Key takeaways
Court upholds enforceability of standby letters of credit
Judgment confirms strong protection for payment obligations.
Summary judgment avoids lengthy trial process
Swift resolution reinforces certainty in commercial transactions.
Businesses should review credit terms carefully
Clear drafting reduces risk of disputes and costly litigation.
Court grants summary judgment in respect of claims under standby letter of credit
Litasco SA -v- Banque El Amana SA [2025] EWHC 312 (Comm)
The Swiss oil trader, Litasco, has applied successfully to the English Court for expedited (summary) judgment of its claims for payment under a standby letter of credit issued by Banque El Amana in Mauritania.
Among other things, the decision usefully deals with the place of performance of a letter of credit and whether contractual performance necessarily requires an act to be done where it would be unlawful to carry it out.
The background facts
An SBLC for the amount of US$1.8m was issued in March 2019 as security for a loan agreement between Litasco and Société Kerkoub pour l’Investissement SA (SKI) to fund the construction and development of an LPG distribution network in Guinea.
Litasco claimed that following various amendments to the loan agreement, payment fell due on or around 31 December 2021 and payment was not made by SKI. As a result, the claimant presented a claim to the defendant under the SBLC on 13 January 2022 which was not honoured by the bank.
Litasco applied to the English Court for summary judgment of its claims. The threshold for ordering summary judgment is that the defence to the claim has no real prospect of success. Summary judgment applications can save a claimant months or years of litigation if they are successful.
The bank argued that orders issued by the Mauritanian Courts in pending proceedings prohibited it from making payment. The bank sought to stay the English Court proceedings pending resolution of the Mauritanian Court proceedings.
The Mauritanian court proceedings and orders
These comprised:
A civil claim where SKI applied to suspend performance of the SBLC pending judgment of the Mauritanian Supreme Court. On 30 April 2024, the Supreme Court had ordered a stay of execution of the Court of Appeal’s dismissal of the matter pending its decision (the Stay Order); and
A criminal claim brought by the Public Prosecutor in the Nouakchott Regional Court and by SKI against Mr Fabien Roy, who had acted for Litasco, for breach of trust and seizure of the SBLC. A criminal investigating judge had ordered the seizure of the SBLC on 30 May 2024 (the Attachment Order).
The Commercial Court decision
The English Court had to decide whether the defendant was obliged to make payment under the SBLC irrespective of the Mauritanian court orders.
Governing law of the SBLC
There was a discrepancy in a SWIFT message, which sought to amend the governing law of the SBLC to English law after it had been issued, in that there was a mistaken reference to a different SBLC. The Court agreed with Litasco that this was no more than a typographical error, ruling that the SBLC’s governing law was English law.
Recognition of foreign court proceedings
There was no dispute that the English Court had jurisdiction to determine the bank’s liability to Litasco under the SBLC. The bank’s own Mauritanian law expert acknowledged that Litasco had not submitted to the civil jurisdiction of the Mauritanian Courts where Litasco had merely appeared but had not filed pleadings in those proceedings. As such, the Court decided that the Mauritanian Court Stay Order was not binding on Litasco.
As for the Attachment Order, the Court considered that, as a matter of Mauritanian law, the Order did not have the effect of discharging the debt so that again the bank had no defence with a real prospect of success.
Ralli Bros principle
The general principle in English contract law is that a contract is to be enforced without reference to illegality under any other law. A limited exception to this rule applies by reason of a decision in Ralli Brothers -v- Cia Naviera Sota y Aznar [1920] 2 KB 287. The Ralli Bros principle is that an English law contract should not be enforced if it requires an act to be done which is unlawful in the place of performance.
The bank further relied on this principle to assert that it could not make payment.
On the authorities, the Court found that, in the context of this case, Ralli Bros illegality referred to legislation or regulations in force in Mauritania to prohibit payment - of which there were none - but not to mere Court orders.
Furthermore, the Court held that the bank could not rely on such a principle where it had been at fault in failing to pay under the SBLC between presentation of Litasco’s demand in January 2022 and the Stay Order in April 2024.
The Court additionally considered and rejected the bank’s arguments regarding the place of contractual performance being the place from which the monies were sent as opposed to the place of receipt. The monies were receivable in Switzerland where there was no potential illegality.
Consequently, the bank could not satisfy the Court that it had a real prospect of defending Litasco’s claim for payment.
Comment
This case highlights the limitations of the Ralli Brothers exception to the enforcement of English law payment obligations whatever procedural events may occur in other jurisdictions. The English Court will disregard arguments of potential illegality if it is lawful to make payment at the contractual place of performance.
