New York Court Declines to Dismiss LC Dispute

New York County’s Supreme Court has rejected an Indian issuing bank’s motion to dismiss a complaint regarding an LC dispute. Among its findings, the Court determined that the bank’s pursuit of another action pending in India concerns the underlying sales contract and none of that evidence would be needed to determine whether the bank was in breach of UCP600 under the LC.

To support an underlying sale of ships to be scrapped for metal, Indian Overseas Bank (Issuer) issued a UCP600 letter of credit for USD 1.2 million in favor of a UAE beneficiary. Dubai-based NoorBank (Advising Bank/Presenting Bank) served beneficiary as advising and presenting bank. MashreqBank PSC, New York Branch (Confirming Bank) added its LC confirmation and Wells Fargo, N.A., New York Branch (Reimbursing Bank) planned to reimburse Confirming Bank on behalf of Issuer following a complying presentation.

Issuer later “authorized” Confirming Bank to negotiate the LC and Advising Bank/Presenting Bank forwarded documents to Confirming Bank and “represented that they were timely presented and compliant with the LC’s terms and conditions.” Subsequently, at the request of Confirming Bank, Advising Bank/Presenting Bank “confirmed the authenticity of the documents.” As the documents allegedly complied, Confirming Bank negotiated and paid the LC value to Advising Bank/Presenting Bank “pursuant to the LC.”

Thereafter, Confirming Bank turned to Reimbursing Bank, which indicated that Issuer had not authorized reimbursement. Confirming Bank contacted Issuer which claimed discrepancies in the presented documents. When Confirming Bank disputed this, Issuer apparently raised irregularities outside the documents regarding the underlying sale of ships. After Issuer commenced an action with the beneficiary in the High Court of Gujarat, India, Confirming Bank sued Issuer in New York alleging breach of contract, breach of UCP600 and fraud. Issuer sought dismissal of the New York action based on lack of subject matter and personal jurisdiction, forum non conveniens and another action pending.

In the Judge’s memorandum decision, No. 656179/2020, slip op. (N.Y. Sup. Ct. Mar. 1, 2022) [USA], subject matter jurisdiction was met as New York courts regularly handle LC disputes; personal jurisdiction was satisfied as Issuer had purposefully engaged sufficient minimum contacts within the forum state (i.e. a NY-based correspondent account and reimbursement agreement) and was not merely “banking by happenstance”.

The forum was appropriate because any burden on Issuer to litigate in New York was alleviated by modern communications and travel and, importantly, a “repudiation of a contractual obligation to be carried out in New York is a significant nexus between the case and the forum”.

Ultimately, the Judge denied the motion to dismiss, ordered Issuer to file a timely answer to the compliant, and set a date for a virtual preliminary conference.

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