The defendant, BP Oil International Limited ("BP"), and a third party debtor (a Moroccan oil refining company) entered into an agreement for the sale and purchase of crude oil which was governed by English law (the "Agreement"). The Agreement contained a prohibition against either party assigning any of its rights or obligations to anyone without the written consent of the other party to the Agreement.
Under a purchase letter, National Bank of Abu Dhabi PJSC (the "Bank") (the claimant in this case) agreed to purchase, and BP agreed to sell, at a discount, the debt owed to BP by the third party debtor under the Agreement (the "Receivable"). BP assigned the total value of the Receivable to the Bank pursuant to the terms of the purchase letter. The purchase letter contained a representation and warranty by BP that BP was not prohibited by any security, loan, or other agreement from disposing of the Receivable as contemplated by the purchase letter and that the sale by BP under the purchase letter did not conflict with any agreement binding on BP.
The Bank paid the agreed purchase price and the debtor later became insolvent. The Bank did not receive payment and only then did it come to the Bank's attention that there was a prohibition in the Agreement against BP assigning the Receivable. The Bank therefore claimed compensation from BP for breach of the representation and warranty referred to above.
The court held that the representation and warranty given by BP as referred to above was false and, accordingly, BP had breached the relevant provision of the purchase letter. Importantly, the court noted that it was clear that the representation and warranty provision in question was very broad and appeared to cover, without limitation, any agreement BP had entered into. The court stated that it was clear that there was no attempt to exclude the Agreement from the ambit of this clause.
This is an English case and as such is not binding in Scotland but it raises some key considerations which must be borne in mind by solicitors in Scotland acting for funders in invoice finance arrangements notwithstanding the differences in the law north and south of the border. For example, the case highlights:
the importance of well drafted invoice finance agreements including, in particular, ensuring that the representations and warranties given by the borrower are extensive enough so as to ensure that the funder is adequately protected in circumstances such as these;
- if practical in the circumstances, the importance of diligence being carried out on the contract under which the debt arises so that the funder is aware of any issues such as these from the outset - of course in invoice finance arrangements where there are multiple debtors or the debtor contract is not yet in existence this can be more difficult.