EU Sanctions Used to Enjoin LC

Lummus Technology Heat Transfer B.V. v. Credit Agricole Corporate Investment Bank involves a EUR 5.1 million (USD 6.2m) advance payment LC issued subject to ISP98 in September 2021 by Credit Agricole from its New York branch. The LC was issued on behalf of a Dutch company as applicant in favor of a Russian oil refinery beneficiary that had made an advance payment in that amount for heat transfer equipment to be used in its oil refining operations. The standby was confirmed by UniCredit Bank’s Moscow branch.

After Lummus’ substantial work on the heat transfer equipment, Russia invaded Ukraine and EU sanctions were imposed which prevented the Dutch company from delivering energy-related equipment to Russia. The Russian oil refinery beneficiary then drew under UniCredit Bank’s confirmation of Credit Agricole’s LC for return of its advance payment, representing in a draw statement that Lummus had breached the equipment contract. Lummus filed to suit to enjoin payment of the LC, claiming that the Russian buyer’s draw representations were fraudulent because due to the sanctions laws, the force majeure provision of the contract clearly suspended Lummus’ performance.

The Russian beneficiary was dismissed from the case by agreement of the parties because it had already been paid under UniCredit Bank’s confirmation. Although no issue was raised that Credit Agricole was prevented by Ukraine sanctions laws from paying its LC, it thereafter stipulated with Lummus and the court ordered that the preliminary injunction would stay in place pending litigation, arbitration or other resolution of the dispute between Lummus and the Russian oil refinery beneficiary.

Interesting questions not discussed by the case include:

  • whether Credit Agricole was prevented by the sanction regulations from paying on its LC;
  • how and whether an underlying arbitration will proceed in light of the beneficiary having already been paid and the Russian government outlawing an arbitration in Switzerland if brought by Lummus;
  • whether UniCredit Bank will claim reimbursement against Credit Agricole;
  • how US UCC Section 5-109 would have handled the injunction claim; and
  • why no bond was required.

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