Who Bears the Risks if Payment Blocked in Intermediary Bank?
On 16 October 2024, the Arbitration Court of the Arkhangelsk Region (Russia) considered the claim of the Northern Shipping Company (plaintiff, a Russian company) against Lesozavod-25 (defendant, a Russian company) for the recovery of 400,000 US dollars.
Facts of the case:
On 10 December 2021, the plaintiff and the defendant entered into a contract for the carriage of goods by sea (lumber).
On 14 February 2022, the plaintiff issued an advance invoice to the defendant.
On 1 March 2022, the plaintiff's vessel approached the port of unloading, and the plaintiff asked to pay the second part of the invoice. The money to pay the invoice was to go through the following banks: FinService, UniCredit Bank JSC and VTB Bank (PJSC).
5 days before the date when the plaintiff sent the second invoice, blocking sanctions were imposed on VTB Bank by the United States.
THE BANK OF NEW YORK MELLON, New York, USA was the only common correspondent bank for UniCredit Bank JSC and VTB Bank (PJSC).
The defendant did not have a foreign currency (dollar) account with FinService Bank. The defendant was unable to make a payment from an account with FinService Bank and could not influence the chain of funds transfers via the SWIFT system. At the time of payment, only one correspondent bank was indicated in the bank directory for the recipient bank (FinService Bank) - VTB Bank.
In accordance with international banking practice, transfers of funds in foreign currency are carried out as follows: the payer's bank (UniCredit Bank) determines a correspondent bank in which correspondent accounts are opened simultaneously with both the payer's bank (UniCredit Bank) and the recipient's bank (in this case, VTB Bank). In this situation, such a bank was THE BANK OF NEW YORK MELLON.
The transfer through an american intermediary bank was blocked. The money was not received in the plaintiff's account.
The case was considered in 2023, the claim was satisfied. Then the second and third instances overturned the decision of the court of first instance and sent the case for a new trial.
The court's decision and reasons:
During the new trial, the court rejected the claim. The court considered that the plaintiff knew about the blocking sanctions, and despite this, indicated an account for payment in VTB Bank in US dollars. The court assessed that the plaintiff had not taken any action to unblock the payment and had not contacted the US authorities.
The court considered that the blocking of funds in the US bank was an unavoidable circumstance (force majeure) and referred to the position of the Supreme Court of Russia on this issue.