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July 2015: Letter of Credit Victory

July 2015

In Griffin Energy Group Pty Limited (Subject to Deed of Company Arrangement) & Anor v ICICI Bank Limited & Ors [2015] NSWCA 29, the New South Wales Court of Appeal, in a joint judgment, reaffirmed an earlier decision of the New South Wales Supreme Court in holding in substance that: (i) letters of credit must be construed strictly according to their terms and not by reference to any supporting or related materials; and (ii) the letters of credit in question expired before the liabilities against which they were drawn became due and payable, with the result that any subsisting security derived from the existence of the credits was lost.

ICICI Bank Limited (“ICICI Bank”) was the issuing bank under the three letters of credit that together totalled $150 million. Quinn Emanuel acted for ICICI Bank in the proceedings, obtaining orders relieving the bank from a $150 million liability.

The letters of credit derived from the sale in 2011 of the Griffin Coal Mining Company (“Griffin”), a coal mining operation in Collie, Western Australia, by its then appointed administrators, KordaMentha, to Lanco Infratech Limited (“Lanco”), a large Indian coal miner. The purchase price was ~$740 million. Of this, approximately $490 million was paid at the time of acquisition in 2011, with the balance to be met by two deferred payments; the first, at the two year anniversary (for $100 million) and the second at the four year anniversary (for $150 million). All of this was documented in a lengthy sale agreement which was prepared by lawyers for KordaMentha (“Sale Agreement”).

Both of the deferred payments were supported by letters of credit issued by our client, ICICI Bank. The terms of the letters of credit were simple enough and expressly incorporated the International Standby Practices (ISP 98) for standby letters of credit.

The second letter of credit fell due on February 28, 2015. By this time, Griffin was in financial distress. ICICI Bank, as the primary funder to the purchaser, Lanco, was significantly exposed. As the maturity date on the final letters of credit drew near and the letters of credit were reflected upon once again, the following became clear:

• The due date under the Sale Agreement for the deferred payment was February 28, 2015, a Saturday.

• Under the Sale Agreement (Clause 1.1) a Business Day was defined as: “a day which is not a Saturday, Sunday or bank or public holiday in Perth, Western Australia”. Clause 1.2(g) of the Sale Agreement then provided that “if the date on or by which any act must be done under this document is not a Business Day, the act must be done on or by the next Business Day”.

• Monday, March 2, 2015 was a Labour Day public holiday in Perth, Western Australia but was not a public holiday in any other state or territory of Australia.

• The expiry date under the letters of credit was March 1, 2015, a Sunday. Pursuant to the letters of credit, a business day was defined to mean “any day (other than a Saturday or a Sunday) on which banks are open for general business in Singapore and Australia;” the ISP 98 had the effect of extending the expiry day to the next business day (clause 3.13).

Quinn Emanuel’s construction of the letters of credit was that Monday, March 2, 2015 was a day in which banks “are open for general business in Australia” even if banks in one particular state of Australia (in this case, Western Australia) are not open on that day. This construction had the consequence that the letters of credit would expire at the end of business on Monday, March 2, 2015, and the corresponding liability under the Sale Agreement would only enliven on Tuesday, March 3, 2015. That is, the letters of credit would be rendered nugatory as against the liability. Griffin argued confidently that a legalistic interpretation must yield to the clear intention of the parties, being that the credits were there to support the liability under the Sale Agreement.

Quinn Emanuel successfully argued for ICICI Bank (at trial and on appeal) that: (i) when construing a letter of credit, an ordinary bank officer must have regard only to the material before the bank, which in this case was confined to the terms of the letter of credit alone (an important precedent in banking instruments of this kind); (ii) that it is thus improper to have regard to extraneous agreements—here the terms of the Sale Agreement—from which the parties’ intentions could be inferred, and (iii) more pointedly, that, on their proper construction, the letters of credit expired on Monday, March 2, 2015, before the liability against which they were drawn fell due for payment.

Griffin has sought special leave to appeal to the High Court of Australia (the equivalent of the U.S. Supreme Court) and Quinn Emanuel continues to act for ICICI Bank in those proceedings.