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Note: To obtain debt financing to acquire a deep sea drillship, Global Marine Drillships (Investor) was referred to Petra Energy Berhad (Advisor) as a company experienced in financing debt. Advisor advised Investor to obtain a standby LC for the benefit of J.P. Morgan (Beneficiary) supporting a line of credit to which both Investor and Advisor would have access.

Investor was told that Advisor would retain a third-party company, Coolmead Investments, as Applicant. Advisor then told Investor that Landmark Solicitors LLP would be acting on behalf of Coolmead, and that Landmark intended to utilize the financial services of Bridgehouse Partners, LLP (Applicant) to apply for LCs. Applicant was to make applications to two banks, HSBC (First Issuer) and Deutsche Bank (Second Issuer) and obtain a standby LC from each.

Landmark supplied two draft solicitors' undertakings to Investor. Although Investor was nervous about the arrangement, it nonetheless wired GBP 7,000,000 to Advisor's account, expecting the funds to be made available to Applicant to obtain a LC from First Issuer for USD 200,000,000 and from Second Issuer for USD 150,000,000. Landmark supplied Applicant with an undertaking that "if the money were transferred to [Applicant's] client account, [it] would hold [the money] to [Applicant]'s order." When neither of the LCs were issued, Investor asked for the return of its GBP 7,000,000. Advisor was unable to return the funds to Investor, because under instruction from Coolmead, it transferred Advisor's funds to an account held by a Coolmead executive.

Investor sued Landmark, alleging broken undertakings and breach of trust. The High Court of Justice Chancery Division, Newey, J., ruled in favor of Investor. The Judge rejected Advisor's claim that the payment was authorized by Investor and ruled that Investor had not released Landmark from the undertaking, and ruled in favor of Investor.

The Judge found that Advisor was misled by Coolmead regarding the transfer of Investor's funds, and that without evidence that Investor specifically authorized the transfer, Advisor could not escape liability. The Judge ruled that intense pressure on Advisor from Coolmead to transfer Investor's funds did not provide a defense to Investor's claims of breach of trust.

[MJS]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.