Strict Compliance

Note: In a brief unsigned opinion, it appears that a party (perhaps the applicant) brought an action in New York State Court for a declaration that European American Bank (perhaps the issuer or confirmer), which was obligated on an LC, was not required to pay because the documents presented did not comply.

Sumitomo Bank Limited (apparently a nominated bank that had purchased the documents) intervened and brought a cross claim seeking a declaration that payment was required because any discrepancies within in the documents would not mislead European American Bank and therefore did not warrant the dishonor of the LC, even under a "strict compliance" standard.

The trial court granted summary judgment, declaring that payment was unnecessary. On appeal, the N.Y. Supreme Court, Appellate Division, affirmed, relying on the "well established" doctrine of strict compliance employed in N.Y. The court stated that the intervening bank's "attempts to minimize the discrepancies and inconsistencies in the documents that it proffered are unavailing."


It is troubling that a court would entertain an action to determine compliance of documents, as appears to have happened in this case, before the bank, whether issuer or confirmer, examines and decides on the basis of the documents alone whether they comply. The only justification for judicial interference in this process is material fraud, which is not mentioned here. Once the issuer or confirmer has taken a position on the documents, the various rights and obligations of the parties will sort themselves out depending on its decision. On taking up the petition for declaratory judgment, the court seems to have lost sight of this vital principle. Taken to its logical conclusion, the beneficiary would have to make its presentation directly to the court for it to decide whether the documents comply. This is a road down which LC law should never venture. As to the discrepancies, the report is so summary as to offer no guidance of this other than that a strict compliance standard is being applied.



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.