Since a draft was included in the presentation at issue in ICC Opinion TA.948, it prompts important questions about examination not only under UCP but also under bills of exchange law.
Parties: • Plaintiff/Creditor/Beneficiary – ERA Capital L.P. • Defendant/Issuer – Soleil Chartered Bank • Second Defendant/Parent – Soleil Capitale Corporation • Third Defendant/Advising Bank – Regions Bank • Non-party/Applicant – IR Real Investments GMBH • Non-party/Debtor – IR Right Investment GMBH • Non-party/Fraudster – Amir Bramly
Underlying Transaction: Loans ostensibly for real estate deal outside US.
LCs: Two letters of credit, one for USD 900,000 (and subject to UCP600), another for USD 1.8 million (no rules mentioned). Silent as to choice of law.
Decision: The Supreme Court of N.Y., Crane, J., granted judgment in favor of advising bank and dismissed the case.
Rationale: Burden of proof regarding negligent misrepresentation claim unmet where beneficiary failed to demonstrate existence of special relationship with advising bank, bank expressly disclaimed all liability apart from role as adviser, no basis of reasonable reliance on incorrect information, nor was advising bank proximate cause of losses.
Factual Summary:
To allegedly support loans tendered to IR Right Investment GMBH (Debtor) for an underlying real estate deal, ERA Capital L.P. (Creditor)[[1]] approached Regions Bank (Advising Bank), for advice on letters of credit as Creditor was inexperienced with LCs. Advising Bank acknowledged having expertise and proceeded to assist Creditor with standard LC practice. As revealed at trial, however, Creditor extended funds to Debtor while the ultimate LC account party was IR Real Investments GMBH (Applicant). While exclusively negotiating with Applicant (namely, the assumed owner Amir Bramly (Fraudster)), Creditor transferred funds to Fraudster’s brother-in-law and Debtor. The reason for obfuscation was due to Fraudster being “under indictment [in Israel] and his assets frozen at the time the events in this case took place.”[[2]]
During LC drafting, Creditor never revealed to Advising Bank that Fraudster was driving the process and was the true party in interest. Fraudster originally tendered a draft LC that indicated Standard Chartered Bank as issuing bank. Subsequent drafts stated S. Chartered Bank as the proposed issuer and Creditor/Beneficiary and Applicant in their respective roles. It was “highly likely” that Fraudster drafted the documents and failed to inform Creditor/Beneficiary of the bank switch.
Further revealed at trial were dynamics between Soleil Chartered Bank and its ostensible parent company, Soleil Capitale Corporation (Parent); the chief executive of Parent claimed the entities were not related and it was merely a “coincidence” the entities shared the name “Soleil”.[[3]] Parent allegedly “marketed” LCs for Soleil Chartered and received all fees, while the chief executive claimed no knowledge on how Soleil Chartered benefitted from issuing credits. A Parent employee who worked to document the LCs testified to having no knowledge on Soleil Chartered Bank’s operations. The chief executive alleged the bank was a “Lichtenstein trust” and produced a copy of a Comoros banking license. There was no evidence that Soleil Chartered had a US banking license.
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Related Litigation: • ERA Capital L.P. v. Soleil Chartered Bank [2021], No. 651984/2019, 2021 WL 2003177 (N.Y. Sup. Ct. May 19, 2021) (denying motions to dismiss complaints against Issuer and Advising Bank), summarized in Oct. 2021 DCW at 15; • ERA Capital L.P. v. Soleil Chartered Bank [2023], No. 651984/2019, slip op. (N.Y. Sup. Ct. Jan. 10, 2023) (granting part of Advising Bank summary judgment motion; triable issue found regarding negligent misrepresentation); • ERA Capital L.P. v. Soleil Chartered Bank, 190 A.D.3d 529 (N.Y. App. Div. 2023) (affirming partial summary judgment).
As LC drafting progressed, an Advising Bank representative expressed concern with Soleil Chartered Bank as issuing bank because it was previously assumed Standard Chartered would issue the credit. Subsequently, Advising Bank representative told Creditor that “this bank [Soleil] is good but I would have preferred Standard Chartered Bank.” A few days before the first standby was issued, employees of Advising Bank exchanged internal messages regarding a Documentary Credit World “article” detailing New York litigation against Issuer.[[4]]
The employee handling the Creditor/Beneficiary transaction, however, was not concerned with Issuer “because the disputes and cases the article referenced were between an account party and an issuer, and stemmed from the payment LC issuance fees, not an issuer’s potential dishonor of a demand”.[[5]] The concern of Soleil as issuing bank caused Advising Bank to perform an OFAC check for potential sanctions issues; Advising Bank informed Creditor/Beneficiary of the same and that no “hits” were found.
Ultimately, Soleil Chartered Bank (Issuer) issued a USD 900,000 standby LC subject to UCP600 in favor of Creditor/Beneficiary. This credit supported a “loan” to Fraudster’s brother-in-law for about USD 500,000. Advising Bank advised the LC terms to Creditor/Beneficiary by letter which included a disclaimer, limiting its role to adviser; Advising Bank refused to add its confirmation. No issues arose concerning the first credit.
To support another “bridge loan” of USD 862,000 to Debtor, Issuer issued a second standby LC for USD 1.8 million in favor of Creditor/Beneficiary.[[6]] Advising Bank again tendered its advice to Creditor/Beneficiary including the same disclaimer. Creditor/Beneficiary never disclosed any details regarding the bridge loan to Advising Bank and Fraudster’s underlying presence. When Creditor/Beneficiary later wired USD 757,980 overseas, Advising Bank flagged the transaction. Creditor/Beneficiary explained the funds were a loan to Debtor secured by the second LC, although the stated payee was an Israeli lawyer allegedly handling the deal.
Although Creditor/Beneficiary made demands on the first standby, the demands were withdrawn as the loan was allegedly repaid. Later, when Advising Bank sent SWIFT messages to Issuer demanding payment on the second standby, Issuer dishonored on the basis of Creditor/Beneficiary’s “failure to deposit [USD]1.8 million with [Issuer] as a condition to a drawing.” This explanation was not lost during the bench trial: “to require the beneficiary to indemnify the issuer of the LC defeats the purpose of the LC altogether … [Issuer]’s representatives failed to provide a satisfactory explanation for why they needed the beneficiary to provide indemnity and cash collateral.”
Creditor/Beneficiary sued Issuer and Parent alleging breach of contract; Creditor/Beneficiary also sued Advising Bank for negligence and breach of fiduciary duty. Issuer, Parent and Advising Bank filed motions to dismiss the action. The trial court denied each motion. After further evidence was collected and testimony given, Advising Bank moved for summary judgment. The trial court granted partial summary judgment, finding a triable issue regarding negligent misrepresentation by Advising Bank. Affirmed on appeal. Following a bench trial, the Supreme Court of New York, Crane, J., ruled in favor of Advising Bank and dismissed the case.
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Cases Referenced: • Banque Indosuez v. Barclays Bank, 181 A.D.2d 447 (N.Y. App. Div. 1992) [USA] (affirming denial of summary judgment for defendant bank where “special relationship” upheld on negligent misrepresentation claim; no details of relationship in appellate decision).
Analysis:
At the outset, the Judge did not find Creditor/Beneficiary’s lead witness (and general manager) “to be particularly credible”. The same was true of witnesses for Issuer and Parent, although those entities were not on trial. Conversely, the Judge considered Advising Bank’s witness “very credible.” Negligent misrepresentation requires proof of: (1) existence of a special or privity-like relationship imposing a duty on the defendant [i.e. Advising Bank] to impart correct information to the plaintiff [Creditor/Beneficiary]; (2) that the information was incorrect; and (3) the plaintiff reasonably relied on the information to its detriment. Finding the existence of a special relationship is a fact-intensive exercise. As a general matter, the bank-customer relationship is “arms-length”.
Essentially, Creditor/Beneficiary failed to meet its burden of proof regarding a special relationship. There was no evidence that Advising Bank would assist on matters of assurance of collateral with Issuer (i.e. stated basis of dishonor) or that Creditor/Beneficiary even requested Advising Bank to do so. The Judge also pointed to the disclaimer given by Advising Bank, being standard in LC practice, and noted that Advising Bank informed it would not confirm a letter of credit unless the issuing bank met certain requirements, which Issuer did not. Critically, the Judge expressed that even if Creditor/Beneficiary had requested Advising Bank to “vet” Issuer, Creditor/Beneficiary “set [Advising Bank] up to fail.”
The failure to disclose the participation of and role of Fraudster was dispositive. Fraudster told Creditor/Beneficiary that an issuing bank is merely an “intermediary” and it would be irrelevant which bank assumed that role. Had Advising Bank known this, Advising Bank would have corrected the false suggestion. Case law Creditor/Beneficiary sought to rely on was either entirely irrelevant or could be distinguished on procedural grounds.[[7]]
Turning to what Advising Bank actually did, the Judge noted the bank imparted correct information. Its “OFAC Check” was limited to reviewing government websites to find whether Issuer was subject to any sanctions. The DCW article referenced regarded a dispute as to banking fees and not potential wrongful dishonor. Nor could it be said that Creditor/Beneficiary reasonably relied on Advising Bank given the presence of Fraudster and Creditor/Beneficiary’s actions to obfuscate those realities during LC drafting. Moreover, nothing Advising Bank did or did not do was the proximate cause of Creditor/Beneficiary’s losses; Creditor/Beneficiary believed Fraudster’s promise that collateral would be posted regarding the second LC. In entering judgment for Advising Bank and dismissing the case, the Judge commented bluntly that “[i]t should come as no surprise to [Creditor/Beneficiary] that he is called to task for failing to watch his back with a known fraudster.”
[[1]]: Reference to Creditor also means its managing director and lead witness, Amira Shapira
[[2]]: During pendency of the case, Fraudster was sentenced to 10 years in prison for involvement in a scheme which defrauded investors out of over USD 150 million
[[3]]: A “coincidence” the court found “stunning considering the amount of collaboration between the two entities.”
[[4]]: That litigation being Rich Int’l Grp. v. Soleil Capitale Corp., 147 A.D.3d 493 (N.Y. App. Div. 2017) [USA], noted in Feb. 2018 DCW at 19
[[5]]: Before sharing the DCW article, Advising Bank representatives exchanged an email on an unrelated LC transaction that involved Issuer; one representative made an “off-the-cuff” remark that “[Issuer] is kind of shady – one of those companies that will just issue [LCs] because they are on SWIFT.”
[[6]]: Creditor/Beneficiary never confirmed a real estate deal existed, and only had Fraudster’s promise that collateral would be posted with Issuer
A deceptive LC transfer leads a confirming bank to pay twice. Explore this trade finance fraud case from Abdurrahman Özalp’s book on international trade.
On appeal, Court considered whether trial court: erred in holding that Subcontractor/Applicant was contractually precluded from relying on the unconscionability exception; correctly held that Contractor/Beneficiary’s demand was not fraudulent; and erred in declining to discharge the injunction.
For the 7th year, the Institute of International Banking Law & Practice conducted its one-day Americas Trade Finance Compliance Annual Meeting. This summary provides an overview of topics discussed at the conference hosted by S&P Global on 2 April 2025 in New York and conducted as a hybrid event.
