Letters of credit are designed to make payment mechanical. Documents in, money out. Banks deal in documents, not goods. That is the theory embedded in UCP 600, the Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce, which sets the global rules governing how banks examine documents and honour letters of credit. But the instrument does not extinguish liability. On 13 January 2026, in Moeve Trading S.A.U. v Mael Trading FZ LLC [2026] EWHC 17 (Comm), the Commercial Court reaffirmed a principle that commodity traders and transaction bankers would do well to keep in mind. If the bank does not honour, the buyer may still remain liable for the price.

The underlying sale contract was concluded on 4 April 2024. Moeve Trading SAU agreed to sell approximately 9,000 to 9,500 metric tons of gasoline and 5,000 metric tons plus five per cent of gasoil to Mael Trading FZ LLC. Delivery was agreed on FOB terms at Algeciras in Spain.

FOB, or Free on Board, is one of the standard Incoterms 2020 rules published by the International Chamber of Commerce. Under FOB, the seller fulfils its delivery obligation when the goods are loaded on board the vessel nominated by the buyer at the named port of shipment. At that point, risk passes to the buyer. Unless otherwise agreed, property will also pass in accordance with the governing law. In this case, title passed on shipment.

By 12 July 2024, the cargo had been shipped on board the vessel Harbour Progress, and bills of lading were issued. The vessel later arrived in Freetown, Sierra Leone. Most of the cargo was discharged to or to the order of the buyer, although a portion was subject to a shipowner’s lien.

The price was $13,031,741.54.

Payment was to be made by irrevocable letters of credit, subject to UCP 600. In such a structure, the buyer acts as the applicant and instructs its issuing bank to issue a letter of credit in favour of the seller, who is the beneficiary. The issuing bank undertakes to honour a complying presentation (meaning a presentation of documents that strictly conforms to the terms and conditions of the letter of credit). Where a second bank adds confirmation, it undertakes its own independent obligation to honour a complying presentation in addition to that of the issuing bank.

On 21 June 2024, Bank of Africa United Kingdom plc, as issuing bank, issued two letters of credit in favour of the seller. JP Morgan Chase Bank NA added its confirmation.

In September and October 2024, the beneficiary made presentations under the letters of credit. Banks are required to examine documents on their face to determine whether they constitute a complying presentation. The issuing bank refused to pay under the letters of credit. The court expressly recorded that there was no evidence before it as to whether that refusal was or was not justified under the terms of the letters of credit. The reasons for the non-payment were not determined.

No payment was made under either credit.

The buyer did not pay the price.

Instead, it advanced a defence that was commercially ambitious. On its case, the letter of credit mechanism was exclusive. By procuring confirmed letters of credit, it argued, it had discharged its payment obligation. Either the credits operated as absolute payment, substituting the banks’ liability for its own, or, even if they were merely conditional payment, the seller was confined to the letter of credit structure and could not bypass it by suing for the price.

Justice Peter MacDonald Eggers KC approached the issue as one of contractual construction. In the absence of clear language to the contrary, a letter of credit operates as a conditional payment rather than an absolute payment. Absolute payment arises only where the contract makes it unequivocally clear that the buyer’s liability is replaced by that of the bank.

The judgment revisited the classic distinction. If the letter of credit constitutes absolute payment, the seller’s only recourse is against the banker. If it is a conditional payment, “the seller looks in the first instance to the banker for payment, but, if the banker does not meet his obligations when the time comes for him to do so, the seller can have recourse to the buyer.”

The sales contract required the buyer to arrange credits “to cover the total cargo amount through a first class international bank acceptable to Seller”. It also required payment “without any deduction, set off or counterclaim”. Nothing in the wording displaced the buyer’s primary liability.

Critically, the buyer admitted that title had passed. Section 49 of the Sale of Goods Act 1979 provides that where property in goods has passed, and the buyer wrongfully neglects or refuses to pay, “the seller may maintain an action against him for the price of the goods”.

The judge held that the usual presumption applied. The letters of credit were conditional payment. If payment under them failed, the seller’s remedy lay in a claim for the price. He noted, “A buyer who has not rejected goods, or to whom property in goods has passed, remains liable for their price notwithstanding any failure of the credit and regardless of whether that failure was caused by the seller’s presentation of non compliant documents.”

That observation is significant. Even if documentary discrepancies had contributed to the refusal, that would not necessarily extinguish liability under the sale contract. The court did not determine whether the presentation was compliant. It did not need to.

Let’s consider the wider background. In December 2024, the seller commenced admiralty proceedings in Sierra Leone, arrested the vessel and alleged misdelivery. Part of the remaining cargo was sold by judicial order to Leonoil Co Ltd, with proceeds placed into escrow pending arbitration. The fact that there were issues of lien and letters of indemnity did not alter the legal analysis.

Title had passed in Algeciras. The buyer had not rejected the goods. A substantial part had been discharged to its order. The letters of credit had not been paid.

This was an application for summary judgment. The court concluded that there was no real prospect of the buyer successfully defending the claim for the purchase price. Judgment was entered for the full amount.

For transaction bankers and commodity traders, the lesson here is that, while a letter of credit is a powerful liquidity instrument that can allocate documentary risk between banks, it does not, without clear contractual wording, substitute the bank as debtor. 

If the letter of credit fails, the sale contract remains. And if the property has passed, the buyer may remain liable for the price.