CL-2022-000456 - [2025] EWHC 1938 (Comm)

The Claimants said that the place of performance was Russia. This was primarily on the basis that performance consisted of payment, and the general presumption under English law is that the debtor must follow the creditor, such that, where no express place for payment is specified, the place for payment will be where the creditor is located. For this general principle, the Claimants referred to an old case and a recent one:

The Claimants also referred to the terms of EuroChem NW2’s demands, which instructed that payment should be made to its account with Gazprombank in Moscow. In addition, they referred to the more recent instructions from EuroChem AG, also for payment in Russia.

There are a number of problems with this approach.

First, the fact that the demands and the more recent instructions from EuroChem AG sought payment in Russia is irrelevant. The Banks were under no obligation to pay either EuroChem NW2 or EuroChem AG in accordance with those instructions. The only authority cited by the Claimants on this point did not support them. It stated that post-contractual payment instructions are irrelevant as an aid to construction: Canyon Offshore Ltd v GDF Suez E&P Nederland BV [2014] EWHC 3810 (Comm), per HHJ Mackie KC at [38].

Second, following the Assignment, payment must be to EuroChem AG as assignee of the proceeds. By making payment to EuroChem AG, the Banks would discharge their obligations under the Bonds to EuroChem NW2. This could be achieved by paying EuroChem AG in Switzerland – if necessary (e.g. if EuroChem AG refused to nominate a bank account in Switzerland), by delivering banknotes to its headquarters in Zug. This might be what would be required, on the basis of the general presumption relied on by the Claimants.

Third, the presumption is, as the Claimants accept, only a presumption. It will be displaced if the express or implied terms of the contract so provide, or if the contract has relevant features or there are other circumstances that lead to this result. In the context of on-demand instruments, if the instrument specifies the place where the demand must be made, this is generally regarded as the place for payment, because the instrument requires payment on demand.

In the case of the ING Bond, this result cannot be disputed, because that Bond incorporated the URDG. Under Article 20(c), payment was to be made at ING’s branch in Milan, which was where the Bond was issued and was also where the demand had to be made.

In the case of the SocGen Bonds, there was no expressly stipulated place for payment. However, they all provided expressly that demands had to be made at SocGen’s headquarters in Paris.

There are a number of cases that deal with the place for payment under other species of on-demand instruments, in particular letters of credit. The authority that deals with the point in the context of an instrument closest in nature to the Bonds in this case is Britten Norman Ltd v State Ownership Fund of Romania [2000] Lloyd’s Rep. (Banking) 315, per Mr Peter Leaver QC at p. 319 lhc:

“In my judgment, the matter should be approached in the following way. Until a demand was made, Barclays was under no actual liability to SOF. Its liability was only a potential liability. When the demand was made, in conformity with the terms of the Letter of Guarantee, Barclays' potential liability crystallised into an actual liability. That liability, absent any contractual term as to the place of payment, was to make payment at the place where the demand was made and where the liability crystallised. The fact that SOF, in its demand, requested that payment should be made into a stipulated account at a Romanian bank was simply an administrative, or mechanical, request, and not a contractual requirement. It would have been perfectly possible for SOF to have stipulated for payment in Romania, but it did not do so. While it is true that, in English law, a debtor is under an obligation to seek out his creditor in order to make payment of his debt, so that Barclays was underan obligation to seek out SOF, that obligation has little to do with the place of payment under a document such as the Letter of Guarantee.”

Mr Leaver QC relied on a line of authority that can be traced back to the decision in Offshore International SA v Banco Central SA [1977] 1 WLR 399, which concerned a letter of credit. In that case, Ackner J relied on a passage in Gutteridge & Megrah ‘The Law of Bankers’ Commercial Credits’ (5^th ed.), relating the law of such an instrument to the place of performance:

“… the presumption must be that matters connected with the performance by the banker of his contract under a commercial credit are to be regulated by the law prevailing at the place of performance, i.e. the law of the territory in which the seller’s draft is presented to the banker for acceptance or payment.”

The decision of Ackner J was endorsed by the Court of Appeal, both as to place for payment and as to presumed proper law, in Power Curber International Ltd v National Bank of Kuwait [1981] 2 Lloyd’s Rep 394 and (after Britten Norman) in Marconi Communications International Limited v PT Pan Indonesia Bank Limited TBK [2005] EWCA Civ 422. The reasoning in Britten Norman therefore was based on longstanding authorities relating to letters of credit, as well as reflecting the commercial practice which had been drawn on by Ackner J, and which was described in Gutteridge & Megrah as applying “under a commercial credit”.

The Claimants naturally drew attention to the criticism of Britten Norman in the judgment in Commercial Marine & Piling Ltd v Pierse Contracting Ltd [2009] EWHC 2241 (TCC), where Ramsey J suggested that Britten Norman might be inconsistent with the decision of the Court of Appeal in Samcrete Egypt Engineers and Contractors SAE v Land Rover Exports Ltd [2001] EWCA Civ 2019 – which was a case in respect of a guarantee. However, Ramsey J rightly noted that the position is not clear, because the report in Samcrete Egypt Engineers and Contractors SAE v Land Rover Exports Ltd does not make it clear whether or not there was an express provision as to the place of payment. I would add that Ramsey J seems not to have had Power Curber International Ltd v National Bank of Kuwait drawn to his attention; that neither Offshore International nor Power Curber is referred to in Samcrete itself; and that the subsequent Court of Appeal decision in Marconi Communications International Limited v PT Pan Indonesia Bank Limited TBK went the other way.

Samcrete was discussed at some length in Marconi Communications International, which post-dated the other decisions in this series. However, the discussion of Samcrete in Marconi Communications International was mostly on another issue (the presumption in article 4.2 of the Rome Convention 1980, i.e. the Rome I Regulation). Potter LJ, who had given the lead judgment in Samcrete, delivered the judgment of the Court of Appeal in Marconi Communications International, but does not appear to have considered that there was any tension between the cases. His endorsement of Offshore International and Power Curber is at [42] and [43]; and the reasoning at [49] also seems to assume that the place of the demand and the place for payment will be the same – as it was for the Bank of Baroda in Bank of Baroda v Vysya Bank Ltd [1994] 2 Lloyd’s Rep 87, considered at [50] ff. See also at [62] (where the place of presentation of documents is also treated as the place where payment is to be made against those documents).

I accept that Offshore International, Power Curber and Marconi Communications International focussed on letters of credit, rather than on-demand bonds. However, I note that, although Ramsey J in Commercial Marine & Piling criticised Britten Norman in a number of respects, he did not suggest that Mr Leaver QC had been wrong to look at cases on letters of credit. I am not persuaded that there is any material difference between letters of credit and on-demand bonds. In both situations, there is an autonomous obligation to pay, which arises upon the presentation of specified documents to the issuer. Such payment is intended to be immediate, which is why it is commonplace to speak of payment “against” documents. In days gone by, such payment would have been effected by handing over physical currency, at the bank’s counter, in exchange for the documents. The fact that payment now occurs virtually, by way of a stream of electrons, cannot alter, and should not obscure, the nature of the transaction.

The state of the law in this area is not wholly satisfactory. However, on balance I prefer the line of authority leading up to Britten Norman and thence to Marconi Communications International, in part because it has the stronger and more recent support from the Court of Appeal, and in part because it seems to me to reflect better the reality of on-demand instruments. Payment is intended to be the direct and immediate consequence of the demand. Absent any contractual indication to the contrary, the place for the demand is the obvious place for payment. This seems to me to apply to on-demand bonds no less than it does to letters of credit.

It follows that, in relation to the SocGen Bonds, the place for payment was Paris.

I should add that the Claimants observed that Power Curber International Ltd v National Bank of Kuwait had been overturned by the decision of the Supreme Court in Taurus Petroleum Limited v State Oil Marketing Company of the Ministry of Oil [2017] UKSC 64. This is true, but it was overturned in relation to the situs of the debt – not in relation to the place for payment.

It follows that, as a matter of English law, the place for payment under the Bonds was in France as regards the SocGen Bonds and in Italy as regards the ING Bond. Payment was clearly central to the Banks’ performance of their obligations under the Bonds, and it follows that performance by them would therefore be illegal in the relevant jurisdictions, for the purpose of the rule in Ralli Brothers.

However, I would add that, even if I had been persuaded that payment had to be performed in Russia, I would not have accepted that no element of performance, but only preparatory steps, had to be taken in Paris and Milan. In the context of on-demand bonds, (i) the making of the demands for payment and (ii) the issuer’s response to such demands are both crucial. Even if these actions are treated as separate from payment, they are still essential to the obligations under such bonds and their performance. They are what it means to honour the obligations under an on-demand bond.

Furthermore, it would seem to me artificial and unfair to ignore this reality when the NCAs in France and Italy, whose decisions are critical, clearly take the view that the actions that the Banks take in respect of the Bonds in their jurisdictions are critical. The DGT and the CSF, like Ackner J, regard the Banks’ obligation to respond to the demands, when made, as central to the way the Bonds operate. This can only happen when and where the demands are made. That is where the Bonds fall to be honoured – not in Russia, but within the jurisdiction of the DGT and the CSF. If the Banks were to ignore the views of the DGT and the CSF and make payment in Russia, they would face prosecution in France and Italy (respectively), and Mr Colbert and others might face the risk of imprisonment. That is not something that this court should be quick to ignore, when considering whether the EU sanctions mean that the Banks must be required to pay under the Bonds.

I therefore am not convinced that the Banks’ receipt of and response to the demands can or should be characterised as merely preparatory for the purposes of the Ralli Brothers rule, rather than being a necessary part of contractual performance.