On April 24, 2007, a federal district court in the Southern District of New York held that an electronic fund transfer, or EFT, through an intermediary bank in New York can be subject to an attachment pursuant to federal maritime law, even if such attachment conflicts with New York state law regarding funds transfers. In Navalmar (UK) Ltd. v. Welspun Gujarat Stahl Rohren Ltd., Judge Alvin K. Hellerstein denied defendant WGSR's motion to vacate the attachment of an EFT originated by WGSR that was attached while passing through intermediary bank, Citibank, N.A., for onward transmission to a third party. In a funds transfer, an intermediary bank is merely one bank in the chain between the bank that originated the funds transfer and the bank of the beneficiary of the transfer to whose account the funds ultimately will be credited. The intermediary bank has no other function in a funds transfer except to move the funds along to another bank, be it another intermediary bank or the beneficiary's bank. This decision is an important ruling regarding the mechanics of attaching EFTs through the use of maritime liens, thousands of which are served annually on banks in New York, particularly the major banks with international operations that are often intermediaries for transactions requiring payment in US dollars.
The basis for the dispute in this case was damage allegedly done to cargo owned by WGSR after a February 2005 voyage on a vessel owned by plaintiff Navalmar and chartered by WGSR. Navalmar secured an interim award at a subsequent arbitration in London, and after WGSR declined to pay that award, Navalmar sought and was granted an order of attachment in the Southern District. On February 2, 2007, two weeks after Navalmar initially served the order on Citibank, the bank attached the requisite amount of an EFT made at WGSR's order. Citibank, acting as an intermediary bank for a payment to be made in US dollars, had received the EFT for onward transmission.
The major issue raised on the motion to vacate the attachment was a conflict between the US Rules of Civil Procedure governing admiralty and maritime claims, which have been interpreted as permitting attachment of EFTs as they pass through intermediary banks, and section 4A-502 of the Uniform Commercial Code (UCC) as adopted in New York, which governs EFTs and provides that a bank is not obliged to act on any attachment order with respect to funds in a transfer for which it is acting as an intermediary bank.
Judge Hellerstein held that the "federal interest in maintaining the 'proper harmony and uniformity' of maritime law" preempted "any contradictory interest of New York law." The court further stated that it would not necessarily have followed the New York state statute even in the absence of preemption, arguing that the UCC departs here from common law conceptions of property, and that although clearing banks' only had brief possession of the EFT funds, they had possession nonetheless.
This ruling is one in a series of recent decisions governing the application of maritime writs of attachment to EFTs through intermediary banks that ignores UCC Article 4A's goal of providing uniform and exclusive rules on the rights, duties and liabilities of parties involved in funds transfers.