Out-Law Legal Update | 02 Feb 2018 | 3:12 pm | 2 min. read
In December 2013, BP Oil International Limited (BPOI) entered into an English law contract with to Société Anonyme Marocaine de L'Industrie de Raffinage (SAMIR), which incorporated BPOI's general terms and conditions, for the sale and purchase of crude oil.
In September 2014, National Bank of Abu Dhabi PJSC (NBAD) entered into an English law purchase letter agreement with BPOI under which NBAD agreed to purchase 95% of the receivable, representing the debt owed by SAMIR to BPOI for the oil. The purchase letter represented a form of non-recourse receivables financing. BPOI transferred to NBAD almost all the credit risk of SAMIR failing to pay its invoice and received 95% of what it was owed well in advance of the invoice's due date.
In March 2016, NBAD sued BPOI for breach of representation and warranty. It claimed compensation, saying that BPOI's terms and conditions conflicted with the purchase letter. It said that a restriction on assignment provision in section 34 of the terms and conditions rendered a representation and warranty by BPOI in the purchase letter false.
The High Court ruled in favour of NBAD and BPOI appealed. The Court of Appeal has now ruled in BPOI's favour, overturning the High Court's decision.
Section 34 of BPOI's terms and conditions said: "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."
It was common ground that this meant that BPOI could not assign 95% of the receivable (i.e. of the debt owed by SAMIR to BPOI) without SAMIR's prior consent. However, citing the Barbados Trust case and other cases, the Court of Appeal found that this restriction on assignment could not be construed as preventing the disposal to NBAD of amounts actually received by BPOI from SAMIR, since they would not be “rights under” the agreement with SAMIR. It would also not prevent the creation of any trust over the proceeds of the receivable, or over the receivable, in this case the debt owed by SAMIR, although no trust was declared over such debt here. Nor would it prevent the creation of any rights of subrogation or sub-participation.
BPOI's representation to NBAD in the purchase letter said: "BPOI is not prohibited by any security, loan or other agreement, to which it is a party, from disposing of the Receivable evidenced by the Invoice as contemplated herein and such sale does not conflict with any agreement binding on" BPOI.
The Court of Appeal, disagreeing with the High Court, said that BPOI was not in breach of this representation.
The Court found that the purchase letter allowed for a number of mechanisms for transferring or disposing of the economic value of the receivables.
The main method outlined in the purchase letter was BPOI paying over to NBAD amounts which it received from SAMIR within two business days of receipt, with a trust imposed on the receipts in the meantime. Assignment of BPOI's rights and claims against SAMIR would only take place to the extent that sums were not received from SAMIR or not paid over to NBAD by BPOI.
The purchase letter even expressly contemplated that a legal assignment or an equitable assignment of BPOI's rights to the debt might not be able to take place, might not be legally possible under applicable laws or might be invalid or unenforceable, in which case alternative remedies and rights were given to NBAD.
The Court ruled that there was no basis for interpreting the contract as meaning that disposal or sale referred exclusively to equitable assignment and therefore there was no breach of the representation.