Our post on the Second Circuit’s decision in Sinoying Logistics Pte Ltd. v. The Hong Kong and Shainghai Banking Corp., No. 09-5368 (2d Cir., 31 Aug. 2010), addresses whether electronic funds transfers (EFTs) are attachable property for quasi-in-rem jurisdiction. In another maritime decision with clear application to international litigation generally, the Second Circuit in Allied Maritime, Inc. v. Descatrade SA, No. 09-5329 (2d Cir., 3 Sept. 2010), affirmed the District Court’s vacatur of an attachment and garnishment to secure a putative non-U.S. arbitral award.
The underlying arbitration is pending in London. Allied sought to attach Descatrade’s assets in New York under Rule B of the maritime rules as pre-judgment security. The assets sought to be attached were EFTs cleared through New York banks. Based on the Second Circuit’s important decision last year in Shipping Corp. of India, Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009), the District Court vacated the attachment for want of jurisdiction. The Circuit affirmed the following:
- Attachment orders are a remedy quasi in rem, as we discuss in our International Practice: Topics and Trends e-book, Topic 1, on jurisdiction in international cases.
- New York law follows the “separate entity rule”, which holds that “each branch of a bank [is] treated as a separate entity for attachment purposes”. As a result, the property at issue – the funds – were property of the Paris branch where they were held.
- When an EFT is initiated, and interestingly expanding Jaldhi, the Court of Appeals holds that the funds being transferred “are not property subject to attachment of either originator or beneficiary” (emphasis supplied). The Court of Appeals does not discuss the possible strategic misuse of this holding – that is, depriving a creditor of attachable property that is under the control of the putative judgment debtor in the jurisdiction.
- Extending Jaldhi further, the Court of Appeals holds that guarantees to pay back funds, as well as suspense accounts (created by the bank in order to comply with the original attachment order), are not seizable property and hence cannot be attached either.