Reinforcing the principle of autonomy of Letters of Credit: Trafigura v SONARA [2026]

Although the central issue in the case of Trafigura v SONARA [2026] EWHC 1914 (Comm) concerned an anti-suit injunction to enforce the exclusive English jurisdiction clause in a sale contract, the Commercial Court's decision serves to reaffirm the principle and purpose underpinning letters of credit: that the obligation to pay under a letter of credit is autonomous and independent of the underlying trade transaction, the objective being to shift the risk of non-payment under the underlying contract from the seller to the buyer.

In a robust judgment, the Court granted a final anti-suit injunction restraining the Buyer from pursuing proceedings in Cameroon. Those proceedings were commenced to prevent payment under a letter of credit issued in favour of the Seller after it was alleged that the gasoline cargo was off-spec. The Court held that the Cameroonian proceedings breached the exclusive English jurisdiction clause contained in the underlying sale contract. 

Background

Under a sale contract, Trafigura (the “Seller”) sold gasoline to SONARA (the “Buyer”) with 50% of the payment to be made by an irrevocable letter of credit (“L/C”). 

Both the sale contract and the L/C (which the Buyer arranged, but to which it was not a party), were governed by English law and subject to the exclusive jurisdiction of the English courts. 

At the discharge port, the Buyer alleged that the cargo was off-specification, even though multiple tests produced differing results. 

The Buyer sought to persuade the L/C’s issuing bank to cancel or suspend the L/C on account of the cargo quality issue, but the bank refused, taking the position that it was obliged to pay “unless evidence is produced demonstrating that legal proceedings have been brought by way of challenge exempting the Bank from payment”. 

The Buyer subsequently commenced proceedings in Cameroon seeking a court order requiring the issuing bank to suspend payment under the L/C until the bank received notice, based on a laboratory determination, that the cargo was within specification.

Notwithstanding the Cameroonian proceedings, the Seller eventually received payment from the confirming bank. The Cameroonian proceedings, however, remained in place¹ and the Seller applied to the English court for an anti-suit injunction on the basis that the dispute revolved around the cargo quality issue under the sale contract, which fell to be resolved in England under its English jurisdiction clause.

The Buyer’s position

The Buyer argued that the Cameroonian proceedings fell within an exception to the exclusive jurisdiction clause, which provided that neither party would be precluded from pursuing: 

"arrest, attachment and/or other conservatory, interlocutory or interim actions in any court". 

In particular, the Buyer’s position was that their application to suspend payment under the L/C was an “interim protective relief”, which fell within “interlocutory or interim actions”. As such, the Cameroonian proceedings were permissible.

The Court's decision

The Commercial Court found that the Cameroonian proceedings were inconsistent with the parties' contractual bargain.

The Court held that "interlocutory or interim" had to be read in the context of the preceding words “arrest, attachment and/or other conservatory”, all of which were protective measures that allowed a party to apply for security in a jurisdiction other than the agreed forum.²  

Applying the ejusdem generis principle, “interlocutory or interim” had to be confined to protective measures only, consistent with a party seeking security in one jurisdiction while leaving the substantive dispute to be resolved in accordance with the exclusive jurisdiction clause.

The Court also addressed the nature of the Cameroonian proceedings. While the Buyer sought to argue that those proceedings were limited in scope and were unrelated to the substantive cargo quality dispute, the Court reasoned that, if the laboratory had determined that the cargo was off-specification, the Buyer would presumably have wished to continue the suspension of the L/C until the quality dispute was resolved. 

Importantly, the Court recognised the “pay now, argue later” mechanism underpinning the L/C. The payment obligation under an L/C remains intact regardless of any dispute in the underlying trade transaction, with the buyer and the seller left to resolve the dispute separately. In other words, the risk of non-payment under the underlying contract is shifted from the seller to the buyer. 

In conclusion, the Court considered the Buyer’s attempt to suspend the L/C as subverting this allocation of risk and granted the final mandatory anti-suit injunction against the Buyer.

A strong endorsement of letter of credit autonomy

Perhaps the most significant aspect of the judgment for the trade finance community lies in the Court's treatment of the letter of credit mechanism.

The judgment repeatedly emphasised that the documentary credit was intended to function as an autonomous payment instrument, insulated from disputes arising from the underlying sale contract. The Court expressly recognised the fundamental commercial principle that letters of credit operate on a "pay now, argue later" basis. 

This is consistent with article 4 of UCP 600, which provides that a “credit by its nature is a separate transaction from the sale or other contract on which it may be based”. While preserving the allocation of risk between a seller and a buyer, this fundamental principle also serves to insulate banks from being inadvertently drawn into disputes between the trading parties. In this case, it is noteworthy that both the issuing bank and the confirming bank honoured the L/C, notwithstanding the Buyer’s efforts to prevent payment.

¹It was only during the English court hearing that the Buyer informed the Court that it would discontinue the Cameroonian proceedings.

²Under English law, a party seeking security (such as by a ship arrest or a freezing order) in a non-contractual forum is not considered to be in breach of an English exclusive jurisdiction clause.