A HONG Kong arms trading company which played a key role in a multi-billion-dollar illegal weapons deal with Iran has taken that country's national bank to the House of Lords in London for non-payment of almost US$7 million (HK$54.6 million) of the contract. The bizarre twist to a complex international trail is the latest step in a saga which started seven years ago with the supply of weapons to Iran at the height of its war with Iraq. The company, Seaconsar Far East Ltd, was implicated in the US$193 million operation to ship artillery shells to the Iranian Ministry of Defence during a recent court case in Italy, which resulted in 15 senior executives being jailed. The trial was the result of a five-year investigation into the arms cartel, involving up to five major European weapons producers companies including the French giant, Luchaire. The Venice Court was told Seaconsar Far East, a ''shelf'' or ''paper'' company, believed to be run by a Swiss-based lawyer, Guillaume de Lalene, and a subsidiary of Luchaire, was responsible for the arms exporters' Far East affairs. Three of those imprisoned were directors of Luchaire, including Mario Appiano, who confirmed the Hong Kong link by telling prosecutors he used a proxy drawn up by the Hong Kong Supreme Court on behalf of Seaconsar Far East to sign a contract with the Iranians. Appiano came to Hong Kong on six occasions in the mid-1980s to conduct business on behalf of Seaconsar with the local branch of the Italian state-owned Banca Nazionale del Lavoros. Seaconsar Far East Ltd was set up in March 1985, and had a registered address at Printing House, Duddell Street, Central, until December 31, 1992, when it moved to 141 Queen's Road East. In the London civil court action, Seaconsar Far East Ltd is suing Bank Markazi Jomhouri Islami Iran in relation to an ''unconfirmed'' letter of credit covering two shipments of arms material. At the time of the two arms shipments in September 1987, Bank Markazi claimed shipping documents provided by Seaconsar Far East did not conform to the relevant letter of credit, and instructed a London branch of Bank Melli Iran not to honour the debts. After a long and confusing court battle, the Court of Appeal gave the Hong Kong company leave to take the case to the House of Lords to find out if it can ''serve a writ out of jurisdiction'' in England for the non-payment of US$6.9 million. In the judgement by Lord Justice Lloyd in the current Lloyd's Law Report, he said: ''By a contract dated June 30, 1986, the plaintiffs agreed to sell a large quantity of artillery shells to the Iranian Ministry of Defence. ''The total price was US$193 million. Payment was to be made by letter of credit. ''On January 15, 1987, the defendants opened an unconfirmed letter of credit in favour of the plaintiffs. It provided for payment at the counter of Bank Melli Iran in London against presentation of documents. ''On September 29, 1987, the plaintiffs shipped the first instalment of goods from Setubal, Portugal. The invoice value was US$3.1 million, less nine per cent retention.'' Seaconsar Far East then remitted a full set of documents which arrived on October 1 but which Bank Melli claimed contained certain discrepancies. ''One thing is clear, Bank Melli never paid against the documents,'' Lord Justice Lloyd said. ''Nor did Bank Markazi.''