30 November 2016 - Post by:Carlo Sushant Chari
National Bank of Abu Dhabi v BP Oil International highlights the dangers of contracts which evolve over time and which are a combination of standard or boilerplate clauses from other contracts with or without modifications. The “belt and braces” approach is not always the best route to clarity. Nonetheless the court will ascribe a meaning to the agreement, if necessary, by not over-analysing the fine print.
The bank agreed to purchase from BP a receivable owed to BP by a Moroccan oil-refining company, SAMIR. BP represented to the bank that it was “not prohibited by any … other agreement … from disposing of the Receivable” but BP’s underlying agreement with SAMIR prohibited assignments.
The court had to ascertain whether the purchase agreement “in equity irrevocably” assigned the receivable to the bank or only promised that the bank would receive the proceeds of the debt. Assignments of proceeds are not invalidated by non-assignment clauses (see Linden Gardens). If BP had promised the bank the proceeds of the debt by various alternative routes, BP’s representation would be true since it would not be prohibited from disposing of the receivable otherwise than by assignment of the receivable. If the disposal of debt was an assignment of the receivable itself, BP’s representation would be false.
The court found that reference to beneficial ownership by the bank of not only debts “paid by [SAMIR]” but also of “debts in respect of which such amounts are paid” could not be squared with assignment of proceeds. NBAD had an interest in the debt even before associated proceeds came into existence. This could not be reconciled with a mere interest in the “fruits of the proceeds”. The representation was false.