An Irish High Court has refused an injunction in a rare application to restrain a bank from paying out under a letter of credit (L/C) in aid of an intended arbitration.

Lawyers at global law firm Dentons say the refusal in the case of First Modular Gas Systems Ltd -V- Citibank Europe Plc & Ors provides a clear view on how the Irish court interprets and deals with L/Cs.

Case outline

In this case, a Nigerian gas company, First Modular, sought an order restraining Citibank from paying out under an L/C to the third respondent, a Chinese equipment manufacturer, in aid of an intended arbitration in Nigeria against the second and third respondents.

An interim injunction was granted on 7 January, which remains in force.

Resistance and arguments

The application was resisted by Citibank and the second and third respondents. They argued that the applicant had failed to meet the test required for restraining banks from paying out under L/Cs, which required a "seriously arguable case that the only inference to be drawn is one of fraud".

The applicant disputed this, and argued that in the circumstances of this case the higher test did not apply.

The second and third respondents also challenged the application on jurisdictional grounds as the third respondent, Bosai, the party to whom payment was to be made under the L/C, was not a party to the arbitration agreement.


The applicant argued that Bosai was captured by the arbitration agreement as the agreement referred to the L/C in favour of Bosai and that Bosai was stopped from arguing it was not bound by the arbitration agreement.

The court however found it did not have jurisdiction to grant the injunction as the applicant failed to establish that the injunction was in aid of an arbitration.

Fraud exception

The court found that, even if it were wrong about the question of jurisdiction, the applicant failed to meet the threshold for an injunction to restrain the operation of an L/C which would have required the applicant to demonstrate that payment on the L/C would be fraudulent.

The court held that this test had not been met here.

Dentons' commentary on the case, First Modular Gas Systems Ltd -V- Citibank Europe Plc & Ors, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.