Attorney Gil Nadel
In international business transactions without explicit mutual trust among the parties, the seller will customarily demand payment via documentary credit. This is a letter issued by the bank to the seller in which the bank promises to pay the seller the sum as determined in the credit letter, if the bank will be presented with the documents determined in the credit letter as proof of the products having been transferred to the buyer (bill of lading, a business account and additional documents). In this manner the seller is ensured that he will receive payment, and reciprocally, the buyer is ensured that the payment will be transferred to the seller only if the bank will be presented with the documents that indicate that the products had been shipped to the buyer.
One of the primary characteristics of documentary credit is the principle of independence, according to which the basic transaction between buyer and seller is not connected to the credit transaction between the banks.
And yet, there is an exception to the principle of independence and that is in cases of fraud. When it has been proven that the seller has committed a severe act of fraudulence, failing to meet his obligations as per the sales contract, it is then possible to approach the court for an order addressed to the bank and instructing the bank not to transfer the sum to the seller as determined in the credit letter.
In a ruling it was determined that such a court order will be given only in cases of severe fraudulence "which will cause the important principle by which the credit letter is separated from the sales contract to cease to serve any legitimate purpose, and the fraud will make it impossible for its committer to take advantage of an unfair gain and to take off with the buyer's money". Thus, the buyer can use the fraud exception only if the container which was supposed to contain the cargo contains instead waste and so forth, but not in a situation where the container contains cargo at a value that does not meet the specifications as required by the buyer. The seller's conduct also bears weight upon determining whether an act of fraud has been committed: a seller who explains that a mistake has been made and expresses a willingness to compensate the buyer will be estimated differently than a seller who disconnected all communication from the buyer and does not reply to the buyer's attempts at contacting him.
For more on this topic see:
http://www.nadel-law.co.il/Index.asp?ArticleID=1099&CategoryID=125
The following is a review of two cases in which a claim of fraudulence was tried, in an attempt to prevent the implementation of documentary credit. In one case the claim was accepted, and in the other it was deferred.
The claim of fraud was accepted- the verdict of Tomer vs. Choice (November 2012)
A company which markets food products called Tomer entered a contract with M. Russeau, an importer of food products. The deal was that the latter would import for the former a large number of shipments of rice from India. Tomer paid M. Russeau an advance of $100,000 and even procured a documentary credit in their favor, at a sum of $320,000.
Eventually, some of the containers did not arrive in Israel for various reasons and after M. Russeau approached the bank requesting to receive the money from the documentary credit, Tomer turned to the court with the request that the implementation of this credit be prevented for reasons of fraud, as well as personally suing the shareholder of M. Russeau.
In their lawsuit, Tomer made a claim of fraudulence because merchandise which M. Russeau had been committed to supply had not been supplied in practice, and this justifies withholding the funds of the documentary credit.
M. Russeau claimed in its defense that the rice shipments were delayed by Customs in India since the product description stated that this was basmati rice instead of regular rice, and this had been for the sake of not paying taxes in India.
Tomer claimed that the bills of lading presented by M. Russeau to the bank for the purpose of releasing the funds of the documentary credit were forged, since they listed the numbers of containers that do not exist.
M. Russeau claimed that as soon as the goods were transferred to the marine carrier and a bill of lading was issued, the responsibility for the merchandise was transferred Tomer and thus there is no justification in preventing the implementation of the documentary credit.
The court determined that in this case it had been aptly proven that fraud had indeed been committed in the documents, since documents had been presented on behalf of the shipment company which proved that the container numbers listed in the bill of lading by M. Russeau do not exist.
The court determined that it is impossible to accept M. Russeau's claims that the responsibility was transferred to Tomer as soon as the bill of lading was issued. On this matter the court noted, with a measure of cynicism, that:
"If we accept the defendant's claim, this will mean that from the moment the bill of lading left their hands, even if it was forged, they must not be held accountable in any way, since ownership of the merchandise had been transferred to the prosecutor, and in such, even if the merchandise wasn't even sent, the prosecutor must still pay for it."
The court deferred the claim that the reason for failing to send the containers from India was due to delays caused by Indian Customs, since there was nothing to support this aside from the actual claim.
Therefore, the court accepted Tomer's lawsuit gave the order for the money of the documentary credit to be returned to them in full, and additionally charged M. Russeau with legal expenses and attorney fees at a sum of NIS 35,000.
The personal lawsuit against the M. Russeau's shareholder was deferred.
[Civil suit (Haifa Magistrates Court) 2235-11-08 Tomer Foodstuffs Import and Marketing (1983) Ltd. vs. M. Russeau (Choice Israel Marketing) Trade Ltd. et al, Judge Yoav Friedman, verdict of November 21, 2012, party representatives were not mentioned].
The claim for fraud was deferred- the case of Nayer Bros. vs. Pkaot Poalim (March 2011)
In this case, the importer, Nayer Brothers Industries, entered a business transaction for the purchase of agricultural nets for protection against pests from a supplier in China, in exchange for NIS 1,500,000. In order to finance this transaction, the importer turned to the "Pkaot Poalim" bank which opened a documentary credit for him in favor of the bank of the Chinese supplier.
The first shipments of the transaction arrived in Israel in 1998 and the importer had no complaints against them.
Over the years, as new shipments arrived, the importer discovered that some of the nets arrived in Israel without the UVA component which protects against the sun's rays, and therefore, they are liable to disintegrate and be completely useless. The importer claimed that this had been a deliberate act on the part of the Chinese supplier out of fraudulent intentions.
His request to prevent the implementation of the documentary credit was deferred, and it was determined that this was not a case of fraud, among other reasons, since the importer had succeeded in selling the imported merchandise in Israel.
For more on this topic, see:
http://www.nadel-law.co.il/Index.asp?ArticleID=1967&CategoryID=88
[Civil suit (Tel Aviv Magistrates Court) 13853-05 Nayer Bros. Industries 1991 Ltd. vs. Pkaot Poalim Ltd., decision of March 10, 2011, Judge M. Tamir].
עדכוני מכס ורגולציה
