Banco Santander SA v. Bayfern, Ltd.

Case No. 1998 folio No. 794, [1999] EWHC 284 (Comm) (1999)

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Banco Santander SA v. Bayfern, Ltd.

England and Wales High Court of Justice, Queens Bench Division
Case No. 1998 folio No. 794, [1999] EWHC 284 (Comm) (1999)

Facts

[Editor’s Note: The casebook International Business Transactions (Frank Emmert ed., 2d ed. 2021) erroneously gives the title of this case as “Banco Santander SA v. Banque Paribas.” The correct title is “Banco Santander SA v. Bayfern, Ltd.”] Banque Paribas (Paribas) (defendant) issued a deferred letter of credit (also known as a usance letter of credit) in favor of Bayfern Ltd. (defendant) in connection with Bayfern’s sale of certain goods. The letter of credit provided for payment to Bayfern on November 27, 1998. Banco Santander SA (Santander) (plaintiff) was the confirming bank. On June 15, Bayfern provided Santander with documents in support of its request for payment. On June 16, Santander accepted Bayfern’s request to pay the letter of credit early on a discounted basis. Accordingly, on June 17, Santander paid approximately $19.7 million to Bayfern. In exchange, Bayfern assigned its rights under the letter of credit to Santander. Paribas retained the obligation to reimburse Santander on the November 27 maturity date. On June 24, Paribas informed Santander that the documents Bayfern submitted in support of its payment request were fraudulent. Santander secured a court order freezing approximately $14 million of Bayfern’s assets. Santander also sued Paribas, alleging that Paribas was required to bear the risk of Bayfern’s fraud. Paribas responded that it had no payment obligation until November 27 and thus had no responsibility for a fraud that was discovered before that date.

Rule of Law

Issue

Holding and Reasoning (Langley, J.)

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