801 -- Case laws - Negotiating Bank Vs. Various parties

Bank of China v. Central Bank of Iraq

N.Y.L.J., 15 January 1998, at 25.

An action by confirmer for reimbursement from issuer for payments under LC.

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Parties:

Plaintiff/Confirmer:           Bank of China

Defendant/Issuer:             Central Bank of Iraq (a state enterprise).

Reimbursing Bank:           Bank of New York

Transaction:  Contract for the sale of goods to Iraqi State Enterprise for Iron and Steel.

LC:  Letter of credit for US$ 4.05 million. Subject to UCP400.

Decision:

Default judgment entered against the issuer in the amount of $4,050,000.00 plus interest and costs.

Justification:

The confirmer was granted a default judgment because the issuer failed to answer the summons and complaint or to respond to the allegations of the confirming bank despite having been served by at least three different methods.

History:

In July 1990, after paying against complying documents, the confirmer forwarded the documents to the issuer, notified the issuer that it had paid the beneficiary $4,050,000, and, pursuant to the terms of the letter of credit, claimed reimbursement from the issuer's funds at a New York reimbursing bank. The issuer did not object to the confirmer's claim for reimbursement.

In August 1990, Iraq invaded Kuwait, prompting a freeze of all Iraqi government assets held in the U.S. As a result, the Bank of New York refused to pay the confirmer's reimbursement claim. In addition, the issuer also refused to reimburse the confirmer directly or to appoint an alternate reimbursing bank located outside the U.S. that would not be subject to the freeze orders.

Accordingly, the confirmer filed this action against the issuer for reimbursement. In October 1996, an order was issued extending time for service and in which to file proof of service until February 1997.

Briefing:

Service of Process: In granting the default judgment in favor of the confirmer, the court noted that the issuer had been served by at least three different methods. First, the Clerk of the Court served copies of the summons and complaint, including Arabic translations of both documents, through the U.S. Postal Service's International Express Mail. The delivery and receipt of these documents were confirmed by the Baghdad Post Office. Second, a copy of the identical documents was served upon the issuer at both its main address and care of the Iraqi Ministry of Foreign Affairs through registered mail from Germany. Finally, the summons and complaint, including the Arabic translations of these documents, were served on the issuer through diplomatic channels, proof of which was filed with the court. Due to the issuer's failure to answer or respond to the summons, complaint, or other allegations against it, the court granted the default judgment in favor of the confirming bank.