The Court of Appeal has emphatically cleared a solicitor of fraud, expressing “some disquiet” at the trial judge’s findings to the contrary in an oil rig drilling case involving a $129m (£123m) letter of credit.
In Petrosaudi Oil Services (Venezuela) Ltd v Novo Banco S.A and others  EWCA Civ 9 , the court overturned the High Court ruling by HHJ Waksman QC.
Petrosaudi entered into a drilling contract with Venezuelan entity PDVSA to perform drilling services in Venezuela. The contract required PDVSA to furnish a standby letter of credit to secure payment and guarantee performance by PDVSA.
But the contract, which said Petrosaudi would be paid regardless of whether PDVSA approved the payments, contradicted a Venezuelan law requiring invoices to be approved. At arbitration, arbitrators found that PDVSA was bound by that law.
Petrosaudi therefore sought to exercise its rights under the letter of credit, in advance of any final award. The letter required POS to certify to the bank that PDVSA was “obligated to pay the amount demanded under the drilling contract”. This was presented by Petrosaudi’s general counsel (GC), a New Zealand-qualified lawyer who was also a solicitor in England and Wales,
PDVSA obtained an injunction from the Commercial Court preventing the bank from paying out, saying that the certificate was untrue, as PDVSA was not at present obligated to pay any sum under the drilling contract, and the arbitrators had so held. They further alleged that the certificate had been presented fraudulently.
At a trial held in September 2016, HHJ Waksman QC agreed with both points, and therefore held that the bank was not to pay Petrosaudi. The judge disbelieved the general counsel when he said he had honestly believed the invoices were due and had not considered whether “obligated” meant “obligated now”, as opposed to at a future date.
The Court of Appeal held that the position was “not as simple” as the trial judge had found. Christopher Clarke LJ said: “In my view, it was, therefore, open to Petrosaudi and [the GC] to claim that the sums in question were due and payable.”
Exonerating the GC, he continued: “It is important, in this respect, to focus on the precise words, rather than considering what might have been the true interpretation if the words used were ‘now obligated to pay’, ‘obligated now to pay’, or ‘obligated to pay now’…
“The expression ‘obligated to pay’ is capable of more than one meaning as are the words ‘pay’, ‘payable’ or ‘paid’. It can refer to the accrual of a liability to pay or an obligation to pay which is immediately to be discharged.”
He concluded: “In my judgment, the judge was wrong to conclude that PDVSA was under no obligation under the drilling contract to pay any invoice submitted by Petrosaudi; and that [the GC] on behalf of Petrosaudi was not entitled to certify that PDVSA was obligated to pay Petrosaudi the amount of those invoices.”
He went on: “I wish… to express some disquiet at the finding of the judge that, on the view that he took of the legal position, [the GC] was fraudulent in signing the certificate. Whilst there is only one true construction of an instrument such as the certificate, different legal minds may obviously take different views on such a question.
“Had it been necessary to do so I would wish to have given anxious consideration to the question whether, despite the well-recognised advantages of a trial judge and the inhibition rightly felt by this court in overturning findings of fact, the judge was entitled to conclude that [the GC] was fraudulent (i.e. conscious of the falsity of what he was saying or with no honest belief in, or a reckless indifference to, its truth) in holding the view that I currently hold, when making what was, in essence, a representation of law.”
Christopher Clarke LJ ordered, among other things, that the bank should pay Petrosaudi the $129m guaranteed by the letter of credit.