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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2000 CASE SUMMARIES [2000] 2 Lloyd's Rep. 600 [U.K.]
Topics:
Summary Judgment; Fraud; Set Off
Type of Lawsuit:
Assignee of beneficiary sued issuer for wrongful dishonor.
Parties:
Plaintiff/Appellant/Assignee of LCs - Safa Ltd. (Counsel: Mr. J. Bogle)
Defendants/Appellee/Issuer/Lender - Banque du Caire, Branch Dokki (Counsel: Mr. R. Slade)
Beneficiary/Assignor/Insurance Broker - Paul Group International Insurance Brokers/TL Dallas (London) Ltd (PGI), a Lloyd's Insurance Broker
Guarantor/Insurer/Beneficiary of First LC - Merrion Reinsurance Company Ltd.
Applicant/Borrower - Aboul Fotouh Establishment
Underlying Transaction:
Financing of dry cargo transactions.
LC:
Four standby LCs for US$ 1,950,000, $5,550,000, $3,700,000, and $2,000,000 (this LC was never issued). Subject to the UCP500.
Decision:
The Court of Appeal (Civil Division), Scieman, Waller, and Hale, L.J.J., affirmed the decision of the trial court, Waller, J., denying summary judgment to assignee of beneficiary.
Rationale:
Summary Judgment may be entered when there are no questions of fact. In its defense of this appeal, the issuer presented a number of disputed facts that should be resolved in trial.
Article
Factual Summary: In what the court described correctly as a "very unusual transaction", the bank issued a series of standbys. In a manner not altogether clear from the opinion, the proceeds were assigned to the assignee. The applicant desired to obtain a loan from the issuer and the standbys were intended to be used to pay insurance premiums for a guarantee of repayment from a third party to the bank. The guarantees were the documents required to be presented by the standbys.
The beneficiary presented documents that conformed on their face but the issuer refused to honor. The issuer claimed fraud, a breach of a duty by the beneficiary to it regarding the acceptability of the guarantee, and set-off against the beneficiary. When the assignee moved for summary judgment, the trial court denied its motion. On appeal, affirmed.
Legal Analysis:
1. Summary Judgment: The assignee urged its entitlement to summary judgment based on "the long standing principles relating to letters of credit being treated as cash." Noting that "[i]t is however unusual for a bank which has opened a letter of credit to be involved in the related transaction to the extent this bank was", the appellate court concluded, "[w]hen a bank is involved in the related transaction it may be unjust for that bank to be forced to pay on a summary judgment where it has a real prospect of succeeding by reference to a claim on the underlying transaction, and particularly if that claim is a liquidated claim ... ."
2. Fraud: Notwithstanding the absence of "clear evidence" of fraud at the date of presentation, the appellate court indicated that if at a later stage, "the bank can show that the only proper inference is fraud it would be absurd to think that the bank would have judgment entered against it. It would not seem right to hold that since the [issuer] can recover from its customer, it is legitimate to give judgment in favour of the fraudster allowing recovery from the fraudster only at the suit of the customer."
3. Set Off: The appellate court noted that it was "only on the rarest occasions ... that a separate dispute will arise between the bank and the beneficiary, since from the beneficiary's point of view the choice of paying bank is fortuitous, and it is only in the rarest cases that there will be any antecedent banking connection between them that could give rise to such a dispute." Since the amount was liquidated and arose out of the sum transactions, the appellate court ruled that "the case in favour of a right of set-off seems to me overwhelming."
© 2001 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.