Injuction from a court...

[Navi]

Hi friends,
.
Consider a deferred payment LC Issued by Bank A and confirmed by Bank C. Shipment effected and documents were complying, accepted by both Issuing bank and confirming bank. But a few weeks before maturities, Issuing Bank sent a message to confirming bank, stating that they received an injunction from a judge preventing them paying for LC.

Beneficiary request payments from confirming bank.

Here should confirming bank pay the beneficiary for the LC? If yes, can issuing bank avoid reimbursing confirming bank because of the injunction?

Regards

[iLC]

dear navi,

difficult question and the answer is "it depends". to answer the easy part; yes the confirming bank has to pay the beneficiary.

to answer the harder part; yes; issuing bank can avoid the payment but the decision depends on the actual wording of the injunction. if the injunction is about the underlying contract where a fraud has been detected and the court has ordered to stop the payment to the beneficiary, then issuing bank has to pay the confirming bank. in this case article 7 is applicable which says

c. An issuing bank undertakes to reimburse a nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing banks undertaking to the beneficiary.

but if the court restricts from making any payment under the credit, then the confirming bank is in problem.