Moeve Trading SAU v. Mael Trading FZ LLC

Factual Summary:

Seller and Buyer entered into a contract for the sale of gasoline and gasoil on a Free on Board basis. Under the contract, title to the cargo passed to the Buyer upon shipment. The purchase price of approximately USD 13 million was payable 60 days after the bill of lading date. To secure payment, Buyer arranged Issuing Bank to issue two letters of credit which were confirmed by Confirming Bank.

Cargo was shipped in July 2024 and bills of lading were issued to the order of Seller, transferring title to Buyer. Upon arrival at the discharge port in Sierra Leone, the cargo was discharged to Buyer without presentation of the original bills of lading, pursuant to letters of indemnity instead. When Seller subsequently presented documents for payment under the LCs, Issuing Bank refused to pay. Seller then sought payment directly from Buyer. Buyer refused, arguing that issuance of the LCs fully discharged its payment obligations or, alternatively, that its obligation to pay had not crystallized because Seller had not physically handed over the original bills of lading. 

Seller applied for summary judgment on its claim for the purchase price. The Buyer counterclaimed for demurrage and damages for delay. The court granted Seller's application for summary judgment for the full purchase price and dismissed Buyer's application for a stay of execution. Additionally, the court granted summary judgment dismissing Buyer's counterclaim for loss of profit, but allowed the remainder of the demurrage counterclaim to proceed.

Analysis:

Buyer argued that its payment obligations were discharged by arranging issuance of the LCs, or alternatively, that Seller could not “bypass” the LCs if Seller caused the non-payment by presenting non-compliant documents. Seller argued that whether an LC operates as conditional or absolute payment is a matter of contractual construction rather than presumption, relying on Re Charge Card Services Ltd. 

The court concluded that the LCs operated as conditional payment. The court held that because title to the cargo had already passed to Buyer upon shipment, Seller was entitled to the purchase price under section 49(1) of the Sale of Goods Act 1979. Following Newman Industries Ltd v. Indo-British Industries Ltd, the court reasoned that the passing of property in the goods satisfies the statutory requirement for an action for the price, making the reasons for non-payment under the LCs irrelevant to Seller's entitlement to be paid directly by Buyer.

Buyer further argued that its obligation to pay the purchase price had not crystallized because Seller had not physically handed over the original bills of lading. The court rejected this argument, interpreting the contractual requirement for presentation of documents as concurrent with the obligation to pay, akin to section 28 of the Sale of Goods Act 1979. The court held that a tender in this context means offering the documents for acceptance, not physical delivery prior to payment. Because Seller pleaded that it was “ready, willing, and able” to provide the requisite documents in exchange for payment, the court found a valid tender had been made and granted summary judgment for Seller for the price.

Note:

It is remarkable that the court did not ascertain whether the issuing bank was justified in refusing the presentation of documents.

Although the Seller’s presented documents were refused, the court explicitly notes that it is unknown whether the issuing bank was or was not entitled to refuse to pay under the LCs. 

Further, it is unfortunate the court instead goes to great lengths to distinguish an absolute payment LC from a conditional payment LC. “Absolute” adds or detracts nothing from an LC’s irrevocability. An issuer’s obligation is “conditional” on the timely presentation of complying documents. So one is left to wonder about the refusal. If this case is appealed, we may find out.