Lloyd's Maritime and Commercial Law Quarterly
ISRAELI BANK’S LIABILITY UNDER DOCUMENTARY CREDIT
Bank Leumi v. M. G. Brin & Sons
In Bank Leumi Le-Israel Ltd. v. M. G. Brin & Sons Ltd.,1 the Israeli Supreme Court has issued an important ruling on the relations of a bank and its clients within the framework of letters of credit. The judgment, delivered by Meir Shamgar, C.J., with Eliezer Goldberg and Theodor Or, JJ., concurring, adopted most of the conclusions reached by Moshe Talgam, J., of the District Court of Tel-Aviv. The District Court had called on Bank Leumi to return money to two of its clients, Israeli coat manufacturing companies, due to Bank Leumi’s negligent dealing with letters of credit opened on behalf of the companies for the purpose of paying a Hong Kong company for merchandise ordered by them.
The Israeli companies contended in the Supreme Court that Bank Leumi was negligent in that it found no discrepancy between the documents which were handed to it by the supplier through its overseas correspondent bank and the documents required by the original letter of credit, the tender of which was a condition for the release of money by the Israeli issuing bank. It was argued that, even after Bank Leumi became aware of its error and it knew that the merchandise destined for the Israeli companies had been sent to Africa, whereas that sent to Israel was worthless for coat manufacturers, the bank breached its obligation in that it did not itself act to stop the payment to the seller in Hong Kong and it did not advise its clients concerning possible legal actions which could be taken. The Supreme Court rejected Bank Leumi’s appeal, ruling that the bank must pay to its clients the sums of credit which it had charged them and which had been transferred to the seller in Hong Kong.
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