Banco Santander SA v Bayfern Ltd [1999] EWHC 284 (Comm) (09 June 1999)

Banco Santander SA v Bayfern Ltd [1999] EWHC 284 (Comm) (09 June 1999)

The risk of fraud in a confirmed deferred payment letter of credit discounted by the confirming bank falls on the confirming bank, not the issuing bank, where fraud is discovered before maturity but after discounting. The confirming bank's right to reimbursement arises only at maturity and only if payment is made at maturity without knowledge of fraud. Assignment does not improve the confirming bank's position if the beneficiary had no right due to fraud.

Citation
[1999] EWHC 284 (Comm)
Parties
Plaintiff: Banco Santander; Third Defendant: Banque Paribas; Applicant: Napa Petroleum Trade Inc; Beneficiary: Bayfern Limited
Jurisdiction
England and Wales
Judgment Date
09 June 1999
Procedural Posture
Commercial Dispute (banking/letters of Credit) / Trial of Preliminary Issues
Outcome
Judgment for Paribas (Third Defendant)
Legal Topics
Letters of Credit, Fraud Exception, Assignment of Rights, Reimbursement Obligations, Uniform Customs and Practice for Documentary Credits (ucp)
Banking Law Commercial Law Letters of Credit Fraud Exception Assignment of Rights Reimbursement Obligations Uniform Customs and Practice for Documentary Credits (ucp)

Case Brief

Summary, issues, holding and outcome

More case intelligence is available

Unlock the full research layer for this judgment.

Full judgment text Downloadable case file Legal principles 3 Authorities cited 7 Party arguments 2 Amounts and remedies 4
Sign in to unlock

Parties

Banco Santander

Plaintiff

Banque Paribas

Third Defendant

Napa Petroleum Trade Inc

Applicant

Bayfern Limited

Beneficiary

Procedural Posture

Commercial Dispute (banking/letters of Credit) / Trial of Preliminary Issues

Legal Issues

  1. 1 Whether the risk of fraud in a confirmed deferred payment letter of credit discounted by the confirming bank falls on the confirming bank or the issuing bank when fraud is discovered before maturity but after discounting.
  2. 2 Whether Santander is entitled to reimbursement from Paribas under the UCP or as assignee despite established fraud by the beneficiary.

Ratio Decidendi

The risk of fraud in a confirmed deferred payment letter of credit discounted by the confirming bank falls on the confirming bank, not the issuing bank, where fraud is discovered before maturity but after discounting. The confirming bank's right to reimbursement arises only at maturity and only if payment is made at maturity without knowledge of fraud. Assignment does not improve the confirming bank's position if the beneficiary had no right due to fraud.

Court Disposition

Judgment for Paribas (Third Defendant)

Orders

  • Santander not entitled to reimbursement from Paribas under the UCP or as assignee where fraud is established and known before maturity.