Moeve Trading v Mael Trading: Letters of credit as conditional payment in FOB contracts

The High Court's recent decision in Moeve Trading SAU v Mael Trading FZ LLC [2026] EWHC 17 (Comm) clarifies critical principles regarding payment obligations when letters of credit fail in international sale contracts. Deputy Judge Peter MacDonald Eggers KC's judgement reinforces that where property in goods has passed to a buyer, the seller remains entitled to claim the contract price directly, even when payment mechanisms under documentary credits have broken down.

The dispute arose from an FOB contract for petroleum products shipped from Algeciras to Sierra Leone. The sale contract provided for payment within 60 days of the bill of lading date, with the buyer obliged to open confirmed irrevocable letters of credit. Whilst the cargo was shipped and property passed to the buyer upon loading, the issuing bank subsequently refused payment when the seller presented documents under the letters of credit.

The seller commenced proceedings claiming the contract price of approximately US$13 million pursuant to section 49(1) of the Sale of Goods Act 1979. The buyer resisted on two principal grounds: first, that its payment obligations had been discharged by procuring the letters of credit; second, that no liability arose without physical tender of the original bills of lading.

Conditional versus absolute payment

The court conducted a comprehensive review of authorities concerning whether letters of credit constitute conditional or absolute payment. The judgement confirmed that letters of credit ordinarily operate as conditional payment rather than absolute discharge of the buyer's obligations. The critical condition relates to the credit functioning properly, not to the seller's entitlement to payment despite non-compliance with the credit's terms.

Where a letter of credit represents conditional payment and the issuing bank fails to pay, the seller retains the right to claim the price directly from the buyer, provided property in the goods has passed. This principle applies regardless of whether the credit's failure resulted from the seller's fault in presenting non-compliant documents or from circumstances beyond the seller's control.

The court distinguished cases where buyers had rejected goods and retained no property interest. The determining factor was that the buyer had acquired title to the cargo and taken delivery of the majority of it. In such circumstances, allowing the buyer to avoid payment would produce an uncommercial result inconsistent with fundamental sale of goods principles.

Documentary tender requirements

The buyer's alternative defence centred on the seller's failure to physically deliver the original bills of lading. The court rejected this argument, holding that the contract required concurrent performance of payment and document delivery obligations. The seller's pleaded readiness to tender documents in exchange for payment constituted sufficient compliance with its obligations.

The judgement emphasised that requiring document delivery before payment would subvert the commercial logic of documentary credit transactions. The contractual scheme contemplated documents being provided against payment, not in advance of it. Clause 33.7 of the general terms expressly preserved the seller's right to withhold shipping documents pending payment.

The court granted summary judgement for the full contract price, including portions relating to cargo that had been judicially sold in Sierra Leone following arrest proceedings. The buyer's acquisition of property and the third-party nature of events leading to the cargo's detention provided no basis for reducing the seller's entitlement.

The buyer's counterclaim for demurrage was permitted to proceed to trial, save for excluded claims for loss of profit. The judgement provides valuable guidance on the interplay between documentary credit mechanisms and underlying sale contract obligations, particularly where property has passed but payment disputes remain unresolved.

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