- The New South Wales Court of Appeal determined that the interaction between the terms of a share sale agreement and the terms of three letters of credit meant that a bank was not required to pay a vendor $150 million.
- Courts will give strict effect to the language chosen by the parties, in this case the expiry dates of transaction documents.
Griffin Energy Group entered into a Share Sale Agreement (SSA) with Lanco Resources Australia. Under the SSA, Lanco purchased shares in two companies which owned and operated a coal mine in Western Australia.
In addition to the SSA, three standby letters of credit were issued by Singaporean based ICICI Bank naming Griffin as the beneficiary. The letters of credit were intended to secure a $150 million deferred consideration payment from Lanco to Griffin.
There were a number of relevant circumstances surrounding the deferred consideration payment:
- Payment was to occur on either Saturday 28 February 2015 or Sunday 1 March 2015.
- The letters of credit required presentation of a demand to be made before 1.30pm Singapore time on the expiry date of the letters of credit. Each of the letters of credit was expressed to expire on Sunday 1 March 2015.
- Monday 2 March 2015 was a public holiday in Western Australia but not in the rest of Australia or Singapore.
The letters of credit provided that:
- presentation of the letters of credit to ICICI Bank were to be accompanied by a declaration stating that the amount sought was due and payable; and
- under the International Standby Procedures ISP98, where the date for presentation is not a business day, presentation made on the first following business day will be considered timely.
Griffin was concerned about the construction and interaction of provisions of the SSA and letters of credit and in particular, whether it would be able to secure the $150 million deferred consideration payment.
Griffin commenced proceedings seeking the following declarations:
- presentation of each letter of credit on or before 1.30pm Singapore time on Tuesday 3 March 2015 was timely presentation, and
- under the SSA, the $150 million deferred consideration payment fell due and payable by Lanco on 28 February 2015 and remained due and payable every day after 28 February 2015 until paid.
ICICI Bank argued that Griffin could not require it to make any payments under the letters of credit because Griffin was first required to declare the amount to be due and payable. This could not occur until Tuesday 3 March 2015 because of the Monday 2 March 2015 public holiday. Meanwhile, the letters of credit would expire on Monday 2 March 2015. Griffin argued that it was entitled to require payment under the letters of credit by presentation in Singapore on Tuesday 3 March 2015.
At first instance, Hammerschlag J in the Supreme Court of NSW dismissed Griffin’s applications concluding that by Tuesday 3 March, when Griffin was able to declare the amount claimed due and payable under the SSA, each letter of credit would have expired.
Due and payable
On appeal, the NSWCA first assessed the date on which the $150 million deferred consideration payment became due and payable under the SSA and the letters of credit.
The letters of credit required Griffin (as beneficiary) to declare the claimed amount due and payable to it by Lanco. Under the SSA, the deferred consideration became due and payable on Saturday 28 February 2015 or Sunday 1 March 2015. Given that these dates fell on non-business days, the amounts become due on the next business day. The fact that Monday 2 March 2015 was a public holiday meant that the next business day in Western Australia was Tuesday 3 March 2015.
Accordingly, the $150 million payment was not due and payable to Griffin until Tuesday 3 March 2015.
Date for presentation
The court then considered whether Monday 2 March 2015 was the final ‘Business Day’ for the purpose of presentation of the letters of credit. Importantly, Monday 2 March 2015 was not a public holiday in Singapore, where the letters of credit were to be presented, nor was it a public holiday in the other states of Australia.
Under the letters of credit, a 'Business Day' was defined as 'any day (other than a Saturday or Sunday) on which banks are open for general business in Singapore and Australia'. Ward JA, Leeming JA and Sackville AJA noted that the language does not require banks to be open throughout Australia, it is enough that banks are 'in substance' open for general business.
Accordingly, Monday 2 March 2015 was considered to be the next business day after the date of expiry of the letters of credit and the final date for presentation.
The consequence of these findings was that ICICI Bank was not required to pay Griffin the $150 million deferred consideration payment.
The strict interpretation of the SSA and the letters of credit (undoubtedly unintended by the parties to the transaction) suggests the courts will apply a strict interpretation of financial instruments. Time will tell whether it foreshadows a trend of more literal interpretation of transaction documents generally.
- Parties should apply considered drafting to financial instruments as courts are likely to apply a strict interpretation.
- Given the paramount nature of financial instruments it is important to allow sufficient time for the beneficiary to comply with any provisions of a letter of credit before expiry.
- By carefully considering the date of expiry, parties to a transaction can ensure that they can crystallise their rights within applicable time frames in future.