Commentators appear to agree in general with that the judgment of a UK court that PetroSaudi had no claim to US$130 million under a standby letter of credit (L/C) which stipulated that the Venezuelan government must pay the company, whether or not there were disputes to be settled.

The Venezuelan government had accused PetroSaudi of malpractice and refused to pay for oil extracted by the company pending arbitration on this issue.

Procedures not satisfied

The UK High Court - which had jurisdiction over the credit agreement - rejected PetroSaudi's case on grounds of fraud by its then director and legal counsel, Tim Buckland.

Ruling in October 2016, the court decided that Buckland, as a lawyer, must have been aware that the L/C terms contravened the provisions for such contracts under Venezuelan law, which demands that certain procedures are fulfilled in terms of invoices and approvals before payments are made. These procedures were not yet satisfied.

Unconvinced by argument

The court did not accept that Buckland, "honestly believed that the sum was due and owing at the time of certification. The certification under the L/C [was] therefore, held to be fraudulent and the bank was restrained from making payment," according to a statement issued last October.

PetroSaudi was therefore not entitled to draw on the US$130 million it was hoping to receive from the Venezuelan Novo Bank.

Fraud exception

Legal coverage since the court's ruling points out that this was an important case, testing whether there is one major exception to the generally inviolable principle that L/Cs with correct documents should always be honoured and that is fraud.

The UK judge ruled that it was plainly evident that such fraud applied in this case.

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