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Note: On 9 December 2013, BP Oil International Ltd. (Seller) and a Moroccan oil-refining company Société Anonyme Marocaine de l’Industrie de Raffinage (Debtor) agreed to the sale and purchase of crude oil. Section 34 of the agreement provided that neither party could assign its contractual rights or obligations without first obtaining the express written consent of the other party. Additionally, the agreement provided that if either party made an assignment without the consent of the other party, then that assignment would be invalidated.

Then, on 12 August 2014, the National Bank of Abu Dhabi PJSC (Guarantor/Buyer) issued an accessory Payment Guarantee Agreement (the “Guarantee”) with respect to Assignor’s contract with Debtor, wherein Buyer agreed to purchase a receivable, which was a debt that Debtor owed to Seller. Clause 5.2 of the guarantee agreement provided for the possibility of Seller making an assignment to Purchaser, although at the time of the agreement, both parties considered the possibility that there may be a prohibition in Seller’s contract with Debtor on assignments.

On 3 September 2014, Seller and Buyer entered into what was entitled the “Purchase Letter,” cancelling and replacing the payment guarantee agreement. In the purchase letter, Seller agreed that by selling 95% of the receivable, it was assigning to Buyer in equity irrevocably. Further, the agreement stipulated that it was not prohibited by any other agreement to which it was party from disposing of the receivable to Buyer. Seller also agreed to reimburse Buyer if a representation or warranty in the agreement was breached. The next day, Buyer paid Seller USD 67,662,173.54 for the receivable.

When, in late November 2014, Buyer discovered that Debtor had initiated insolvency proceedings, Buyer sought an assignment from Seller. In response, Seller explained to Buyer that according to the terms of the agreement, Seller would have to obtain Debtor’s consent before making any assignment. Seller also stipulated that once it decided whether an assignment was the best option, it would do so. After having received no payment, Buyer discovered the prohibition on assignments within the purchase agreement between Debtor and Seller.

As a result, Buyer sued Seller for compensation for breach of warranty and representation and sought USD 68,881,854.62 in damages. The High Court of Justice Queen’s Bench Division, Carr, J. ruled that Seller had breached a representation and warranty in its purchase letter with Buyer, and consequently ruled that Buyer was entitled to recover USD 68,881,854.62 with interest.

Text: The opinion contained the following from the “Guarantee”:

“By clause 2 of the Guarantee, which was again expressly subject to English law, NBAD agreed to guarantee payment by SAMIR to BP in an amount of 95% of the Estimated Cargo Value or the full final invoice value, subject to a maximum liability of US$75m. In exchange for that guarantee, BP paid a commission fee of 4.5% p.a., payable for the number of days between the discharge date and the earliest of a) the date payment in full was received by BP from SAMIR; b) the date a Demand was made under the Guarantee; and c) the Expiry Date (which was 29th January 2015, unless extended).

  1. BP also gave certain undertakings under the Guarantee. These included as follows in the event of a payment by NBAD under the Guarantee (at clause 6.1):

“(a) to promptly pay to [NBAD] a proportion of any amounts subsequently recovered from [SAMIR] under the Contract which proportion shall be equal to the proportion of the Payment as against the Shortfall;

(b)  to promptly pay to [NBAD], a proportion of any interest for late payment recovered from [SAMIR] which proportion shall be equal to the proportion of the Payment as against the Shortfall;

(c)  where possible under any applicable laws and the Contract, to promptly assign (at its own expense) to [NBAD], following a request from [NBAD], all [BP]’s rights under the Contract to the extent of any payment made by [NBAD] to [#PARA_INDENT#] [BP] under Clause 5 and not subsequently paid under Clause 6.1(a) or Clause 6.1(b) and to do all things reasonably necessary to achieve such assignment; and

(d)  if assignment under Clause 6.1(c) is not possible or effective for any reason, that [NBAD] shall be subrogated to [BP]’s rights in respect of the Delivery under the Contract and [BP]’s rights in respect to the payment undertaking up to the amount paid by [NBAD] and to take legal proceedings against [SAMIR] under the Contract/payment undertaking to the extent of any such payment made by [NBAD] under Clause 3 [sic] and not subsequently paid under Clause 6.1(a) or Clause 6.1(b), upon [NBAD] agreeing to meet its proportionate share of [BP]’s reasonable instructions received by [BP] from [NBAD].”

13. Annexed to the Guarantee was the Form of Demand which BP was to use in the event of a claim under clause 5.2 of the Guarantee. This made provision for a possible assignment (in accordance with clause 6.1(c)), as follows:

“In consideration of you [NBAD] agreeing to pay the amount demanded to us [BP] in accordance with the Agreement, and to the extent legally possible, including for the avoidance of doubt any contractual restriction on assignment in the Contract, we hereby assign to you up to an amount equal to [NBAD’s] Share of our rights and interest in relation to the Delivery under:

(i)  the Contract;

(ii)  our invoice to [SAMIR] in respect of the Delivery under the Contract;

(iii)  the bill of lading or the inspector’s report or the vessel nomination or a letter of indemnity to [SAMIR] under [the] Contract; and

(iv)  if a Verdict has been issued and a copy is available, the Verdict in our favour.”

[JLN]

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.