A Nigerian gas company has lost a bid to avoid paying under a letter of credit (LC) for goods it claims were never shipped, after an Irish court ruled it had failed to prove its supplier had acted fraudulently. 

First Modular Gas Systems, which produces liquefied and compressed gas products from gas that would otherwise be flared, had sought an injunction from the High Court of Ireland to prevent payment of US$1.65mn to a Chinese supplier, Bosai Energy Technology Corporation. 

Lenders Citibank and Access Bank agreed to pay under the LC after accepting documents provided by Bosai, including a bill of lading (BL), showing the goods – compressed natural gas cylinders to a gas plant in Nigeria – had been shipped. 

But First Modular alleged “that the claim for payment by Bosai is a sham and that Bosai did not dispatch the goods required at all”. 

Based on a report produced by lawyers in China, commissioned by First Modular, the company argued there was no evidence that a genuine shipment of goods had taken place. 

That report cited a “person in charge” at shipping company Astline International Transport who told the investigators it had not issued the BL in question and that the company only transports goods to Japan, not Nigeria.  

The report also said the shipowner could not find the BL in its records, and that container numbers listed did not correspond to containers it owns. 

In its defence filings, Bosai denied any wrongdoing, saying the report’s findings fell “far short” of proving fraud had occurred.  

A Bosai representative told the court in an affidavit that his procurement manager witnessed goods being loaded onto trailers to be transported to the port. 

Bosai also disputed whether the report was admissible evidence. 

The judge acknowledged that the report’s findings appear “damning” and that “the possibility of fraud could not be ruled out”. 

However, Justice Mulcahy ruled that an injunction could only be granted if First Modular had “evidenced a clear and obvious fraud which would justify the court’s intervention”. 

“Although the new evidence relied on has bolstered First Modular’s claim, it falls short of what is required,” he said. 

Mulcahy added that not only is the report itself “hearsay evidence”, it also “relies to a significant extent on hearsay evidence” from third parties. 

He also noted the report was commissioned only after First Modular had lost an earlier appeal for an injunction to stop the payment. In effect, that gave the company “a roadmap to the proofs necessary”. 

Law firm A&L Goodbody says the judgement shows there is “a higher-than-normal threshold for the grant of an injunction where the injunction is to restrain payment under a letter of credit”. 

There must be “a seriously arguable case that the only reasonable inference is that the claim for payment on foot of the letter of credit is fraudulent” to stop payment, it says in an analysis of the ruling. 

Citibank had also argued in its defence filings that the application for an injunction was an abuse of process, as First Modular had already failed to gain an injunction prior to the production of the investigators’ report. 

First Modular, Citibank, Access Bank and a representative from Bosai did not comment when contacted by GTR.