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Does a New York court have jurisdiction over an Indian collecting bank that is alleged to have violated the Uniform Rules for Collections (URC 522) for neither collecting and remitting funds to pay for shipments represented by the documents forwarded to it nor returning originals of several of the documents sent to it for collection?
In Select Harvest USA LLC v. Indian Overseas Bank (No. 22-cv-3931 (LJL) (S.D.N.Y. March 28, 2023)), Select Harvest (seller) entered into 12 contracts to sell 58 loads of almonds for more than $4.1 million to an Indian company (buyer).
The contracts between seller and buyer called for delivery of the nuts to India with a final destination of ‘ICD Faridabad or in some cases Nhava Sheva” and payment by “net cash against documents, presentation buyer bank” or “documents against payment.”
The seller appointed Wells Fargo Bank as remitting bank (Wells Fargo), and the buyer arranged for Indian Overseas Bank as the collecting bank (IOB). In 2021, Wells Fargo sent IOB collection instructions with the required documents, including the original bills of lading, certificates of origin, and phytosanitary certificates.
The instructions sent with each order indicated that the collection was subject to URC 522. IOB as the collecting bank sent a SWIFT message to remitting bank’s Philadelphia branch, indicating that it had received all 58 sets of original documents.
What went wrong?
The seller claimed that the shipments were discharged after the collecting bank ‘wrongfully allowed the original bills of lading, certificates of original and phytosanitary certificates to be presented to the carrier and to Indian customs officials’ without receiving payment from the buyer and remitting the payments to the remitting bank.
Only four of the 58 shipments were paid for. The seller further contended that only copies of the certificates of origin and phytosanitary certificates were returned to the remitting bank after repeated requests.
The court stated that “URC 522 places the burden on the collecting bank to reject obligations imposed by the transmittal of collecting instructions” and quoted URC 522 Article 1(c): “If a bank elects, for any reason, not to handle a collection or any related instructions received by it, it must advise the party from whom it received the collection or the instructions by telecommunication or, if that is not possible, by other expeditious means, without delay.”
If URC 522 applies, then its Article 9 requires banks to “act in good faith and exercise reasonable care.”
In a documentary collection, the remitting and collecting banks are not liable if the importer refuses to pay. In the case of non-payment, the collecting bank should send the remitting bank notice of the non-payment and URC 522 Article 26(c)(3) provides that the remitting bank must then give instructions as to how to handle the non-payment within 60 days.
If such instructions are not given, then the collecting bank may return documents to the remitting bank and will bear no further responsibility.
The court’s take on jurisdiction
The court denied seller’s motion to confirm entry of a default judgment and allowed discovery on jurisdictional questions because there was, in the court’s view, a significant question of whether the court had jurisdiction over the Indian-based collecting bank.
The court noted that the collecting bank’s maintaining of a correspondent account in New York alone was not enough to confer personal jurisdiction on it in New York since “it is undisputed that (collecting bank) never actually remitted payment to the (remitting bank) account in New York”.
Seller argued that the New York Supreme Court’s 2022 decision in Mashreqbank PSC v. Indian Overseas Bank should govern this case, but the court distinguished the Mashreqbank case. In that case, IOB was an LC issuer, it nominated a negotiating bank domiciled in New York, appointed a reimbursing bank in New York, and authorised reimbursement to take place in New York. (See “New York Court Declines to Dismiss LC Dispute”, DCW Apr 2022, p. 7).
An important point made by the case is that URC is deemed to apply if the foreign collecting bank receives documents for collection with a cover transmittal that states their collection is governed by the URC and does not timely object to their application – in other words, silence or non-objection is consent or agreement that the URC does apply.
Questions not answered by the case include whether the original BoLs were returned, and if so, how the almond shipments were released or if the seller can still reclaim the unpaid for almond shipments in India, and why originals not returned instead or copies of the certificates of origin and phytosanitary certificates (which were returned) are important or required to impose liability on the collecting bank if the seller’s bank received return of the original B/Ls.
If discovery on jurisdictional issues fails to show any additional contacts by IOB with New York, the implication of the case is that, for jurisdictional reasons, the seller may have to file suit in India to seek recovery against IOB.
This article was originally published in Documentary Credit World (DCW), published by the Institute of International Banking Law & Practice.