Committee Country Chair Update

The following is a country update from Jack Thomas, the Litigation Committee Chair for US – New York:

An intermediate New York appellate court provided an important victory for the banking industry, making it plain that it wants to keep streamlined litigation over international transactions involving letters of credit.

In Blonder & Co. v Citibank, 604642/01, the buyer of more than $500,000 in scrap nickel attempted to use an expert to prove that Citibank had not exercised reasonable care in releasing funds from a letter of credit to pay for the nickel after it was purportedly received in the Netherlands . A 4-1 majority, however, ruled out the use of expert testimony and upheld the dismissal of a claim against Citibank for the allegedly improper release of funds.

Blonder & Co., the plaintiff and purchaser of the scrap nickel, claimed that it had never received the nickel and that Citibank improperly released the funds under a letter of credit Boulder & Co. had put in place to pay for the shipment. Its suit against Citibank followed.

The appellate court held that Citibank’s duty to exercise reasonable care in the review of shipping documents prior to release of funds is governed by the Uniform Customs and Practices for Documentary Credit, which it characterized as a universally accepted set of rules established by the International Chamber of Commerce and in use worldwide for more than 60 years. Blonder & Co. contended, however, that the international Uniform Customs and Practices rules allowed the court to look at 'custom and practice' in international banking as long as it was not inconsistent with the rules. Blonder & Co. offered an expert with more than 30 years of experience with letters of credit.

The appellate court rejected use of the expert’s affidavit, holding that, 'just as a court cannot impose upon the parties to a letter of credit any conditions not contained in the letter, neither can the plaintiff do so in the guise of expert testimony.'  'Any interpretation of the UCP was properly made by the trial court,' the court continued, 'which properly refused to allow the expert to usurp its function as the sole determiner of law.'

The upshot is that the decision may well make it more difficult for a party to prevail on a claim that a bank improperly released funds under a letter of credit.

Jack Thomas
jthomas@morganlewis.com