In Brief:
- On behalf of our client, Hadef & Partners successfully defended a multimillion dirham claim which was twice referred to the Court of Cassation.
- The Court of Cassation issued new guidance in regards to the application of Force Majeure with respect to a Documentary Credit submitted to a bank.
- This decision will provide financial institutions with enhanced clarity when applying their compliance regulations.
Hadef & Partners successfully defended a longstanding multimillion dirham claim that had been previously referred to the Court of Cassation on two separate occasions. As a result, a number of important legal principles were issued by the Court of Cassation, most notably in relation to the modern day application of the principle of Force Majeure with respect to a Documentary Credit submitted to a bank.
In 2014, a claimant filed a case against our client and others, in their capacity as a beneficiary to a Documentary Credit which had been assigned to the claimant. The claimant alleged that our client had not satisfied the Documentary Credit and failed to release funds owed to the claimant despite having received all the required documents instructing the payment. Prior to our involvement, an unfavourable Court of First Instance judgement had been issued against our client. Hadef & Partners was engaged at the Court of Appeal stage to challenge the Court of First Instance judgment.
The bank’s primary defence centered on the fact that an investigation for forgery was already in process by the authorities of a foreign state in relation to the Documentary Credit and underlying documentation. However, the obligation of the bank had arguably arisen before any formal order had been issued by the public prosecution.
The Court of Cassation confirmed that the decision of a public authority in a foreign state preventing a bank from paying under a Documentary Credit submitted to the bank would amount to Force Majeure, thereby exonerating the bank from civil liability. Interestingly, in this case, the obligation of the bank to make payment arose after the order of the authorities in question. The Court of Cassation justified any retrospective effect by stating that an order from the public prosecution has been issued meaning that the Documentary Credit and supporting documentation submitted was ineffective at the time of its submission to the bank, even if the documents were fully attested originals. As a result, the submission of the Documentary Credit did not give rise to any obligation on the bank to make payment.
In light of the increased focus on combatting money laundering and tax evasion, this decision will assist in giving financial institutions increased confidence that compliance with applicable regulations, whether domestic or foreign, will not prejudice the bank.
If you would like more information, or have any question, please contact Abdulrahman Juma, Partner, Head of Dispute Resolution, Khalid El Derderi, Senior Associate, Dispute Resolution, or Mohammed Abbas, Associate, Dispute Resolution.