellate Division, First Department, Milonas, J.P., Ellerin, Rubin, Mazzarelli, J.J., in a Memorandum Decision, affirmed the order of the Supreme Court, New York County, Ramos, J., granting the paying bank's Motion for Summary Judgment.
Rationale:
Neither comity nor forum non conveniens prevent the exercise of jurisdiction over an action by a correspondent seeking reimbursement pursuant to an authorization for a payment made under a letter of credit, notwithstanding the issuance of an injunction by the issuer's forum against payment to the beneficiary due to fraud in the underlying transaction. Nor is there an issue of fact as to the paying bank's good faith where the issuer has introduced no evidence linking the paying bank to allegations of fraud regarding the presented documents.
Factual Summary:
Article
Factual Summary: The New York office of bank was requested to advise and pay a letter of credit for the sale of goods. The LC provided for reimbursement in New York. After the documents were presented to the issuer, a Thai bank, it authorized the paying bank to reimburse itself. Subsequently, however, the issuer canceled its reimbursement authorization on the basis that it was prohibited from making payment due to an injunction by a Thai court which had found fraud in the underlying transaction. The paying bank brought an action against the issuer in New York. The trial court granted the paying bank's Motion for Summary Judgment and denied the issuer's Motions to Dismiss on grounds of comity and Forum Non Conveniens. On appeal, affirmed.
Legal Analysis:
1. Comity; Injunction, Forum Non Conveniens: The issuer argued that the trial court had improperly refused to give effect to the injunction issued by the Thai court, especially since the letter of credit was issued in Thailand and the obligation of the issuer governed by Thai law. The appellate court noted that the injunction related to fraud in the underlying transaction and not to the obligation to reimburse a paying bank where the reimbursement was to take place in New York. The court concluded that giving effect to the Thai injunction "would run contrary to New York's strong public policy in favor of enforcing letter of credit agreements according to their terms." According to the appellate court, the right to reimbursement "became fixed" when the Thai bank took up the documents and authorized reimbursement. For the same reasons, the appellate court affirmed the trial court's refusal to dismiss the action on the basis of forum non conveniens.
2. Reimbursement: The appellate court rejected the issuer's argument that the were outstanding issues of fact as to the good faith of the paying bank. Under NewYork's procedural rules, it concluded that there was a sufficient writing in the letter of credit and the S.W.I.F.T. authorization to constitute a formal and explicit acknowledgment of the indebtedness on the part of the issuer. Since the only allegations of fraud related to the parties to the underlying transaction, and the issuer did not produce competent evidence to prove that the paying bank was part of a fraudulent scheme concerning documents presented.
Comment:
This case is more significant than its length would suggest. It reveals the policy of New York courts with regard to reimbursement claims by correspondent banks in the face of allegations of fraud. The court did not require the correspondent bank to establish its status as a holder in due course or to prove its good faith. It placed the burden of establishing that there was involvement in the fraud on the person seeking to avoid payment, in this case the issuer. Since this alignment reflects the expectations of the international operations community, and since there are few reported decisions which reflect this rather basic proposition, the case it of considerable significance.
© 2000 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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 ICC or the other partners in DC-PRO.