High court rules on international letter of credit dispute

Background

The High Court was tasked with resolving a complex dispute between Litasco S.A. (the Claimant) and Banque El Amana S.A. (the Defendant) concerning a standby letter of credit (SBLC) issued by the Defendant. The case was heard in the Business and Property Courts of England and Wales, with Louise Hutton KC presiding as Deputy Judge.

Case Details

Litasco, a Swiss-based petroleum marketing and trading company, sought summary judgment against BEA for non-payment under the SBLC. The SBLC was issued as security for a series of loan agreements with Société Kerkoub pour l'Investissement SA (SKI) to fund an LPG distribution network in Guinea. Payment under the SBLC was due on 31 December 2021, but BEA failed to make the payment.

Defendant's Argument

BEA argued for a stay of proceedings, citing ongoing Mauritanian court proceedings that allegedly provided a defence against Litasco's claim. The bank also sought to amend its defence to include an attachment order issued by a Mauritanian court, which prohibited payment under the SBLC.

Legal Principles

The court examined the governing law of the SBLC, ultimately determining that English law applied following an amendment communicated via a SWIFT message. The court also considered the Ralli Bros principle, which excuses performance of a contract if it necessarily involves an illegal act in the place of performance.

Court's Analysis

The court found that the Ralli Bros principle did not apply, as the place of performance was Switzerland, where the receiving bank account was located, not Mauritania. Additionally, BEA's failure to pay when due, before the Mauritanian orders were issued, precluded reliance on the principle.

Conclusion

Judge Hutton granted summary judgment in favour of Litasco, dismissing BEA's application to amend its defence and for a stay of proceedings. The court held that BEA had no real prospect of successfully defending the claim based on the arguments presented.

Implications

This case underscores the importance of timely performance in international financial transactions and clarifies the application of the Ralli Bros principle in cross-border payment disputes.

Learn More

For more information on international financial disputes, see BeCivil's guide to Contractor Law.