Note: Buyer and seller entered into a contract for the sale of 2000 metric tons of frozen bovine meat at the price of US $1,970 per metric ton. Payment was to be made by an irrevocable confirmed LC opened by the buyer in favor the seller. The sales agreement included a clause which gave the Moroccan courts in Casablanca exclusive jurisdiction over any dispute arising under the agreement. To ensure performance by the seller, buyer and seller entered into a surety agreement. Under the surety agreement, seller provided a performance bond in the form of a US$ 120,000 standby LC issued by its bank in Australia.

The buyer made two separate attempts to open a compliant LC. Each time, the seller claimed that the LC submitted by the buyer did not comply with the contract for several reasons, including that the LCs were not confirmed and were drawn in such a way that no banks were likely to confirm them. Seller claimed that buyer's failure to supply a compliant LC constituted a breach and repudiation of the contract and refused to ship any meat to Morocco.

Claiming that the LCs did comply with the contract, buyer responded to seller's refusal by making a demand on the standby LC provided under the surety agreement. Seller thereupon filed a breach of contract claim against the buyer in an Australian court, and sought an injunction to prevent the Australian bank from honoring the LC. The Supreme Court of New South Wales, Equity Division granted an order restraining the issuer from paying on the standby LC until further order.

In a later proceeding, the court found that all of seller's claims against the buyer fell under the exclusive jurisdiction clause and should be tried in Casablanca, and granted a permanent stay against the buyer. In that same proceeding, the court continued the order restraining the issuer from paying on the LC pending the conclusion of the court proceedings in Casablanca.

Subsequently, in an unrelated matter, the Australian bank mistakenly made an overpayment to the Moroccan bank. The Moroccan bank chose to withhold the overpayment, and use it to satisfy its demand on the Australian bank under the LC relating to the surety agreement.

The issuer then moved to have the injunctive order restraining it from paying on the LC dismissed. The seller argued that a dissolution of the injunction would unjustly deprive seller of its funds. It further argued that although "this is different kind of 'abuse' from that usually prevented by Mareva, it is close in principle ... ."

The court noted that it was "unaware of any case that would justify an interim order to maintain the status quo in aid of a substantive right over which the Court has no jurisdiction." It further noted that "an interim injunction may be justified in aid of an inchoate right over which, on consummation, the Court would have jurisdiction." As that was not the case here, the court granted the Australian bank's motion and discharged the injunction restraining it from paying on the LC.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.