Speedway Motorsports v. Bronwen Energy. (Lawyers Weekly No. 11-07-0151, 19 pp.) (Martha A. Geer, J.) Appealed from Mecklenburg County Superior Court. (Albert Diaz, J.) N.C. App. Click here for the full text of the opinion.
Holding: The plaintiff was not bound by a forum-selection clause contained in a letter of credit agreement with BNPP Suisse under which BNP Paribas France S.A. was named as beneficiary. As in other letter-of-credit transactions, the underlying contracts between parties were separate and distinct and cannot be intertwined for BNPP France’s purpose of establishing Geneva, Switzerland, as the forum in which claims brought by the plaintiff must be litigated.
We affirm the trial court’s denial of that part of BNPP France’s motion to dismiss that was based on the forum-selection clause.
Plaintiff opened an account with defendant BNP Paribas Suisse SA. Plaintiff used its BNPP Suisse account to service contracts pursuant to which plaintiff agreed to guarantee lines of credit issued to finance petroleum purchases by other parties during 2007.
Defendants Swift Aviation, Swift Air and Swift Transportation were negotiating a long-term supply contract with Kuwait Petroleum Corporation pursuant to which Swift would purchase petroleum products from KPC. But KPC would not enter into a long-term agreement until Swift had proven its ability to successfully execute shorter-term spot contracts.
Following the advice of BNPP France, Swift engaged defendants Bronwen Energy Trading and Bronwen Energy Trading UK to assist Swift in executing the spot contracts with KPC.
Plaintiff agreed to provide Bronwen with the financial assistance needed to obtain letters of credit for the purchase of the oil under the spot contracts.
Bronwen and plaintiff entered into an agreement relating to the delivery of 80,000 metric tons of Jet A-1. Plaintiff agreed to provide BNPP France with a guarantee of $12.75 million to allow Bronwen to secure from BNPP France one or more letters of credit to effectuate the purchase of the Jet A-1 from KPC.
Plaintiff and Bronwen also agreed that the funded amount guaranteed would be maintained in plaintiff’s BNPP Suisse account.
The first oil contract also provided that any litigation arising therefrom would be heard in Mecklenburg County and that Bronwen irrevocably consented to the personal jurisdiction of courts there.
Plaintiff executed a guarantee to BNPP France. BNPP France rejected as insufficient plaintiff’s guarantee and requested that plaintiff instead issue instructions to BNPP Suisse to deliver a first demand guarantee to BNPP France.
Plaintiff sent instructions (first instructions) to BNPP Suisse to issue a first demand guarantee of $11.75 million in favor of BNPP France with respect to the fulfillment of the first oil contract.
After plaintiff sent the first instructions to BNPP Suisse, plaintiff and Bronwen entered into an amended oil contract which reduced to $11.75 million the amount guaranteed by plaintiff to BNPP France for Bronwen’s benefit.
BNPP Suisse acknowledged receipt of the first instructions, but it informed plaintiff that it needed a request with the actual wording of the guarantee BNPP Suisse was to issue to BNPP France, as opposed to the more general wording of the first instructions. The last line of the first demand guarantee stated, “This guarantee is subject to Swiss Law, place of jurisdiction is Geneva.”
Plaintiff emailed BNPP Suisse a revised version of the first demand guarantee. The revised version was substantially similar to BNPP Suisse’s draft. It confirmed that plaintiff agreed to be responsible for Bronwen’s repayment of the $11,750,000 credit issued to KPC, pursuant to the amended oil contract, and it included the Geneva forum-selection clause.
Plaintiff’s president signed the document after adding the following sentence: “All claims are to be sent to my attention at [his e-mail address], and by fax to [a Charlotte fax number].”
BNPP Suisse issued a first demand guarantee to BNPP France by which BNPP Suisse promised that it would be responsible for Bronwen’s repayment of the letters of credit to BNPP France.
Subsequently Bronwen and plaintiff entered into a second oil contract under which plaintiff agreed to provide a first demand guarantee to BNPP France for an additional $4 million to allow Bronwen to secure letters of credit to effectuate the purchase of 68,000 metric tons of Gasoil. The second contract also contained a forum-selection clause in favor of courts in Mecklenburg County.
Plaintiff sent BNPP Suisse a second set of instructions directing BNPP Suisse to increase the amount of the first demand guarantee in favor of BNPP France by $4 million, bringing the total amount to $15.75 million.
Two weeks later, Bronwen and plaintiff entered into a third contract, under which plaintiff agreed to provide a first demand guarantee to BNPP France in the amount of $12 million to allow Bronwen to secure letters of credit to effectuate the purchase of three shipments of 65,000 metric tons of Gasoil each. The third contract contained the forum-selection clause at issue.
Plaintiff sent BNPP Suisse a third set of instructions directing BNPP Suisse to reduce the amount of the first demand guarantee to $12 million.
A week later, plaintiff sent BNPP Suisse a fourth set of instructions, reiterating the $12 million amount of the first demand guarantee and providing that the guarantee would cover all current business plaintiff had with Bronwen pursuant to separate agreements.
By November 2007, BNPP France determined that losses related to the oil contracts exceeded $17 million. It therefore notified Bronwen and plaintiff that BNPP France believed it had a right to draw on plaintiff’s account to cover its losses. Plaintiff disputed this claim, insisting that Bronwen’s debt was not related to the purchase price of oil under the pertinent oil contracts.
Plaintiff announced that it was terminating the first demand guarantee. Despite its protest, BNPP Suisse paid BNPP France $12 million and debited plaintiff’s account for that amount.
Plaintiff filed a complaint asserting claims for breach of contract against Bronwen and Swift, wrongful honor against BNPP Suisse, fraud and negligent misrepresentation against BNPP France, breach of demand guarantee and conversion against BNPP Suisse and BNPP France, equitable subrogation to BNPP France’s claims against Bronwen and Swift, and unfair and deceptive trade practices against all defendants.
BNPP France moved to dismiss plaintiff’s claims against BNPP France on the grounds that (1) plaintiff’s claims arose out of an express guarantee that any claims must be litigated in Geneva, Switzerland, and (2) plaintiff had failed to state a claim against BNPP France.
The business court granted BNPP’s motion to dismiss as to plaintiff’s breach of contract claim and denied the balance of its motion. BNPP France appealed.
BNPP France contends only that the trial court erred in concluding that plaintiff is not bound by the Geneva forum-selection clause contained in the supplemental guarantee. We assume, without deciding, for purposes of this appeal, that this document was a binding guarantee provided by plaintiff to BNPP Suisse.
The supplemental guarantee was emailed by plaintiff to BNPP Suisse in Geneva. It closed with the following: “This guarantee is subject to Swiss Law, place of jurisdiction is Geneva. …” Plaintiff then signed it.
A guarantee by a bank – a term primarily used in international commerce and banking – is the functional equivalent of a standby letter of credit. The object of a letter of credit is to provide a near foolproof method of placing money in its beneficiary’s hands when he complies with the terms contained in the letter.
A letter of credit is an engagement by a bank, a finance company or other issuer made at the request of its customer or some other person who seeks to secure an obligation to a third person which will arise in the future.
Typically, a letter of credit transaction involves three contracts: 1) the contract between the issuer (bank) and the account party (customer) for the issuance of the credit; 2) the letter of credit itself, a contract between the issuer and the beneficiary; and 3) the underlying agreement between the beneficiary and the account party.
Here the first contract was between BNPP Suisse and plaintiff. BNPP Suisse agreed to issue the letter of credit to BNPP France on behalf of plaintiff. BNPP Suisse chose to ensure that it would be reimbursed by plaintiff for any payment made to BNPP France on the letter of credit by obtaining the supplemental guarantee from plaintiff.
BNPP Suisse then entered into a contract with BNPP France by issuing the demand guarantee (or letter of credit) to BNPP France, the beneficiary. BNPP France, in turn, issued a letter of credit to finance the oil contracts (the third contract) – an agreement conditioned on plaintiff’s securing that letter of credit by having BNPP Suisse issue the demand guarantee to BNPP France.
By insisting that plaintiff arrange with BNPP Suisse to have a demand guarantee – or letter of credit – issued from BNPP Suisse to BNPP France, BNPP France obtained the certainty and speed of payment that letters of credit ensure. BNPP France would be paid – and was paid – by BNPP Suisse regardless of whether BNPP Suisse was reimbursed by plaintiff or of the status of the oil contracts.
Now, in order to take advantage of the forum-selection clause in plaintiff’s contract with BNPP Suisse, BNPP France argues that the contract between plaintiff and BNPP Suisse and the BNPP Suisse/BNPP France contract are inextricably intertwined.
We cannot reconcile the independence principle of letters of credit with BNPP France’s intertwining contract theory. These two contracts – because they are part of a letter of credit transaction – are separate and distinct contracts.
Accordingly, we reject BNPP France’s contention that it may be a third-party beneficiary of the supplemental guarantee’s Geneva forum-selection clause. We hold that the independence principle governing letters of credit dictates that the supplemental guarantee from plaintiff to BNPP Suisse is separate and distinct from the demand guarantee from BNPP Suisse to BNPP France.
BNPP France has, therefore, failed to demonstrate that plaintiff is subject to any forum-selection clause with respect to its claims against BNPP France. The trial court properly denied BNPP France’s motion to dismiss based on that clause.