Paul Bugden, Bugden + Co., London
Ref: Moeve Trading SAU v Mael Trading FZ LLC [2026] EWHC 17 Peter MacDonald Eggers KC.
Introduction
In April 2024, the Claimant as seller and the Defendant as buyer entered into a contract for the sale of 9,000-9,500 metric tons of gasoline and 5,000 metric tons plus 5% of gasoil, both quantities in the Buyer’s option for delivery FOB Algeciras, Spain. By 12th July 2024, the Cargo was shipped on board the vessel the Harbour Progress. Bills of lading were issued for the Cargo. One week later, the Vessel arrived at Freetown, Sierra Leone, and tendered a notice of readiness. The Cargo was discharged and received by or to the order of the Buyer, save for a portion of the Cargo which had been effectively liened by the shipowner.
Under the terms of the Sale Contract, the Buyer acquired property in the Cargo upon shipment. The Sale Contract provided that the purchase price, which was calculated to be US$13,031,741.54, was to be paid upon presentation of the shipping documents, including the issued bills of lading. Furthermore, the Sale Contract provided for the issue of letters of credit.
In June 2024, JP Morgan Chase Bank NA confirmed the issue of two letters of credit in favour of the Seller by the Bank of Africa United Kingdom plc. In September-October 2024, the Seller presented documents for payment under the Letters of Credit. The Issuing Bank refused to pay under the Letters of Credit but there was no evidence before the Court as to whether the Issuing Bank was or was not entitled to refuse to pay under the Letters of Credit.
The Seller sued for the price pursuant to section 49(1) of the Sale of Goods Act 1979. The Buyer admitted that it had not paid the purchase price and that title had passed. The Seller applied for summary judgment on its claim for the price. The Buyer resisted the application on the grounds that it had discharged its payment obligations under the Sale Contract by arranging the issue of the Letters of Credit and that, in any case, it is not liable for the purchase price because the relevant shipping documents have not yet been handed over to the Buyer.
The law
After an extensive and very detailed review of the authorities the judge authorities summarised the following relevant principles as pertaining to circumstances where a contract of sale provides for payment by an irrevocable letter of credit:
(1) The letter of credit will normally operate as a conditional payment, rather than as an absolute payment (or no payment at all). The contractual requirement that payment be made by letter of credit would operate as an absolute payment only if the contractual terms – whether the express terms or those arising by necessary implication – were clear in having that effect (Newman Industries Ltd v Indo-British Industries Ltd [1956] 2 Lloyd’s Rep 219, 236). However, there is no presumption in play; whether or not the letter of credit is intended as a conditional or absolute payment is a matter of contractual construction (Re Charge Services Ltd [1989] Ch 497, 511-512).
(2) Where a letter of credit operates as an absolute payment, the buyer’s obligation to pay the purchase price is discharged once the requisite letter of credit is issued, because the letter of credit becomes the exclusive source of payment (WJ Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 QB 189, 209-210).
(3) Where a letter of credit operates as a conditional payment, there are a variety of scenarios which might arise where the issuing bank refuses to pay upon the seller’s presentation of documents to the bank. Three obvious scenarios are: (a) the seller does not present documents for payment at all under the letter of credit during the lifetime of the letter of credit; (b) the seller does not present compliant documents under the letter of credit; and (c) the seller presents compliant documents under the letter of credit in time.
(4) If the letter of credit operates as a conditional payment, and the reason for the issuing bank’s failure or refusal to pay is unrelated to the seller’s own fault or responsibility, then the seller in those circumstances is entitled to proceed against the buyer for payment of the price or for damages for non-acceptance (WJ Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 QB 189, 209-212, 220-221; Shamsher Jute Mills Ltd v Sethia (London) Ltd [1987] 1 Lloyd’s Rep 388, 391-392).
(5) If the letter of credit operates as a conditional payment, and the seller is responsible for the issuing bank’s failure or refusal to pay, for example by not presenting the documents in time or by failing to present compliant documents, the seller has no recourse against the buyer for the price, if title to the goods has not passed to the buyer and the buyer is entitled to, and does, reject the documents and goods. See Soprama SpA v Marine & Animal By-Products Corp [1966] 1 Lloyd’s Rep 367, 385-386; Shamsher Jute Mills Ltd v Sethia (London) Ltd [1987] 1 Lloyd’s Rep 388, 392; Benjamin’s Sale of Goods (12th ed., 2023), para. 23-310.
(6) If, however, the letter of credit operates as a conditional payment and the seller is responsible for the issuing bank’s failure or refusal to pay, for example by not presenting the documents in time or by failing to present compliant documents, but if the buyer nonetheless has accepted the goods and the title to the goods has passed to the buyer, the seller is entitled to be paid the price of the goods by the buyer. These were the facts supporting the decision of Sellers J in Newman Industries Ltd v Indo-British Industries Ltd [1956] 2 Lloyd’s Rep 219, 236 when the judge said that “I think the conclusion which must be reached in this case is that the property passed, and I therefore find that the plaintiffs are entitled to claim the price on the basis that the property passed“. In that case, it is not clear whether the seller and/or the buyer were at fault in the issuing bank not paying, but the determining factor as far as Sellers J was concerned was the passing of property in the goods to the buyer. Similarly, the High Court of Australia in Saffron v Société Minière Cafrika (1958) 100 CLR 231, 244, stated that “It is not reasonable to suppose that the parties here intended that in the unlikely circumstance that the buyer got the chrome but payment therefor against the letter of credit was refused, the seller should not be paid” and that the trial judge was “clearly right” in holding that “the letter of credit was not intended to be the exclusive source of payment“.
The rationale for this proposition is that it is the passing of property in the goods for which the buyer has contracted in exchange for the payment of the price which is the critical consideration. As section 2(1) of the Sale of Goods Act 1979 provides, “A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price“.
Where the seller was at fault in not obtaining payment under the letter of credit, the buyer might be entitled to rely on that failure as a reason not to continue with its own contractual obligations, for example by rejecting the documents and the goods and in those circumstances, it is difficult to see why the seller should still be entitled to sue the buyer for the price but if the buyer nonetheless accepts the property in the goods, then a key requirement of an entitlement under section 49(1) of the Sale of Goods Act 1979 is satisfied (FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232; [2014] 1 WLR 2365, para. 41, 69).
Conclusion
having regard to these principles and the terms of the Sale Contract the court concluded that the Seller is entitled to payment of the purchase price directly by the Buyer….. in accordance with section 49(1) of the Sale of Goods Act 1979 given that title to the Cargo was transferred to the Buyer and the Buyer’s failure to pay the price was wrongful irrespective of whether or not the Seller was at fault in not obtaining payment of the price under the Letters of Credit. The reasons for the non-payment were irrelevant to the Seller’s entitlement to be paid the price by the Buyer.
As a result, the Buyer had no real prospect of arguing that it had discharged its payment obligations by arranging for the issue of the Letters of Credit and the Seller was entitled to summary judgment in respect of its claim for the price.