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Question: |
Name: ABDUL
AZIZ BALOUCH
Seek your
expert opinion / advises on following case.
Bank " A "
being the nominated bank had discounted a Bill of Exchange amounting to
USD=101000/- against a complying presentation under an acceptance LC and
forwarded the documents to LC issuing bank ( Bank " B " ).
Upon receipts
of documents, the issuing bank (B) had advised their acceptance and
confirmed the maturity date for payment, being 10/ 01/ 2008, stating that at
maturity we will reimburse you as per your instructions.
Upon maturity,
the nominated bank (Bank A) received a tested telex from LC issuing bank
(Bank B) that we have been summoned by our client to appear in court in
order to have an injunction imposed on us forbidding us to pay all
outstanding drawings under above mentioned LC. The court has fixed the
hearing in April and has forbidden us to effect any payment before hearing
date.
We feel that in
terms of article 7c (UCP 600) issuing bank must honour its commitment /
undertaking by reimbursing nominated bank.
Please advice.
Regards
Aziz Balouch
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Answer
(from
T.O. Lee) |
To add to what Don has already said, from my
involvement in letter of credit litigations, I am aware that there may be
situations that the injunction in the country of the
issuing bank MAY NOT be enforceable in the country of
the nominated bank due to some special circumstances,
such as the injunction is ex parte, with procedural defects, the two
countries are hostile (like USA and Iran in 2008), having no treaty
to recognise the injunction of the other, so on and
so forth.
So without disclosing the country of the issuing
bank and the nominated bank, the answer to this question may not be as
simple as it appears.
This is a good example to show that
(i) The more you know, the you don't know and
(ii) A consultant is one who makes a simple query
very complicated.
But this is our way of living anyway!
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Answer (from
Marek Dubovec) |
Preliminary injunctions are usually available in most
jurisdictions. They may be called restraining orders or temporary
injunctions. Injunctions ex parte that T.O. refers to are available in
common-law jurisdictions. The court’s order imposing an ex parte injunction
is typically followed by a court hearing within a short period of time.
Injunctions are issued typically in cases where the applicant produces
strong evidence of fraud, because the court does not investigate the details
of the underlying contracts at this stage. Some jurisdictions are more
reluctant to impose injunctions than others. For instance, English courts
traditionally refuse to issue such orders. In addition to the strong proof
of fraud, some courts take into account the convenience for the bank. In
other words, the court must assess all the circumstances to conclude that
the injunction will produce less harm to the bank than the refusal to do so.
As T.O. stated, this is a matter of the local LC and
civil procedure law. If, for instance, the injunction was sought against a
U.S. bank, the applicant would have to comply with the Uniform Commercial
Code Section 5-109(b), which provides that:
(b) If an applicant claims that a required
document is forged or materially fraudulent or that honor of the
presentation would facilitate a material fraud by the beneficiary on the
issuer or applicant, a court of competent jurisdiction may temporarily or
permanently enjoin the issuer from honoring a presentation or grant similar
relief against the issuer or other persons only if the court finds that:
(1) the relief is not prohibited under the law
applicable to an accepted draft or deferred obligation incurred by the
issuer;
(2) a beneficiary, issuer, or nominated person
who may be adversely affected is adequately protected against loss that it
may suffer because the relief is granted;
(3) all of the conditions to entitle a person to
the relief under the law of this State have been met; and
(4) on the basis of the information submitted to
the court, the applicant is more likely than not to succeed under its claim
of forgery or material fraud and the person demanding honor does not qualify
for protection under subsection (a)(1).
As you can see all of these four conditions must be
satisfied. Similarly, a local court in some other jurisdiction would have to
look into its local law. The majority of jurisdictions do not provide for
such actions in their LC legislation, hence, the courts must look into their
local procedural law. Without knowing the country where the injunction has
been issued, it is difficult to determine the conditions for its issue and
lifting.
Let me somewhat qualify your statement that “local
law is above the UCP”. For instance, a choice of law provision in UCC 5-116
provides that the UCP is above the applicable provisions (other than
non-variable terms) of the US LC law as incorporated in Article 5. Similarly,
in many civil-law jurisdictions, their civil and commercial codes are based
on the principle of contractual freedom, which allows parties to vary many
of their provisions. Hence, if they select the UCP, it may override the
local law. Some provisions, such as fraud rules, are applicable regardless
of the UCP choice. Overall, the UCP is above the local variable rules and
below the local mandatory rules.
Regards,
Marek
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