The Court considered the legal and commercial context in which the relevant documentation was agreed when it held that there was no real dispute over a debt which arose under a letter of credit entered into by a trade finance company.
A was a German based fabric manufacturer, who agreed to sell an order of fabrics to B (a company based in the United Arab Emirates). C provided an irrevocable letter of credit (“Letter of Credit”) to A as an economic guarantee for payment of the order. The letter of credit incorporated the Uniform Customs and Practice for Documentary Credits, UCP 600, standard terms.
When A did not receive payment from B, A’s bank presented the documents to C to enforce the Letter of Credit and seek payment from C. C then asserted that the documents were not compliant as they had not been “signed by all sides of the Letter of Credit”. C continued to deny liability under the Letter of Credit.
A served a statutory demand on C relating to non-payment under the Letter of Credit. A winding up petition followed.
C sought to oppose the winding up on the basis that the liability under the Letter of Credit was disputed.
The key issues allegedly in dispute were:
As these points were raised in response to the petition, the issue before the Court was whether the debt on which the petition was based substantially disputed in good faith.
The Court found that there was no real or substantial dispute and accordingly the petition was successful. The Court’s decision was based on the following findings.
It will be well known to many of our readers that the evidential threshold required in order to satisfy the Court that a debt is disputed on substantial grounds is low. This case is specific in its facts but highlights the type of circumstances in which a Court will be content to hold that a dispute does not have the requisite substance. It also serves as a reminder that a contractual agreement should be carefully drafted, especially where one or other party seeks to introduce unusual terms.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.