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Swiss energy trader Litasco has won a dispute against Banque El Amana over a US$1.8mn trade finance agreement, with a UK court rejecting the Mauritanian lender’s attempts to stay the proceedings.

Litasco brought the claim after Banque El Amana refused to honour a standby letter of credit (SBLC) issued in early 2019, according to a High Court judgment published in mid-February.

Banque El Amana had provided security on a loan extended by Litasco to West African firm Société Kerkoub pour l’Investissement SA (SKI), the judgment shows.

The deal was the third of a “series of loan agreements” between Litasco and SKI. Financing was slated to help develop a liquefied petroleum gas (LPG) distribution network in Guinea.

But in January 2022, when Litasco made a compliant presentation via Banque cantonale de Genève – which should have triggered payment from Banque El Amana – no funds were received.

In its legal action, Litasco said this was a breach of contract.

Louise Hutton KC, acting as deputy judge, sided with Litasco, noting: “Accordingly, I will order summary judgment in favour of Litasco and dismiss BEA’s application to amend and for a stay of these proceedings.”

Banque El Amana’s defence had sought to rely on the Ralli Bros principle, a well-established legal precedent that precludes the enforcement of an English law contract if it requires an unlawful act in the country where it is carried out.

Fulfilling the SBLC would necessarily involve acts that were “contrary to orders made by the Mauritanian courts”, the bank argued.

In January 2024, SKI sought an order from the nation’s commercial court to suspend performance of the SBLC. While these attempts were initially rebuffed, Mauritania’s Supreme Court intervened in April last year, ordering a stay of execution pending its review of an appeal.

There had also been a criminal case against a Litasco representative, but Mauritania’s public prosecutor has since dropped the claim.

 

Compliant presentation

Deputy judge Hutton agreed with Litasco’s legal team that the Ralli Bros principle only applies to foreign legislation or regulation, not to a court order.

The judge found other issues with the bank’s argument, including the SBLC’s maturity date. Payment had been due since January 2022 – over two years before the first Mauritanian court order was issued.

“There was therefore, even on BEA’s case, no reason why it could not make payment on the SBLC when payment fell due or at any time after that until 30 April 2024,” she said.

There had been questions over the governing jurisdiction due to a discrepancy in the Swift message.

Banque El Amana communicated via Swift in July 2019 that it wished to amend the SBLC to be covered by English Law. “Any dispute or claim arising from or in connection with this stand-by LC shall be subject to the exclusive jurisdiction of the courts of England,” it said.

However, the message contained an error, mistakenly referencing an earlier standby LC issued by the bank.

The court, siding with Litasco, determined this was merely a typographical error and confirmed that the SBLC was governed by English law and subject to the Uniform Customs and Practice for Documentary Credits (UCP 600).

Litasco pointed to Article 16(f) of the UCP600, which applies to the SBLC.

“’If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation’, and that no notice as required by Article 16 was given by BEA within the 5 banking day period provided by that Article,” the judgment says.

“BEA has not contended that the presentation was not compliant,” it adds.

Law firm Hill Dickinson says the case highlights the limitations of the Ralli Brothers’ exception to the enforcement of English law payment obligations.

In a February analysis of the ruling, the law firm notes: “The English Court will disregard arguments of potential illegality if it is lawful to make payment at the contractual place of performance.”