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Note: Société Anonyme Marocaine de l’Industrie du Raffinage (Buyer) ordered crude oil from BP Oil International Industry (Seller). The respective payment debt was purchased by First Abu Dhabi Bank PJSC (Bank), formerly National Bank of Abu Dhabi PJSC, on a non-recourse basis from Seller in terms of a receivables financing transaction (Purchase Letter). Subtracting a discount, Bank then paid Seller. Before Bank could enforce the purchased debt against Buyer, Buyer filed for bankruptcy protection in Morocco. Bank requested from Seller assignment of the debt owed by Buyer, but Seller responded that Buyer’s consent would be necessary to do so. Bank sued Seller for breach of warranty and misrepresentation, seeking return of the paid amount plus interest.

In terms of clause 5(b) of the Purchase Letter, Seller had warranted that “[Seller] is not prohibited by any security, loan or other agreement, to which it is a party, from disposing of the Receivables evidenced by the Invoice as contemplated herein and such sale does not conflict with any agreement binding on [Seller]”. Furthermore, under clause 3 of the Purchase Letter, Seller was to reimburse Bank and pay significant pre-determined interest if “[Seller] breaches the representation made in Clause 5 of this Purchase Letter or any material representation or warranty under the Contract [between Seller and Bank]”.

However, the oil delivery contract between Seller and Buyer was subject to Seller’s standard terms and conditions, which contained the following clause in section 34: “Neither of the parties to the Agreement shall without the previous consent in writing of the other party (which shall not be unreasonably withheld or delayed) assign the Agreement or any rights or obligations hereunder. In the event of an assignment in accordance with the terms of this Section, the assignor shall nevertheless remain responsible for the proper performance of the Agreement. Any assignment not made in accordance with the terms of this Section shall be void.” Bank argued that Seller breached the warranty under clause 5(b).

At trial, the judge found that Seller had breached the warranty made to Bank contained in clause 5(b) because of its inability to assign the claim for payment due to the assignment limitation clause in the oil delivery contract, and gave judgment in favor of Bank. Seller was ordered to reimburse or pay almost USD 69,000,000 plus interest and costs. The Court of Appeal (Civil Division), Gloster, Patten and Westbourne, JJ., allowed the appeal by Seller.

The Court of Appeal agreed that, because of the assignment limitation clause in the oil delivery contract, Seller was not able to assign in equity its claim for payment against Buyer without Buyer’s consent. The Judges disagreed, however, with the interpretation and construction of clause 5(b) of the Purchase Letter that was agreed upon between Bank and Seller, especially regarding the meaning of the words “not prohibited…from disposing of the Receivables”. Particular significance was placed on the interpretation of “disposing” or “disposal”. Lady Gloster, with whom Lord Justice Patten and Lord Briggs of Westbourne concurred, put it thus: “I do not consider that, in the context of the Purchase Letter, sale or disposal is limited to assignment. As I have pointed out, the Purchase Letter clearly envisages other methods of disposing of the economic value of […] the Receivable.”

The Purchase Letter not only contemplated assignment in equity as the only acceptable way of “disposing of the Receivables”. For example, in order to make available the economic benefits derived from the payment obligation under the oil delivery contract, the Purchase Letter also considered Seller forwarding within two days to Bank any payments received from Buyer, or subrogation, or creating a trust over the proceeds of the receivables or the receivables themselves. Because these various actions were listed in the Purchase Letter, the inability of Seller to assign in equity the outstanding debt to Bank was no breach of warranty given under clause 5(b); instead, other ways of making the economic benefits available had been previously considered by Bank and Seller in the Purchase Letter, so that Seller was “not prohibited…from disposing of the Receivables”. Consequently, the warranty given by Seller to Bank had not been breached.

* Brunswick European Law School, Ostfalia University of Applied Sciences (Germany); Visiting Researcher at Centre for Banking Law, University of Johannesburg (South Africa).

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