Court orders Citibank to pay over 3bn/- to Total

THE High Court’s Commercial Division has ordered the Citibank Tanzania Limited to pay Total Tanzania Limited over 3bn/- for breach of terms of Letter of Credit in a transaction involving supply of some petroleum products.

Judge Stephen Magoiga ruled against Citibank, the defendant, after allowing a commercial suit lodged by the company, the plaintiff. The transaction related to the supply of 2,143 tonnes of mogas and other petroleum products at 1,150,924.94 US dollars by Alchemist Energy Trading to the plaintiff.

“I proceed to enter judgement and decree against the defendant. I declare that the defendant is liable to refund a total of 1,150,924.94 US dollars negligently debited from the plaintiff’s account at Citibank Dar es Salaam Branch,” he declared.

The judge further declared the defendant to have breached the terms of the letter of credit by debiting the amount from the plaintiff’s account in honoring the letter of credit without being issued and strictly compliance presentation.

He also ordered the defendant to pay the plaintiff company another sum of 300,000 US dollars as general damages and other payments of various interests as well as costs of suit.

Before reaching into a decision, the judge had to determine some issues, including whether there was a breach of the terms of the letters of credit, general agreement for issuance of letter of credit and documentary credit and guarantee standby letters of credit in complying presentation.

Having gone through the pleadings, testimonies of the witnesses, exhibits tendered and rival submissions for and against the parties, he answered the issue in the affirmative.

According to him, it was not disputed by parties that the plaintiff applied and defendant issued a Letter of Credit in favour of Alchemist Energy Trading DMCC for the sum of 1,150,924.94 US dollars to finance the supply of mogas and other petroleum products to the tune of 2143 Metric tonnes to the company.

He also noted that that there was no dispute that the plaintiff and the defendant entered into Letter of Credit arrangement via a contract for tender in favour of Alchemist Energy Trading DMCC, which presented a letter of indemnity and provisional invoice to Citibank Europe for payments.

Nevertheless, the judge pointed out that the letter of credit could only be used in two ways, including where the beneficiary is required to adhere to strictly compliance presentation upon arrival of the goods in the destination port by presenting the required documents.

This means that presentation of signed commercial invoice and seller’s letter of indemnity and ascertainment of the quality and quantity and certificates issued by independent inspector or using signed commercial invoice and seller’s letter of indemnity issued by beneficiary after arrival of goods.

The second way, he said, could be in case of arrival quantity and or the price at the port of destination or on the first day of delivery laycan is not known at the time of Letter of Credit utilization.

“In the second scenario, in my considered opinion, the beneficiary cannot utilize Letter of Credit unless and until the goods arrives at the port of destination,” the judge said.

In that way, he said, the purchaser would equally be protected and is the duty of both issuing and confirming banks to be satisfied that delivery is done and very vital without which no payment can go safely but at the detriment of the bank.

However, the judge noted, no arrival of quantity was done but the defendant went on to authorize and pass payment despite resistance by the plaintiff.

“This was wrong and it left the purchaser unprotected and eroded the bedrock of international trade which is embedded on trust and adherence to the terms and conditions of Letters of Credit,” he said.

Such failure, the judge said, undermined the protection and promotion of international trade in using Letter of Credit because without laycan (delivery), no way should payments have been allowed and the wording of the Letter of Credit was to that effect.

According to the plaint, at the request of the plaintiff, on March 1, 2021 the defendant issued Letter of Credit in favour of Alchemist Energy Trading DMCC to undertake payments of the sum of 1,150,924.94 US dollars for petroleum products to be supplied to the plaintiff.

It was terms of agreement, among others, that the defendant was to make payment upon presentation of signed commercial invoice, certificate of origin, certificate of quality issued on arrival on ships tank composite issued by independent inspector and certificate of quantity issued on vessel arrival.

Where such document are not available payments were to be made against presentation of signed commercial invoice and seller’s letter of indemnity.

Through the Petroleum Bulk Procurement Agency the plaintiff ordered Alchemist Energy Trading DMCC to supply it with 1,520 metric tons of petroleum products worth 1,150,924.94 US dollars which was to be supplied to plaintiff between March 3 and 5, 2021.

Unfortunately, Alchemist Energy Trading was not able to deliver the goods on agreed dates and was postponed to March 14, 2021 which the same was not honoured leading to extension of delivery time between May 15 and 17, 2021 but which ended up in vain, thus the agreement was terminated.

Following that termination, the plaintiff requested the defendant not to make any payment to Alchemist Energy Trading against letter of credit for want of consideration. However, the defendant refused the request because presentation of the document and discount of Letter of Credit has already been made.

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