Teal blue graphic

Letters of Credit unwavering in the face of foreign injunctions

The recent case of National Infrastructure Development Co. Ltd. v BNP Paribas [2016] EWHC 2508 (Comm) has confirmed that only in exceptional circumstances will the court prevent enforcement of on-demand securities.

Background of the case

National Infrastructure Development Co. Ltd (NIDCO), a government owned corporation, contracted with OAS Constructora (OAS), a Brazilian contractor, to progress a large highways project in Trinidad and Tobago. Pursuant to the contract OAS was required to open Standby Letters of Credit (SBLCs) for the benefit of NIDCO as security for their performance. Two of the SBLCs were issued by BNP Paribas (BNP). The SBLCs placed an "irrevocable obligation to pay NIDCO on demand" on BNP. The SBLCs were countered-guaranteed by a BNP subsidiary in Brazil, which in turn benefited from back to back guarantees from OAS.

OAS entered insolvency proceedings in Brazil and NIDCO terminated its contract with OAS leading to a dispute between parties. Concurrently NIDCO made demands under the SBLCs issued by BNP. OAS obtained interim injunctions in Brazil preventing BNP and its subsidiaries from paying NIDCO under the SBLCs. If BNP paid NIDCO under the SBLC in breach of the Brazilian interim injunctions it would be subject to a penalty fee of 10% of the value of the SBLCs.

NIDCO brought proceedings against BNP in England for payment of the sums due following the demands on the SBLCs and applied for summary judgment. The issue before the Court was whether the Brazilian injunction and its effect gave BNP any arguable defence or grounds for resisting payment under the SBLCs as a matter of English law. BNP argued that the English proceedings should be stayed until the conclusion of the Brazilian proceedings so that it would not be required to breach the Brazilian interim injunctions. Alternatively, if the Court were minded to grant summary judgment immediately, BNP argued that the Court should also grant a stay of execution.


Foxton J held BNP's submissions to be “untenable as a matter of English law". Notwithstanding its sympathy for BNP's position, the court could not refuse the application for summary judgment on procedural grounds by, for example, adjourning to a later date, for fear that it would undermine the important principle of English law protecting the sanctity of SBLCs. BNP conceded that it had no English law defence and relied solely on its exposure to penalties imposed by a Brazilian court as grounds for resisting the application. The court held it would be wrong to use a stay of execution to subvert the principles of substantive law which provide very limited defences to resist payment under SBLCs

In the absence of exceptional circumstances such as illegality or fraud the court saw no basis for refusing the application and, following precedent, the court granted summary judgment and denied the application for a stay of execution.

Further Case Law

Foxton J cited Power Curber v National Bank of Kuwait [1981] 2 Lloyds Rep 394 as a reliable Court of Appeal authority on similar facts to those found in Nidco v BNP. Power Curber (PC), an American company, shipped machinery to a Kuwaiti firm on the strength an irrevocable letter of credit of the National Bank of Kuwait (NBK). As soon as the machinery was delivered, the buyers made a counter-claim and obtained an order from the Kuwaiti court restraining NBK from making payment to PC. PC sued NBK and applied for summary judgment against NBK for the amount demanded under the letter of credit. The Court of Appeal upheld the first instance decision to grant summary judgment and overturned the decision to award a stay of execution pending appeal in Kuwait.

What can be learned from this decision?

Both Power Curber and NIDCO are a reminder that, subject to any fraud or illegality, the courts will strive to protect the longstanding principle in English law of autonomy of contract codified in UCP 500 Article 3(A): "Credits, by their very nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts". In the same vein, Kerr LJ referred to a letter of credit as the “lifeblood of international commerce” when giving judgment in RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd (1978) 1 Queen's Bench 146.

Foreign injunctions sought by one party to prevent the issuing bank paying under a letter of credit threaten this principle but the English courts seem loath to allow any disputes or obligations pertaining to the underlying contract to interfere with any payment under a letter of credit. The judgment in Power Curber demonstrates that the very purpose of issuing an irrevocable letter of credit was to protect the beneficiary's rights from counterclaims or setoff. By ensuring the enforcement of those rights Lord Denning was “upholding the world-wide practices of international commerce”.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Insights & events View all