Mr Justice Fraser :
- This case concerns a call on a bank guarantee, and the first hearing date on 31 January 2018 was the return date for an ex parte injunction which had been granted by me on an urgent (but with extremely short notice) basis against HSBC Bank plc ("the Bank") on 18 January 2018. The notice given to the Bank was only about one hour, and the Bank did not appear. As will be seen, following the hearing on 31 January 2018 and after distribution on 7 February 2018 of what was to become the first draft judgment, two further hearings were required, and the draft judgment was changed as a result. Those further hearings were on 20 February 2018 and 19 March 2018. This is dealt with further in the penultimate section of this judgment, namely "Events since distribution of the first draft judgment". The ex parte injunction granted on 18 January 2018 prevented the Bank from making any payment in respect of a call on a guarantee that had been received by the Bank the day before, 17 January 2018. Although the alternative word "bond" has been used from time to time in the evidence, the instrument in question is actually entitled a guarantee (although the descriptive term used on the instrument is not determinative, as is well known). The call had been made dated 11 January 2018 by BlueOak Arkansas LLC ("Blue Oak"), the beneficiary under the instrument, and was received by the Bank a few days later on 17 January 2018 as original documents (rather than electronically transmitted copies of documents) were required for a valid call. The claimant, Tetronics (International) Ltd ("Tetronics") and Blue Oak had existing contractual relations between them concerning work performed by Tetronics at a plant owned and operated by Blue Oak in Arkansas in the United States of America. The amount of the guarantee is £3.08 million.
- The grant of the injunction prevented the Bank from honouring that guarantee, and the return date was set for 31 January 2018. On 25 January 2018 Blue Oak issued an application notice to the court using form N244. This application was issued by the solicitors acting for Blue Oak and in box 2 of the form, in response to the question "if you are a legal representative whom do you represent?" the following appeared: "BlueOak Arkansas LLC, an intervening party pursuant to CPR 19.2(2)". In box 3, in response to the question "What order are you asking the court to make and why?" the answer given was "An order that the injunction granted on 18.01.18 be discharged because there was no proper basis for the grant of such an order". No evidence was lodged in respect of the application, which stated in box 10 "the Applicant does not currently intend to rely on any factual evidence".
- Blue Oak was indeed a party with sufficient interest to be joined under CPR Part 19.2(2), as it is the beneficiary of the instrument itself. Neither of the other parties to this litigation, Tetronics or the Bank, opposed Blue Oak being joined as an Intervener, and I heard that application first on the return date on 31 January 2018. However, Mr Lazarus for Blue Oak stated in his skeleton for that hearing that "by participating in these proceedings for the purpose of opposing the continuation of the Order and seeking its discharge, [Blue Oak] does not submit to the jurisdiction of the English court."
- This is a curious stance for a party to take in circumstances where it has in fact issued an application using form N244 as drafted in this case, and I am not sure that the two positions are consistent; indeed, I consider them to be contradictory. There was no reservation as to the jurisdiction on form N244 itself, which was issued on 25 January 2018, some days prior to the skeleton being served. Further, positively asking the court to make oneself a party to existing litigation is contrary to not submitting to the court's jurisdiction. When explored in oral submissions, Mr Lazarus drew analogies with parties who challenge service of proceedings out of the jurisdiction, appearing at such applications whilst not submitting to the jurisdiction of the court; and also parties against whom freezing orders are made, who may seek to challenge the basis of such orders, again not submitting to the jurisdiction. However, in my judgment such analogies do not assist Blue Oak in this instance. In each of those other situations, a company or individual resident overseas is sought to be made a party to proceedings by a claimant, but this is obviously subject to the court having jurisdiction to do so, and this can be challenged by that party in argument. A challenge to the basis of jurisdiction goes to the heart of their involvement in the proceedings at all, and goes to the basis upon which the court can make any order against that party at all – in other words, and as the phrase itself makes clear, it goes to the court's jurisdiction over that party. A party in those circumstances is permitted to appear and make submissions without submitting formally to the jurisdiction of the court. In the instant case, however, Blue Oak was positively seeking to be joined itself as a party to the existing proceedings under CPR Part 19.2(2). It expressly asked the court to make it a party when it issued form N244. It thereby invoked, and submitted to, the jurisdiction of the court itself. Once its application to be joined as an Intervener succeeded, it had clearly submitted to the court's jurisdiction and the court had exercised its jurisdiction by acceding to the application, and making it a party. I do not see how this can be done, yet at the same time Blue Oak could sensibly maintain it had not submitted to the jurisdiction.
- Ultimately, in this case, it may not matter (at least for present purposes). In any event, after the hearing of 20 February 2018, Blue Oak issued another application seeking to have the return date relisted for further evidence and argument. The same analysis applies to that step, in my judgment, so far as submitting to the court's jurisdiction is concerned. Regardless of that, on 31 January 2018 I granted the unopposed application by Blue Oak to be joined as a party. Tetronics relied upon the same evidence on 31 January 2018 as it had for the urgent application, namely the witness statement of Graeme Rumbol, its Chief Executive Officer, dated 17 January 2018. The Bank relied upon a witness statement from Geoffrey Weaser, the Centre Manager of the Global Trade and Receivables Finance Services (Trade) team at the Bank, which was dated 29 January 2018. Blue Oak had served no evidence at all at that stage (as stated on form N244), and Mr Lazarus accepted that for the purposes of the substantive application "the facts on which [Tetronics] relied at the without notice hearing should be taken to be true for the purpose of" the application. Technically, there were at that stage two applications, one by Tetronics to continue the injunction and one by Blue Oak to discharge the injunction. In essence, however, those two applications were simply mirror images of one another and were effectively treated as one. The Bank expressed itself as being "neutral".
- The position regarding evidence changed after the first draft judgment was distributed to the parties on 7 February 2018. In that draft judgment, and as explained further below, my decision was that the injunction would be continued. As explained further, I reached the point in the analysis where consideration of the balance of convenience was required, and on the evidence then available I concluded that as a matter of discretion it ought to be continued, having satisfied myself to the necessary standard that the second call was fraudulent, and that the fraud was known to the Bank. These two findings led to the balance of convenience being considered. Failure on either of those points, as identified below in the analysis of principles, would have led to discharge of the injunction in any event.
- The first draft judgment was circulated with the usual embargo, and an invitation to the parties to submit typographical and clerical errors for potential incorporation into the final judgment. These were invited by 15 February 2018. However, on 14 February 2018 a further skeleton was received from Mr Lazarus, together with a letter from his instructing solicitors (but at that stage no application). That skeleton argument and letter together invited the court to re-list the return date hearing for further argument on three points which were dealt with in the draft judgment, but which were said not to have been fully argued on 31 January 2018. Yet further, on 19 February 2018, a witness statement was served on behalf of Blue Oak by Mr Hawarth, a Senior Associate of Stewarts, Blue Oak's solicitors in the UK. This was the first evidence that had been served by Blue Oak. The contents of this statement are dealt with further in the penultimate section, but concerned fresh matters that had arisen on 12 February 2018 and were said to found justification for re-listing the return date in any event. Although I had intended to hand down the first draft judgment on 20 February 2018, I did not do so. A formal application was issued by Blue Oak following the hearing on 20 February 2018. I consider that, given the issue of the application of 25 January 2018 by Blue Oak using form N244 referred to at  of this judgment; the "application" by way of further skeleton argument and letter on 14 February 2018; and the further formal application in fact issued by Blue Oak following the hearing of 20 February 2018, Blue Oak has clearly submitted to the jurisdiction of the court.
- The position of the Bank also changed on 19 and 20 February 2018. On 31 January 2018 the Bank had expressly stated that it was neutral so far as discharge or continuation of the injunction was concerned. Miss Allsop for the Bank had taken the position that the real dispute was between Tetronics and Blue Oak, and the Bank was neutral in terms of that dispute. The Bank accepted that a valid call had to be made as a prerequisite and precondition to a right to payment under the guarantee, but considered that the call received by it on 17 January 2018 was valid and that absent the injunction it would have paid out the sums in question to the beneficiary, Blue Oak. On 20 February 2018 the Bank, relying upon a second witness statement by Mr Weaser dated 19 February 2018, explained that it had changed its position in the light of the contents of the first draft judgment (which upheld the injunction) and wished now positively to argue in favour of discharging the injunction. The Bank argued that because Tetronics had not alleged knowledge on the Bank's part of the fraud prior to the hearing on 31 January 2018, it had been entitled to take that stance. I deal further in the penultimate section of this judgment with the further witness statements served by all the parties for the later hearing, as well as with the Bank's different case.
- Mr Lazarus submitted on 31 January 2018 for Blue Oak that the Bank had to pay out on the guarantee even if the call were not a valid call, but I reject that submission which in my judgment is incorrect. Blue Oak also contended that as a matter of law (in particular the correct application of the balance of convenience test), no injunction should be granted to restrain the Bank. I will come to the detailed submissions of both Tetronics, the Bank and Blue Oak below. I now turn to the facts.
II. The facts leading to the grant of the injunction on 18 January 2018
- The dispute concerns a demand made by Blue Oak on an advance payment guarantee no. APGLDI843695 dated 21 November 2017 ("the guarantee"). Tetronics is a customer of the Bank and the Bank provided an original guarantee in favour of Blue Oak in relation to an underlying contract (as varied) for an untreated electronics waste recovery plant with a capacity of 7,000 tonnes per year. Such waste, which is also called e-waste, contains small quantities of precious metals. These metals can be recovered from the e-waste by means of a plasma system, and Tetronics contracted with Blue Oak for the front end engineering design (what is called FEED) and supply of such a plasma system to Blue Oak's plant which is located in Osceola, Arkansas ("the Supply Contract"). The governing law of the Supply Contract is that of the State of New York, and it has an arbitration clause.
- The original guarantee provided by the Bank expired in June 2017. Thereafter, Tetronics and Blue Oak entered into negotiations regarding the Bank providing a further guarantee in relation to the Supply Contract. Discussions were had concerning whether the original guarantee ought to be retrospectively extended or a new guarantee issued. The Bank wished to ensure that any further guarantee was not being used as a mechanism to obtain immediate payment by Blue Oak. Accordingly, the Bank sought confirmation from Blue Oak, which Blue Oak provided in a letter to the Bank of 13 November 2017, stating that it was not aware of any current circumstances that would give rise to a demand for breach of the underlying Supply Contract on the assumption that the previous guarantee were still in place. In other words, there were no grounds for Blue Oak to make a call on the guarantee as at 13 November 2017. In the end, the Bank did not extend the expired guarantee but provided a new guarantee on 21 November 2017, just over one week after that letter. However, it remains the case that the effect of that letter from Blue Oak was, and it expressly stated, that as at 13 November 2017 there were "no current circumstances that would give rise to a demand for breach of the underlying supply contract" with Tetronics. The plasma plant had commenced operation in June 2017 and commissioning works were being done in the second half of 2017.
- The relevant wording of the guarantee itself is as follows (all in block capitals in the original), and in this quotation I omit some of the wording:
"…. UNDER THE [SUPPLY CONTRACT] … YOU ARE TO MAKE ADVANCE PAYMENTS TO THE SELLER AND IN TURN, UNDER THE PROVISION OF CLAUSE 10A (SCHEDULE 3) OF THE CONDITIONS OF VARIATION AGREEMENT 02, THE SELLER WILL DEPOSIT WITH THE PURCHASER A BANK GUARANTEE TO WARRANT ITS PROPER AND FAITHFUL PERFORMANCE.
…..IN CONSIDERATION OF THE PAYMENTS MADE BY THE PURCHASER, WE HSBC BANK PLC, GTRF SERVICES, LEVEL 28, 8 CANADA SQUARE, LONDON E14 5HQ UNITED KINGDOM, HEREBY GIVE YOU OUR GUARANTEE AND UNDERTAKE TO PAY YOU ANY AMOUNT OR AMOUNTS NOT EXCEEDING IN TOTAL A MAXIMUM OF GBP3,080,000.00 (POUNDS STERLING THREE MILLION AND EIGHTY THOUSAND) ON RECEIPT OF YOUR FIRST DEMAND IN WRITING OVER ORIGINAL HANDWRITTEN SIGNATURE(S) ACCOMPANIED BY YOUR SIGNED STATEMENT CERTIFYING THAT THE SELLER IS IN BREACH OF ITS OBLIGATIONS UNDER THE UNDERLYING CONTRACT, AND THE RESPECT IN WHICH THE SELLER IS IN BREACH. ANY CLAIMS MUST BEAR THE CONFIRMATION OF YOUR BANKERS THAT THE SIGNATURE(S) THEREON ARE AUTHENTIC.
FOR THE AVOIDANCE OF DOUBT, ANY DOCUMENT(S) RECEIVED BY WAY OF FACSIMILE OR SIMILAR ELECTRONIC MEANS, IS/ARE NOT ACCEPTABLE FOR ANY PURPOSE(S) UNDER THIS GUARANTEE.
THIS GUARANTEE IS VALID FOR WRITTEN DEMANDS RECEIVED BY US ON OR BEFORE 19 JANUARY 2018 AFTER WHICH DATE OUR LIABILITY TO YOU UNDER THIS GUARANTEE WILL CEASE AND THIS GUARANTEE WILL BE OF NO FURTHER EFFECT."
- The governing law of the guarantee is the law of England and Wales.
- Clause 17 of the Supply Contract itself states
17.1 If an Event of Insolvency occurs in relation to the Seller then the Buyer may at its option terminate this Contract.
17.2 If the Seller:
(b)Abandons or unreasonably suspends performance of the Contract requirements without reasonable excuse for a period of thirty (30) days;
(b) Is otherwise in breach of any of its material obligations under this Contract;
(c) fails to achieve PAT that satisfies the success criteria set forth in Schedule 5 (or it deemed to have failed to achieve successful PAT pursuant to Clause 11.2(d); or
(d) fails to achieve FAT that either (x) satisfies the success criteria set forth in Schedule 6 (y) falls short of the success criteria set forth in Schedule 6 but is within the Tolerated Range, or is deemed to have failed to achieve successful FAT pursuant to Clause 11.3 (e); then
The Seller shall, within thirty (30) days of receipt from Buyer of notice of default under this Clause 17.2, correct or cause to be corrected such default or make of cause to be made provision satisfactory to Buyer for correcting such default within a reasonable time thereafter, failing which Buyer may at its option terminate this Contract.
17.3 Upon any termination to Clause 17.1 or 17.2 the Buyer may, as a remedy:
(a) Subject only to making payment to the Seller of any amount equal to the aggregate cost of all Plant on Site, together with the value of engineering and design, as reasonably determined by the Buyer and the Seller less the aggregate of all amounts previously paid by the Buyer to the Seller in accordance with Schedule 1. take possession of all Plant located at the Seller's facilities or the facilities of any supplier or any other supplier or subcontractor, whether or not such Plant is in a deliverable state; or
(c) Draw the full amount of the incurred damages from any outstanding Advance Payment Bond or Alternative Security or set off against payments that have been withheld pursuant to Clause 10A, as the case may be, to the extent that the Buyer has incurred damages due to such termination and such damages are not covered under other rights exercised by the Buyer. Seller shall continue to be liable for any deficiency. In the event that the Buyer intends to draw on any Advance Payment Bond or Alternative Security due to a termination the Seller shall have the opportunity, but in no case longer than thirty (30) days, to provide evidence to the Buyer of its ability to continue to perform its obligations under this Contract. If the Buyer determines in its reasonable discretion that the Seller is able to perform its obligations under this Contract in the manner initially anticipated by the Buyer then Buyer agrees to abstain from making the draw or exercising rights with respect to the Alternative Security until and unless the Seller fails to perform its obligations under this Contract.
17.4 If an Event of Insolvency occurs in relation to the Buyer then the Seller may at its option terminate this Contract.
17.5 If the Buyer is in breach of its material obligations under this Contract and has not cured this breach within thirty (30) days upon written notice by Seller, then Seller may, at its option, terminate this Contract.
17.6 Upon any termination by Seller pursuant to clause 17.4 of this Contract, the Seller shall have all rights available to it at law and equity.
17.7 If the Buyer fails to make payment of any portion of the Contract Price or Replacement Works Price, as the case may be, and such failure continues for a period of thirty (30) days after the due date of payment, then the Seller at its option may temporarily cease all work under this Contract until such time the Buyer's non-performance under this clause 17.7 is rectified.
17.8 Upon termination by either Party, the use and disposition of intellectual property rights shall be in accordance with the Licence Agreement"
- Ordinarily, in proceedings such as this, the terms of the underlying contract itself would not be relevant. However, given the allegations made by Tetronics of fraud by Blue Oak, to which I will return, include reference to the actual terms of the Supply Contract, I have included the whole text of Clause 17 in this judgment. A Notice of Default and Warranty had been issued by Blue Oak to Tetronics in respect of the Supply Contract on 11 December 2017, although notice of this was not given to the Bank. That notice stated that "earlier this month" Blue Oak had become aware of a range of matters listed in the notice, but Mr Rumbol complained in his first witness statement that the majority of these were all known about by Blue Oak prior to the Blue Oak letter of 13 November 2017. Suffice it to say that it led to some correspondence between those parties which demonstrated some disagreement about that. Tetronics' factual case is that with two limited exceptions, all of the contents of that notice were known about prior to the letter from Blue Oak to the Bank dated 13 November 2017. This has two consequences. Tetronics argue that the matters were insufficient to justify a call on the guarantee, and that (given they were in existence and known about by Blue Oak prior to 13 November 2017), the letter to the Bank of that date substantiates that.
- A written demand was then made on the guarantee by Blue Oak on 2 January 2018, and rejected by the Bank on 11 January 2018. This was for what Mr Weaser of the Bank in his first witness statement described as a "technicality". It was because the demand on the guarantee, and the signed statement certifying both that Tetronics was in breach of the Supply Contract, and how Tetronics was in breach, were in one composite, and not two separate, documents. In notifying Mr Greaves of this internally (Mr Greaves is the "relationship manager" for Tetronics at HSBC) Ms Myrie-Newhouse also of the Bank stated (and again this is a quotation):
"We will contact the Bank via SWIFT to ascertain the authenticity of the Bankers authentication (necessary as authentication was received via letter) as it is also signed and printed by a notary but there is no name attached to the banker's signature".
The expression "the Bank via SWIFT" refers to Blue Oak's bankers, an American bank called Regions Bank. Mr Greaves informed Mr Rumbol of this.
- A second call on the guarantee was then issued by Blue Oak on 11 January 2018, using two documents and not one, and these were sent to the Bank. Due to the requirement in the guarantee itself that electronic transfer of documents was not sufficient, for each call the actual documents themselves had to be sent from the United States to HSBC in London. This accounts for the interval between the date of the calls on each occasion and receipt by the Bank. The second call was made with the statement of breach in two separate documents, although the substantive wording was almost exactly the same as that contained in the first call. The same issue, if issue it was or is, concerning the identity of the banker authenticating the signature was present, namely that there was just a signature without anything further, such as either a bankers' stamp and/or the name of the person at Blue Oak's bank providing the authentication. Indeed, on neither call is it possible to discern the name of the person at Regions Bank from the signature itself. That call was received by the Bank on 17 January 2018.
- Mr Rumbol was aware of the second call, and did not know whether the Bank would pay out the sums under the guarantee to Blue Oak as a result of that call. He had been involved both prior to the first call, and in the period between the first and second call, in seeking to persuade the Bank that Blue Oak had no proper grounds for making a call on the guarantee at all. It is against that background that on 18 January 2018 Tetronics attended court on the urgent basis to which I have referred, to seek emergency interim relief against the Bank, preventing the Bank from paying out under the guarantee. Tetronics was also heavily concerned about the financial effect upon it of the Bank paying out the sum under the guarantee. Mr Rumbol said in his first witness statement, the only written evidence for Tetronics before the court on that occasion (or indeed on 31 January 2018), that this would make Tetronics immediately insolvent. This is a subject to which I shall return, as it formed a central part of Blue Oak's application to relist the return hearing. At the return date hearing on 31 January 2018, Ms Hitching submitted that were the Bank to pay out the sum under the guarantee, the terms of the agreement between the Bank and Tetronics were that Tetronics' account at the Bank would be immediately debited with the sum paid out of £3.08 million.
- There were four grounds relied upon by Tetronics to justify the injunction. These same grounds were relied upon on the return date of 31 January 2018. In summary they are:
1. The call was not a valid call, and there were defects on the face of the call dated 11 January 2018 as the alleged breaches were not particularised and the signatory for Regions Bank was not identified.
2. The call on the guarantee was itself in breach of the terms of clause 17.3 of the Supply Contract.
3. The allegations that Tetronics was in breach of the Supply Contract were unfounded as it was not in breach as alleged.
4. There was a seriously arguable case of fraud against Blue Oak made out on the evidence of Mr Rumbol in his first witness statement.
- The summary of Blue Oak's position on the return date on 31 January 2018 can be reproduced from Mr Lazarus' helpful skeleton argument for that occasion:
"4. In short, [Blue Oak] submits that [Tetronics'] application and consequently the Order were founded on a misunderstanding of the applicable law. As a result, the fundamental principle of autonomy in relation to performance bonds (and equivalent instruments) was overlooked by [Tetronics] and the court. [Tetronics'] error lay in eliding (a) cases in which the applicant for the bond [Tetronics] seeks to restrain the beneficiary [Blue Oak] from calling on the bond with (b) cases in which the applicant [Tetronics] seeks to restrain the bank from complying with the beneficiary's [Blue Oak] demand. While the law provides that circumstances arising in relation to the underlying contract between the applicant and the beneficiary may sometimes justify an order restraining the beneficiary from calling on the bond, no injunction may be granted against the bank in those circumstances because such an order would contradict the autonomy principle which is fundamental to this area of law.
5. The correct analysis is that:
i) [Tetronics] had and has no cause of action against HSBC so the Order should be discharged;
ii) [Tetronics] would only have a cause of action against HSBC and a basis for obtaining an injunction restraining payment under the Bond if it could show on the evidence that it is clearly established at this stage that the only realistic inference is (a) that [Blue Oak] could not honestly have believed in the validity of its demand on the Bond and (b) that HSBC was aware of the fraud. [Tetronics] cannot and has not attempted to establish either of those things;
iii) The balance of convenience inevitably requires that no injunction should be granted in this case as it does in every such case save in the most exceptional circumstances which have never been established in any other decided case and which [Tetronics] does not and cannot allege here."
- The position on the evidence, so far as Blue Oak are concerned, was as follows on 31 January 2018. Blue Oak stated that it did not accept Tetronics' position on the facts. However, it did not serve any evidence itself for 31 January 2018, even in outline or summary form, because it said it did not want to lose that return date, nor did it seek an adjournment for the purpose of serving any evidence either. It therefore accepted "that the facts on which [Tetronics] relied at the without notice hearing should be taken to be true for the purpose of this application". Mr Lazarus did not see this as a difficulty as he was challenging the grant (or continuation) of the injunction against the Bank as a matter of law. There were however a number of points of fact that Mr Rumbol very clearly stated in his first witness statement that remained unchallenged by any evidence to the contrary as at 31 January 2018. I return to these in  and  below. At the hearing on 19 March 2018, a greater number of authorities were cited than had been the case on 31 January 2018. Mr Downes QC for the Bank drew my attention to the dicta in United Trading Corp SA and Murray Clayton Ltd v Allied Arab Bank Ltd  2 Lloyds LR 554 where Ackner LJ (as he then was) stated at 561:
"We would expect the Court to require strong corroborative evidence of the allegation [of fraud], usually in the form of contemporary documents, particularly those emanating from the buyer. In general, for the evidence of fraud to be clear, we would also expect the buyer to have been given an opportunity to answer the allegation and to have failed to provide any, or any adequate answer in circumstances where one could properly be expected. If the Court considers that on the material before it the only realistic inference to draw is that of fraud, then the seller would have made out a sufficient case of fraud."
- In my judgment, so far as opportunity to answer the allegation is concerned, Blue Oak had such an opportunity prior to the hearing of 31 January 2018. Mr Downes QC for the Bank speculated that the failure by Blue Oak to respond to the allegations of fraud might have been due to a reluctance to become embroiled in proceedings in another jurisdiction, and described Blue Oak's position as "understandable". I disagree with that characterisation, and am unclear as to why the Bank might wish to make such an observation in Blue Oak's favour in any event. In my judgment, some answer (whether adequate or not) from Blue Oak to the allegations made by Mr Rumbol in his first witness statement was properly to be expected. In this case it does not matter why such evidence was not available to the court, and in any event no explanation was proffered. In my judgment, the test in United Trading Corp SA v Allied Arab Bank Ltd is made out in this case, so far as the sufficiency of the allegations of fraud is concerned.
III. The legal principles
- The relevant law applicable to letters of credit, performance bonds and guarantees is well known, but is conveniently set out in the decision of the Privy Council in Alternative Power Solution Ltd v Central Electricity Board  UKPC 31. That case concerned the CEB, a body corporate responsible for the control of electricity supplies in Mauritius, contracting with the first defendant seller (a Mauritian company) for the purchase of one million fluorescent light bulbs and submitting an irrevocable letter of credit for approximately US$760,000 issued by the second defendant bank. CEB was the buyer of the bulbs. A dispute arose between buyer and seller concerning the quality of the bulbs, and an injunction was granted preventing payment out under the letter of credit. The Supreme Court of Mauritius dismissed the appeal by the seller, who then appealed to the Privy Council. The seller's appeal was allowed. The principle is succinctly set out in the first part of the headnote at  1 WLR 697 in the following terms:
"in interlocutory proceedings the correct test for application of the fraud exception to the strict general rule that the court would not intervene to prevent a banker from making payment under a letter of credit following a compliant presentation of documents was whether it was seriously arguable that on the material available the only realistic inference was that the beneficiary could not honestly have believed in the validity of its demands under the letter of credit and that the bank was aware of such fraud."
- It is therefore clear that Tetronics is required to establish that "the only realistic inference" must, in this case, be that Blue Oak "could not honestly have believed in the validity of its demands" under the guarantee. The phrase "compliant presentation of documents" shows that Mr Lazarus' submission, which I have rejected at  above, that even an invalid call must be honoured, is wrong.
- Returning to what is called the fraud exception, the passage in the headnote continues:
"the expression 'seriously arguable' was intended to be a significantly more stringent test than good arguable case, let alone serious issue to be tried; that even where it was possible to establish the test for fraud as opposed to mere possibility of fraud, the balance of convenience would almost always militate against the grant of an injunction…."
- Counsel before me on 31 January 2018 drew my attention to various passages in different paragraphs of the judgment of the Board, delivered by Lord Clarke, although the summary in the headnote remains an accurate distillation of the actual passages themselves. The reasons for the fraud exception being so tightly limited are effectively public policy ones concerning integrity of the banking system and the integrity of banking instruments. In very general and high level terms, the possibility of underlying disputes between parties to international trade and supply contracts, and the resolution of such disputes, are at one particular level between the parties to those contracts. Banking instruments are of a different character entirely. They are at a higher level, will almost always have far simpler terms than the underlying contracts to which they relate, and are designed to and do provide ready and swift access to certain funds in the event that certain conditions are met. Mr Lazarus invoked the spectre of damage to "UK plc" and its banking system if interlocutory injunctions were used as a mechanism to interfere with, and frustrate, this approach to such instruments. That this is the approach of the courts is crystal clear, and has been for many years. In 1983 the then Master of the Rolls stated the following in Bolivinter Oil SA v Chase Manhattan Bank NA  1 WLR 392 in a Practice Note:
"The unique value of such a letter, bond or guarantee is that the beneficiary can be completely satisfied that whatever disputes may thereafter arise between him and the bank's customer in relation to the performance or indeed existence of the underlying contract, the bank is personally undertaking to pay him provided that the specified conditions are met. In requesting his bank to issue such a letter, bond or guarantee, the customer is seeking to take advantage of this unique characteristic. If, save in the most exceptional cases, he is to be allowed to derogate from the bank's personal and irrevocable undertaking, given be it again noted at his request, by obtaining an injunction restraining the bank from honouring that undertaking, he will undermine what is the bank's greatest asset, however large and rich it may be, namely its reputation for financial and contractual probity. Furthermore, if this happens at all frequently, the value of all irrevocable letters of credit and performance bonds and guarantees will be undermined."
- The Practice Note also makes clear the approach that should be taken by judges, often asked at short notice and ex parte, to the grant of injunctions restraining payments by banks under such instruments. It is made clear that such injunctions should only very rarely be given: "The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank's knowledge."
- This is known as the fraud exception, and is what is addressed in detail in the Alternative Power case. Passages in the judgment to which I have had particular regard in that case are in the speech of Lord Clarke JSC at , and  to  in which the Board came to the conclusion that "whatever test is applied, neither the judge nor the Court of Appeal was entitled to reach the conclusion that the fraud exception was satisfied, in the case of either [the buyer] or [the bank]." Also, at  to  he considered in detail the balance of convenience. At  the Board expressly approved the dicta of Rix J (as he then was) in the Czarnikow-Rionda case  2 Lloyd's Rep 187, 202-204 and in particular his conclusion that although it could not be "affirmatively stated that a Court would never, as a matter of balance of convenience, injunct a bank from making payment under its letter of credit or performance guarantee obligations in circumstances where a good claim within the fraud exception was accepted by the Court at a pre-trial stage", "all that can be said is that the circumstances in which it should be done have not so far presented themselves" and it would "of necessity take extraordinary facts to surmount this difficulty". The phrase "insuperable difficulty" had been used by Kerr J in RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd  QB 146, a case which is usually referred to more simply as the Harbottle case.
- The insuperable difficulty was that, as expounded by Kerr J, either the payment out by the bank (and the debiting of the account of the party seeking the injunction) would be in accordance with the terms of the contract between that party and the bank, or in breach of those terms. The cause of action would lie against the bank if in breach of the terms, and there would be no cause of action (and hence no grounds for an injunction) if the debiting of the account was in accordance with the terms.
At  in Alternative Power Lord Clarke considered the judge's findings on the +balance of convenience favouring the grant of an injunction. The judge below had considered that the balance of convenience "tilted heavily in favour of the CEB" as the seller was debarred from claiming the amount under the letter of credit. At  Lord Clarke stated:
"The Board accepts the submission made on behalf of [the seller] that the reasons why reported cases of injunctions being granted (or continued) under the fraud exception are so rare are (a) because it is almost never possible to establish the test for fraud as opposed to a mere possibility of fraud, but also (b) because the balance of convenience will almost always militate against the grant of an injunction".
- Ms Hitching for Tetronics relied heavily upon a decision of Stuart-Smith J in MW High Tech Projects UK Ltd v Biffa Waste Services Ltd  EWHC 949 (TCC). There is a fundamental difference between that case and this one however, and one which Mr Lazarus described on 31 January 2018 as an "error" and "a misinterpretation" by Tetronics in this case. In that case, the judge was (perhaps obviously, given the title of the action) considering an application to restrain a beneficiary from making a call upon a retention bond, and not seeking to injunct the bank itself. At  to  of that judgment the judge considered the autonomy principle and the two exceptions thereto as distilled from the authorities. These are (a) fraud known to the bank and (b) "where the terms of the underlying contract preclude the beneficiary from making a call". It was in respect of that latter exception that the judge considered the approach when considering whether to grant the injunction, and to which the ratio of the case relates, and which was not in any event granted in that case. The issue of fraud being known to the bank was not explored in that judgment because of the basis upon which the injunction was sought, and the identity of the party against whom it was sought.
- In the passage from Sirius International Insurance Co v. FAI General Insurance Ltd  EWCA (Civ) 470;  1 WLR 2214 which Stuart-Smith J quoted at  in MW High Tech, May L.J. explained the autonomy principle and stated "[t]here is no authority extending this autonomy for the benefit of the beneficiary of a letter of credit so as to entitle him as against the seller to draw the letter of credit when he is expressly not entitled to do so."
(emphasis added by Mr Lazarus and relied upon).
The autonomy principle is that the obligation of the bank – indeed the bank itself – is autonomous from the parties' contractual relations between one another. In Sirius the beneficiary sought to put itself in a similar position to the bank itself, and take advantage of that principle. It was not permitted to do so.
- This is made clear from the following passages from the judgment of May LJ in Sirius:
"26. Letters of credit are an important commercial means of providing cash or security for those who in return provide goods or services. Typically a seller agrees to sell goods to a buyer. The buyer establishes a letter of credit with a confirming bank in favour of the seller. The terms of the letter of credit spell out the circumstances in which the beneficiary-the-seller-is entitled to draw it down. The terms will typically include presentation to the bank of specified shipping and insurance documents and the like. The bank's concern is to be satisfied that the terms of the letter of credit are fulfilled, whereupon the bank is obliged to pay the beneficiary. Because the letter of credit is, subject to its terms, the equivalent of cash, the bank is not concerned with any disputed question, not within the terms of the letter of credit itself, which may arise under the underlying sale contract between the seller and the buyer, as for instance, if the goods were said to be defective or to have arrived late: see generally United City Merchants (Investments) Ltd v. Royal Bank of Canada  1 AC 168, 183. This is also the effect of Article 3(a) of the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits (1993 revision) which was incorporated in the letter of credit in this case. Absent fraud by the seller presenting documents to the confirming bank seeking payment, the court will not restrain a bank from paying a letter of credit which is payable according to its terms, nor a beneficiary from seeking payment: see Group Josi Re (formerly Groupe Josi Reassurance SA) v Walbrook Insurance Co Ltd  1 WLR 1152, 1160-1162. Nor, again absent fraud, will the court restrain a beneficiary from drawing on a letter of credit which is payable in accordance with its terms on the application of a buyer who is in dispute with the seller as to whether the underlying sale contract has been broken – see for both these propositions the Deutsche Rückversicherung case  1 WLR 1017, 1030 where Phillips J considered the authorities. This is the autonomous nature of letters of credit. By means of it, banks are protected and the cash nature of letters of credit is maintained. There is no authority extending this autonomy for the benefit of the beneficiary of a letter of credit so as to entitle him as against the seller to draw the letter of credit when he is expressly not entitled to do so.
27 The present case is in more than one important respect a variant of the more typical. Here the relevant underlying agreement is, not the commercial transaction that the letter of credit was intended to support, as in the typical case the contract of sale or in the present case the retrocession treaties, but a related agreement regulating as between FAI and Sirius terms on which the letter of credit would be established. The terms included express contractual restrictions on the circumstances in which Sirius would be entitled to draw on the letter of credit. To that extent the letter of credit was less than the equivalent of cash and Sirius's security was correspondingly restricted. Although those restrictions were not terms of the letter of credit, and although the bank would have been obliged and entitled to honour a request to pay which fulfilled its terms, that does not mean that, as between themselves and FAI, Sirius were entitled to draw on the letter of credit if the express conditions of this underlying agreement were not fulfilled. They were not so entitled. I reject Mr Vos's submission that in the present case the parties must be taken, as between themselves, to have afforded Sirius the right to draw on the letter of credit in defiance of the conditions of this underlying contract."
Blue Oak do not stand generally in the position of the Bank. May L.J. made that distinction clear in the passage above in  when he stated "Although those restrictions were not terms of the letter of credit, and although the bank would have been obliged and entitled to honour a request to pay which fulfilled its terms, that does not mean that, as between themselves and FAI, Sirius were entitled to draw on the letter of credit if the express conditions of this underlying agreement were not fulfilled." (emphasis added)
- Mr Downes QC on 19 March 2018 drew my attention to the Uniform Customs and Practice for Documentary Credits (2007 Revision) published by the International Chamber of Commerce ("ICC") in Paris, and also the text of International Standby Practices or ISP98. These are effectively statements of the autonomy principle in slightly different language.
- Here, the situation is not one of proceedings by Tetronics seeking to restrain Blue Oak from making a demand on the guarantee. The distinction between seeking to restrain a beneficiary from calling on a guarantee or bond when it is not contractually entitled to do so, and the position of the bank, is the very essence of the autonomy principle itself. These proceedings concern Tetronics seeking to restrain the Bank from paying out under the guarantee. I consider that to be an important difference to the MW High Tech case. The Bank is entitled to take advantage of the autonomy principle. Blue Oak cannot avail itself of the autonomy principle. However, here Tetronics on the return date of 31 January 2018 was seeking continuation of the injunction against the Bank, and so the fact that Blue Oak cannot avail itself of the principle is of no relevance. Blue Oak relies upon the autonomy principle to defeat Tetronics' injunction against the Bank, not a different application against itself. In summary, and this point was explored in some detail, Mr Lazarus' submissions on 31 January 2018 were that an injunction restraining a call on a bond or guarantee of this nature could only be obtained against the beneficiary, and only then prior to any call being made, as such an injunction would be to restrain the call being made. Once the call had been made, he submitted that the court was essentially powerless so far as the beneficiary was concerned, and could not grant injunctive relief against the beneficiary as the right to payment under the instrument crystallised when the call was made. So far as any injunctive relief against a bank is concerned in such situations, in order not to compromise the autonomy principle, an injunction could only in theory be granted if the fraud exception were satisfied. Even if the ingredients for that exception to apply were satisfied, the balance of convenience would, in almost every instance, fall in favour of permitting payment and against grant of an injunction. I accept Mr Lazarus' analysis of what is required for injunctive relief against the Bank; and I accept that an injunction is only possible in this case if the fraud exception is satisfied. When (or rather if, given how rarely the fraud exception will be satisfied) the court comes to consider the balance of convenience, that has to be done in each case on the facts of that case. This is because consideration of the balance of convenience is fact based. It is also most important, when performing that exercise, that the court bears in mind the importance of the autonomy principle, and that the authorities state that finding the balance of convenience falls in favour of an injunction is a very rare, if not so far unheard of, occurrence.
- Both Tetronics and the Bank submitted that a valid call was necessary as a prerequisite to any right to payment. That must, in my judgment, be correct in law. The instrument uses the words "on receipt of your first demand" and I am satisfied that must mean a demand as defined and required in the terms of the guarantee itself. The phrase "compliant presentation of documents" in Alternative Power makes that clear. Mr Lazarus submitted that once a call was made, even an invalid call, it was then too late for injunctive relief (even against the beneficiary) and in my judgment this goes too far. I doubt that the court has only a limited period of jurisdiction over invalid demands even if fraudulent, losing that the moment that the demand is made (and as here, even before that demand had been received or considered by the Bank). However, it is not necessary to determine that point for two reasons. Firstly, that is not the situation here. The call had been made and received by the time that Tetronics first sought urgent relief, and the injunction sought is against the Bank. Secondly, the point was not fully argued, probably for that reason. The outcome in this case is not dependent upon some fine point of timing.
- In this case, under the terms of the guarantee itself, the obligation of the Bank is to pay after the demand has been received. The requirement is clearly stated to be upon receipt by the Bank of the call – the guarantee itself uses the phrase "…. valid for written demands received by us on or before 19 January 2018" (emphasis added). The relevant date to injunct a beneficiary would be therefore, even on Mr Lazarus' analysis, before such a demand were received by the Bank. However, this case remains one where an injunction was sought and obtained against the Bank, and not against the beneficiary Blue Oak. This must therefore be justified by consideration of whether Tetronics can, firstly, rely upon the strict fraud exception to the autonomy principle, and then have consideration of the balance of convenience resolved in its favour too.
- To bring this case within the strict fraud exception and have the injunction continued, therefore, Tetronics must satisfy the following requirements:
1. It must be seriously arguable on the material available that the only realistic inference is that Blue Oak could not honestly have believed in the validity of its demands under the guarantee.
2. The Bank must have been aware of the fraud.
3. The balance of convenience must favour granting Tetronics an injunction. This must require "extraordinary facts" and Tetronics faces very considerable difficulty in having that balance found to be in favour of injunctive relief.
- I have not, in sub-paragraph 3 of , used the phrase "insuperable difficulty" because in my judgment the word insuperable can mean insurmountable or impossible. Impossible means something simply cannot happen. The approval by the Privy Council of the dicta of Rix J makes it clear that it could not be affirmatively stated that a court would never, as a matter of balance of convenience, injunct a bank. Using a term such as "insuperable" or "impossible" does however suggest that the court would never injunct a bank. However, by using the expression very considerable difficulty, instead of "insuperable difficulty", I have not watered down the test that must be applied on the balance of convenience. Tetronics faces an extremely high hurdle if analysis brings the court to perform the exercise of considering the balance of convenience.
- Ms Hitching submitted on 31 January 2018 that if there were a different test for an injunction against the Bank, rather than one against Blue Oak, she wished to make an application to join Blue Oak as a defendant to the injunction application and would seek to continue the injunction against that party instead of (or as well as) the Bank. This gave Mr Lazarus the opportunity to point out at least two, as he submitted, fatal difficulties with that course of action. Firstly, the application was made without any form of notice, without an application notice and without any evidence. Indeed, it was made some way into the hearing itself during oral submissions by Ms Hitching. None of these features constitute a promising start to the prospects of such an application. Secondly, the issue before the court was whether the Bank should be prevented from paying out on the guarantee in respect of the call made on 11 January 2018 and received on 17 January 2018; it was not whether Blue Oak could or should be restrained from doing something from 31 January 2018 onwards. I accept both those objections by Mr Lazarus. In my judgment, Tetronics must be able to show that the injunction against the Bank should continue, namely the one restraining the Bank from paying out under the second call received on 17 January 2018. I declined in the first draft judgment to consider this matter in the different way advanced by Ms Hitching in the alternative against Blue Oak, which to be fair to her was only advanced as an alternative, and understandably without any great enthusiasm.
- On the correct approach therefore, which is to consider the matter as one of continuation or discharge of the injunction against the Bank, the Bank is entitled to rely upon the autonomy principle, unless the fraud exception applies. In my judgment Tetronics must succeed in bringing itself within that exception, and also in justifying an injunction on the balance of convenience. This therefore requires consideration of each of the three steps at  above. Failure at any stage means Tetronics' application to continue the injunction against the Bank would fail. I deal now with my analysis as it was on the evidence for the hearing of 31 January 2018. I will then come on to deal with the same exercise after the hearing of 19 March 2018.
- Although Ms Hitching had four grounds, as set out at 19(1) to (4) above, in reality there were two, as each of her first three grounds essentially go to the validity of the call on the guarantee (or "compliant presentation of documents"), and the fourth goes to a seriously arguable case of fraud.
Validity of the call on the Guarantee
- I can take the first three grounds together. There is nothing in these three points that assists Tetronics as far as an injunction against the Bank is concerned (with the only possible exception being the signature point). The correct place to start when analysing these grounds is what the guarantee itself specifically requires. This is, to use the terms of the instrument itself, "your signed statement certifying that the seller is in breach of its obligations under the underlying contract, and the respect in which the seller is in breach." There is very little substantiation that is required from Blue Oak to comply with this requirement. In my judgment, the substance of the second and third grounds, namely that there had been no termination of the Supply Contract and the alleged breaches were unfounded (and known by Blue Oak to be unfounded when the call was made) fall to be considered under the fourth heading of Ms Hitching, namely whether there is a seriously arguable case of fraud.
- The call signed by Mr Garas, the Chief Executive Officer, stated "…. I hereby certify that Tetronics is in breach of the supply contract in the following manner." Four matters are then listed. (1) and (2) are that Tetronics is in breach of its warranty obligations; (3) that Tetronics failed to exercise reasonable skill, care and diligence in designing the plant; and (4) that it was in breach "by failing to maintain security of an adequate duration". These specify the way in which Tetronics was said to be in breach. Subject to the overall consideration of fraud, which I do by reference to Ms Hitching's fourth ground, there is nothing invalid in these grounds, or the way that they are expressed, in my judgment that would mean the call itself is not valid on its face.
- This conclusion was, on the evidence available on 31 January 2018, subject to a point that arose concerning the signature of Blue Oak's bankers. The guarantee itself expressly states that "any claims must bear the confirmation of your bankers that the signature(s) thereon are authentic." The first call contained a signature with neither bank stamp nor name of the person at Regions Bank signing the statement that said "In our capacity as the bankers of BlueOak Arkansas, LLC we confirm that the signature provided by BlueOak Arkansas LLC herein is authentic." An unattributed signature then followed, with the words afterwards "For and on behalf of Regions Bank."
- This was one of the points which the Bank had identified as something that had to be clarified after receipt of the first call, and it sought to do so directly with Regions Bank through the SWIFT system. No response had been received as at the date of Mr Weaser signing his first witness statement on 29 January 2018. Mr Weaser said in this first statement that the Bank sought to confirm the signatory of Regions Bank, but that was not the reason that the first call was rejected. He continued: "In any event, HSBC is of the view that the guarantee does not require the name of the banker's signature to be specified. The signature for Regions Bank is notarised, and HSBC considered this to be sufficient for the purpose of the demand."
- However, that statement of fact from Mr Weaser concerning the notarisation of the banker's signature was not factually correct. The signature of Blue Oak's banker was not notarised. Mr Weaser's view was based upon a partly legible photocopy, and Ms Allsop for the Bank at the hearing of 31 January 2018 correctly and quite properly drew attention to the fact that when the documents were considered in greater detail and on better copies, on the face of neither call (but the relevant one is the second call) was the signature of the Regions Bank banker notarised, as Mr Weaser seemed to think it was, when he made his first statement. If Mr Weaser's first statement was therefore taken at face value, and notarisation of the signature would have satisfied the Bank, then the absence of that notarisation appeared to me at that stage of the proceedings to be of potential significance. The Bank had sent two messages to Regions Bank seeking clarification of the name of the banker there who signed the authentication. There had been no response. No evidence was available at the hearing of 31 January 2018 about this from anyone. I considered this, when preparing the first draft judgment, to be of concern. On 31 January 2018 during the hearing a copy of an email was handed up from Korri Smith, the Branch Manager at Regions Bank, Osceola to the Bank's solicitors stating "I did indeed sign the documents for Regions Bank and BlueOak is a customer of ours". This e mail was dated 30 January 2018. I considered that it was highly unsatisfactory that such information was not included in a witness statement, which should and could have been served prior to the hearing of 31 January 2018. Also, the fact that requests from the Bank to Regions Bank went unanswered and were ignored for a large period in January (given the same point arose on the first call) added to the air of suspicion which, in circumstances where Tetronics was alleging fraud, I then weighed in the balance of convenience in favour of granting an injunction.
- Thirdly, Mr Weaser's statement (in his first witness statement) that notarisation of the banker's signature was sufficient has to be considered in the light of the proper concession/clarification by the Bank's own counsel at the hearing of 31 January 2018 that the banker's signature was not notarised. Fourthly, the situation should be considered on the basis of the date of receipt by the Bank of the second call, not the information available (even in simply an email) two weeks later on 31 January 2018. Taking these points together, I considered that on the "validity of bank signature" point it was seriously arguable that the call by Blue Oak was not valid. However, in view of my conclusions on the fraud exception and its applicability to these particular circumstances at that stage, this view was not material to my conclusion reached in the first draft judgment. Even a call that is on its face valid (in the sense that it states all that a bank requires to be stated to crystallise the payment obligation) is subject to the fraud exception, which I held in my first draft judgment applied in this case.
- After distribution of the first draft judgment, and for the reasons explained in the penultimate section of this judgment, the matter was re-listed. Mr Weaser submitted a second witness statement in which he corrected the error in relation to the notarisation of the signature by Blue Oak's banker. The Bank's case therefore became that notarisation was not present, but also that it was not required. Although the enquiry raised by the Bank after the first call might, absent Mr Weaser's evidence in his two statements, suggest to the contrary, I accept Mr Weaser's evidence in his second witness statement on this subject. He is, after all, the Centre Manager of the Global Trade and Receivables Finance Services (Trade) team at the Bank. My conclusion therefore, on whether the call was on its face valid, is upon consideration of all the evidence now available that it was.
- I had in any case concluded in the first draft judgment that there was a valid call on the guarantee in the sense that the call correctly specified on its face that Tetronics was in breach and identified the terms in respect of which those breaches were alleged. No further particularisation of the breach(es) was required. That remains the case.
The case in fraud
- In the first draft judgment I had then turned to consider, on the basis of Mr Rumbol's first witness statement only (as this was the only evidence then before the court on the point) the allegations of fraud. In this case, this did not then require a claim to be balanced against an explanation, as no explanation was advanced by Blue Oak at the hearing of 31 January 2018 in respect of the factual allegations made against it. Such allegations do, though, have to be made out to a high standard and I must be astute to ensure that Tetronics makes out its case to this necessary high standard, regardless of the lack of any evidence in response. However, although I must and do examine the statements made with a highly critical eye, the lack of any response and the acceptance (for the application's purposes) that the facts identified by Mr Rumbol were true did make that exercise a little more straightforward.
It must be seriously arguable that the only realistic inference is fraud
- The facts contained in Mr Rumbol's first statement which Blue Oak accept for these purposes that I should accept as being true are as follows:
1. Blue Oak are currently able to use the plant on a commercial basis and it commenced operation in June 2017.
2. Commissioning by Tetronics was ongoing and was at an advanced stage.
3. Blue Oak did not consider Tetronics in breach as at the date of its letter to the Bank of 13 November 2017. There had been problems "during the period June to 13 October 2017 but these had all been rectified or a plan had been agreed and shared with Blue Oak as part of the continuing commissioning…"
4. Any breach of the design obligations by Tetronics would have been likely to have been discovered by 13 November 2017.
5. A meeting was held between Blue Oak and Tetronics on 28 November 2017 at Tetronics' offices in Swindon where it was agreed by Ahab Garas, the CEO, and George Hopkins, the Chairman, of Blue Oak with Mr Rumbol and recorded in a letter drafted at the meeting, that Blue Oak "recognise that the plant has been delivered in accordance with the [Supply Contract]. No demand for payment will be made to HSBC Bank plc by us or on our behalf pursuant to the Guarantee for payments arising from the rejection of the plasma furnace based upon any alleged defects in the design, workmanship, or performance of the furnace under the terms of the supply contract as varied by the Agreement". The fact that this document was not signed by those two gentlemen and was taken away by them (but was signed by Mr Rumbol) does not mean that agreement was not reached, and this letter is a contemporaneous record of what Mr Rumbol says that agreement was.
6. All the matters referred to in the Notice of Default and Warranty dated 11 December 2017 were known about by Blue Oak prior to the letter of 13 November 2017 sent by Blue Oak to the Bank, with only two limited exceptions. Neither of the exceptions justified termination and were minor matters.
7. The Warranty had not come into effect as at that date of 11 December 2017 in any event. Changes made to the plant by Blue Oak would have invalidated the Warranty in any event.
8. The Supply Contract had not been terminated as at the date of either call.
9. Blue Oak has served neither notice of termination under clause 17 of the Supply Contract, nor notice of an intention to call on the guarantee, nor allowed Tetronics the required 30 day period set down in clause 17 as a period of grace pending termination.
10. The Supply Contract precluded, as a matter of New York law (its governing law) a call on the guarantee, as the Supply Contract had not been terminated.
11. The Board of Blue Oak knew the Supply Contract had not been terminated and knew that none of the other preconditions of a call on the Bond included within the Supply Contract had been complied with.
12. Mr Rumbol also concluded that "Blue Oak's first call on the Bond was fraudulent and that the most recent call on the Bond dated 11 January 2018 is also fraudulent" and "I cannot see that there is any innocent explanation for Blue Oak having called on the Bond in these circumstances".
Mr Lazarus submitted that the conclusions regarding fraud by Mr Rumbol were opinions, and not facts, and therefore even though Blue Oak accepted that the facts set out in Mr Rumbol's first witness statement must be assumed to be true (which in the absence of any evidence by Blue Oak was the only sensible position for him to adopt in any event) it was not accepted that the facts described by Mr Rumbol amounted to fraud, let alone constituted a seriously arguable case of fraud. Whilst Mr Rumbol's conclusions could be said to be opinion and not facts, one point Mr Rumbol made in his first statement was that there was no innocent (which in this context meant non-fraudulent) explanation. Also, the facts upon which he based those conclusions posed very serious questions in my judgment, and questions which Blue Oak simply chose not to meet or address at all. As Ackner LJ said in United Trading v Allied Arab Bank, Blue Oak was given an opportunity to answer these allegations and did not do so, in circumstances where an answer was properly to be expected.
- Mr Rumbol's evidence in his first statement, in my judgment, amounted to a good prima facie case of fraud made out against Blue Oak. To take but the following examples: if Blue Oak knew that substantially all the points complained of in the Notice of Default and Warranty dated 11 December 2017 were known about prior to the letter of 13 November 2017 (sent by Blue Oak to the Bank), then either the contents of the Notice itself (which was not sent to the Bank) were false, or what was said to the Bank by Blue Oak in the letter of 13 November 2017 must be false. The letter of 13 November 2017 was required by the Bank before the Bank was prepared to issue the guarantee. In my judgment, considering the contents of both those documents fairly, the contents of both could not be true. One must be false, and knowingly or recklessly false. Given the letter was required by the Bank before it would issue the guarantee at all, that alone sets the facts of this case apart from a more usual guarantee or bond case. Indeed, if the statement in the letter of 13 November 2017 were not true, then the issue of the (replacement) guarantee itself would have been procured by fraud. This alone in my judgment constitute "extraordinary facts" as set out in  above. The second example is if under New York law, Blue Oak could only make a valid claim if the Supply Contract had been terminated, and the Board of Blue Oak knew the Supply Contract had not been terminated and none of the other preconditions of a call on the Bond had been complied with, then the Board of Blue Oak must have known that Tetronics was not in breach as alleged, and Blue Oak was not entitled to make a call on the guarantee. Mr Rumbol had exhibited a legal opinion from a New York law firm attesting to that, and there was no contradiction to that analysis of New York law before the court. Matters of foreign law are issues of fact in the courts of this jurisdiction. Yet further, if at the meeting of 28 November 2017 in Swindon, Mr Garas and Mr Hopkins accepted that the plant had been delivered in accordance with the Supply Contract, given the extremely limited works being performed between then and 11 December 2017 (which amounted to a couple of visits to the plant), it is very difficult to conclude on the evidence before the court how Tetronics could be in breach of its obligations as alleged.
- Blue Oak chose not to challenge any of these facts set out in Mr Rumbol's first witness statement. The court was not bound to accept Mr Rumbol's conclusions on these facts, and Mr Lazarus was correct to say that the conclusions as to fraud were Mr Rumbol's opinions. However, the facts upon which he based those opinions are not challenged. I have to come to my own independent conclusions on the same facts and have done so.
- In reality, Mr Rumbol's evidence in his first statement amounts to a detailed description setting out that nothing had in reality changed from the date of 13 November 2017 when Blue Oak itself told the Bank that Tetronics were not in breach and there were no grounds to make a call on the guarantee – which led to the Bank issuing the guarantee – and the making of the two calls which stated directly to the contrary that Tetronics was in breach. Further, by agreeing at the meeting in Swindon on 28 November 2017, in respect of which Mr Rumbol had a written record in the terms of the letter he drafted in the meeting, and then issuing the Notice of Default on 11 December 2017 (a date when the Warranty was not, on Mr Rumbol's unchallenged evidence, in force) Blue Oak must have known that the contents of the Notice were not true. The unchallenged evidence that the Warranty was not in force means that the statement in the calls that Tetronics were in breach of warranty were, in my judgment, clearly false, and Blue Oak must have known this.
- I consider that the facts which Mr Rumbol sets out demonstrate a cogent and compelling case of fraud, and one which called out for evidence in rebuttal by Blue Oak. I consider these allegations were supported by contemporaneous documents, namely the letter from Blue Oak to the Bank of 13 November 2017 and the record of the meeting in Swindon. It is not an adequate answer for Blue Oak to submit, as Mr Lazarus did, that it did not serve evidence of explanation because it wished to retain the original return date. There was ample time between the grant of the urgent injunction on 18 January 2018 and the return date on 31 January 2018 for Blue Oak to have prepared at least some evidence in response, or sought some more time to do so, even if the time required to do this was only a few days, or a week or so. It is not unusual for a party on the first return date on an injunction to seek some more time from the court to serve further evidence. The court was at no point between 18 and 31 January 2018 asked for more time to prepare or serve evidence, either by the Bank or by Blue Oak.
- I also consider, in the unusual circumstances of this case, taking into account the statement to the Bank itself by Blue Oak on 13 November 2017 and the agreement with Mr Rumbol in Swindon on 28 November 2017, that the statements in the call itself that Tetronics was in breach of warranty, and had failed to exercise reasonable skill and care in the design of the plant, to be demonstrably false on the evidence that I had before me on 31 January 2018 for the application.
- I considered both in the first draft judgment and in this one, that it was seriously arguable that the only realistic inference is fraud, and that the high test necessary for the fraud exception to apply is met. However, that is not the end of the matter and I therefore turn to the next stage.
The bank must have been aware of the fraud
- This is an essential component. It is not sufficient that it is seriously arguable that the only realistic inference is fraud, established to the necessary high standard. The Bank must also be aware of it.
- The Bank became aware of the full factual situation when it was served with the papers relied upon by Tetronics for the ex parte application on 18 January 2018 which included Mr Rumbol's first witness statement. This was in the morning prior to the hearing before me on that date, and I was told this by Miss Hitching during her submissions on that application. Prior to receipt by the Bank of the second call on 17 January 2018, it is common ground (at least between Tetronics and the Bank) that Mr Rumbol sent to the Bank a copy of a legal opinion that Tetronics obtained from a US law firm called Howard & Howard Attorneys LLC, dated 12 January 2018 ("the H&H Opinion"). This opinion was sent by email on 16 January 2018 at 1315 hours direct to HSBC. In his covering email Mr Rumbol stated that a call was "neither justified or permitted" and urged the recipients to share the contents with the HSBC legal team. The full address of Howard & Howard is 450 West Fourth St, Royal Oak, MI 48067. In the H&H Opinion, which Mr Rumbol attached to his email to the Bank, the following points were made:
1. Blue Oak's allegations of breach of contract against Tetronics "are without merit and invalid, and would likely be rejected by a court applying New York law".
2. Blue Oak was procedurally barred from calling on the guarantee (the expression used is "demanding a draw on the Bond" but it amounts to the same thing) for failing to comply with conditions precedent to such a call required by the Supply Contract.
3. The Supply Contract had not been terminated but even if it had been, and even if Blue Oak were entitled to call on the guarantee, the amount of payment under the guarantee was limited "to the extent that the Buyer has incurred damages due to such termination" under clause 17.3(c) of the Supply Contract. "Even in a circumstance where a draw on the Bond would be proper (and this is not such a circumstance for the reasons stated above) any such draw is limited by the [Supply] Contract to damages actually incurred and demonstrated."
4. There was no factual or legal basis for Blue Oak's allegation that Tetronics was in breach of its warranty in the Supply Contract.
5. The claim by Blue Oak to be entitled to claim under the warranty was "fatally flawed as a matter of law and [Blue Oak] should never have cited this warranty as a basis to induce HSBC to pay on the bond."
6. The notice of default under the Supply Contract, which was dated 11 December 2017, came only 20 days after the guarantee was issued and after Blue Oak had confirmed in the letter of 13 November 2017 that there were no breaches of warranty or contract as at that date. "There were little if any new "services" provided by Tetronics during that time period that could give rise to a claim of breach that did not exist as of November 13."
- In my judgment, the important date in terms of the state of knowledge of the Bank of any fraud was when the second call was received by it, namely 17 January 2018. Knowledge by the Bank is an important element of the fraud exception. Upon receipt of the first draft judgment, the Bank applied for the return hearing to be relisted. This was in addition to the reasons relied upon by Blue Oak. Blue Oak wished to adduce evidence about what Tetronics had submitted to the Emergency Arbitrator appointed by the ICC in the days immediately after the return hearing of 31 January 2018. The Bank wished to draw certain authorities to the attention of the court, which none of the parties had cited on 31 January 2018, and to rely upon the second witness statement of Mr Weaser. The need for the relisting was because, it was said by the Bank, it did not know that knowledge of the fraud on its part was being alleged by Tetronics until actually during the hearing on 31 January 2018.
- This point was addressed by Mr Weaser in his second witness statement. It was however, after I gave directions for the re-listing (which was required in any event for reasons I explain in the penultimate section of this judgment) met by further evidence from Mr Rumbol giving more detail of his dealings with the bank in the period 10 to 17 January 2018.
- It must be borne in mind, in terms of considering the state of knowledge of the Bank, that the Bank itself had required Blue Oak to state expressly in its letter of 13 November 2017 that it knew, as at that date, of no grounds which would justify Blue Oak making a call on the guarantee. Therefore, the contents of the H&H Opinion must be read in the context of that clear statement already having been made to the Bank by Blue Oak after the Bank had sought specific confirmation to that effect. Further, in this case, not only had the Bank been given the H&H Opinion, but Mr Rumbol in his third witness statement made clear that he informed the Relationship Manager at the Bank (who was effectively the sole point of contact between Tetronics and the Bank) in telephone calls on 9 and 10 January 2018 that Tetronics "believed that the Blue Oak call on the bond to be fraudulent….." The Bank had been giving Tetronics two working days to comment upon the call on the guarantee by Blue Oak. The Bank was also served on the morning of 18 January 2018 with Mr Rumbol's first witness statement. That statement says in paragraph 73 that the "only explanation" was that the call is fraudulent. No decision had been taken by the Bank prior to receipt either of the statement, or indeed the ex parte order itself, as is made clear by Mr Weaser in his first statement.
- The authorities are clear that it is not for the Bank to make enquiries about the allegations or to embark upon an examination of the merits. In Turkiye Is Bankasi AS v Bank of China  2 Lloyd's LR 611 Waller LJ stated:
"It is simply not for a bank to make enquiries about the allegations that are being made by one side against the other. If one side wishes to establish that a demand is fraudulent it must put the irrefutable evidence in front of the bank. It must not simply make allegations and make expect the bank to check whether those allegations are founded or not…..it is not the role of a bank to examine the merits of allegations of breach of contract".
The Bank is not in the same position as a court. Mr Downes QC submitted that the "practical consequence of this is that a bank will, in almost all cases, be bound to pay and cannot be enjoined from so doing because a bank will simply not know or be required to investigate whether a demand is honest or not".
- The information which I consider to be potentially relevant and which the Bank had is as follows. The H&H Opinion, which did not use the word fraud; telephone calls from Mr Rumbol, in which he did use that word; and the contents of Mr Rumbol's first statement, which was served on 18 January 2018 prior to the order being obtained by Tetronics. That information was provided to the Bank prior to a decision being made by the Bank whether to pay out on the call received on 17 January 2018. Although the H&H Opinion was sent to the Bank on a confidential basis (and was not to be sent by the Bank to Blue Oak for comment) I do not consider that means its contents could not be considered by the Bank, or were not relevant, as it is the state of knowledge of the Bank that is important. It was not for the Bank to investigate the contents of the Opinion.
- In my judgment, the state of knowledge of the Bank should be considered on the contents of the first two sources of information (the phone calls from Mr Rumbol, and the Opinion). Mr Rumbol's second witness statement makes clear that he expressly told the Bank his views and expressly used the word "fraudulent". The fact that word was used only once, rather than several times, does not dilute its effect in my judgment. These pieces of information are sufficient to have put the Bank on notice of the fraud, and sufficient for the fraud exception to apply. In those circumstances, I turn to consider the balance of convenience.
- The question of "wrongdoing by the Bank" arose both at the hearing of 31 January 2018 and on 20 February 2018. Mr Weaser in his first statement made the point that there was no suggestion that the Bank was aware of any wrongdoing, and that it was the policy of the Bank not to become involved in disputes in relation to the underlying contract. That policy is entirely sensible in banking terms, and Ms Hitching did not allege any wrongdoing on the part of the Bank. I do not consider that this element of the fraud exception to the autonomy principle requires specific wrongdoing by a bank itself. The issue is whether a bank is itself aware of the fraud being perpetrated, not whether that bank is itself engaged in wrongdoing. Given the understandable speed with which Tetronics came to court to obtain emergency interim relief on 18 January 2018 the Bank did not have sufficient time, prior to that hearing, to come to its own separate and free-standing conclusion. This is because on the day I granted the emergency relief all of the papers including Mr Rumbol's witness statement had already been served upon the Bank. Mr Lazarus for Blue Oak disparaged this and pointed out the volume of such documents. However, the statement of Mr Rumbol itself, absent the exhibits, clearly identified what was said to be fraudulent. In any event, I have found that the Bank had sufficient knowledge of the fraud absent consideration of the witness statement and exhibits.
- In my judgment, this means that the second condition for injunctive relief is satisfied in this case in respect of knowledge of the fraud by the Bank. After distribution of the first draft judgment, in which I upheld the injunction, the Bank changed its position. When the parties appeared before me on 20 February 2018, the Bank appeared by Leading Counsel and also sought to rely upon the second witness statement of Mr Weaser, served the day before, to which I have already referred. That was not all the fresh evidence available on 20 February 2018 – I provide a more comprehensive account of this in Section VI "Events since distribution of the first draft judgment" below – but was one of a total of nine new witness statements served by all three of the parties after the distribution of that first draft of the judgment. Mr Downes QC explained this change of position as being entirely understandable, given what was said to be a change of case by Tetronics during the hearing of 31 January 2018. He explained that the Bank had been neutral about the continuation of the injunction given Tetronics was not alleging wrongdoing by the Bank; he described this as the Bank being "relaxed". However, given that position by Tetronics had changed during the hearing on 31 January 2018, he submitted that the Bank was entitled to change its position. The Bank, as a matter of fact, communicated that it had changed its stance after it received the first draft judgment. It is a curiosity that the Bank decided to change its stance at that point, if the decision was taken as a result of something that occurred on 31 January 2018, I would have expected that decision to be communicated rather earlier than it was. However, I admitted Mr Weaser's second statement in the exercise of the discretion that I have prior to sealing of the order, the principles in respect of which I deal with in Section VI of this judgment.
- In my first draft judgment I considered it was necessary to turn to consider the balance of convenience. I have reached the same point in the analysis but the conclusion will not necessarily be the same. In Section V, I explain the conclusion to which I came on the evidence then available (that is, the evidence available for the return date of 31 January 2018). In Section VII, I perform the same exercise but taking account of the fresh evidence, including that relating to what occurred on 12 February 2018, and consider the conclusion afresh. Given another hearing was to be required in any event to consider those matters, I permitted the Bank to serve new evidence (in addition to that in Mr Weaser's second witness statement) but in the event it did not choose to do so. The other two parties, Tetronics and Blue Oak, did.
V. The balance of convenience as of 31 January 2018
- The balance of convenience must favour granting Tetronics the relief it seeks in order for the injunction to be continued. For the balance of convenience to favour Tetronics, "extraordinary facts" are required. I have already summarised that Tetronics faces very considerable difficulty in having that balance found to be in favour of injunctive relief. I also appreciate, because the authorities state this, that such relief is extremely rare. There are isolated cases, such as Kvaerner John Brown Ltd v Midland Bank  CLC 446, but these are exceptionally few.
- Here, the other facts upon which Tetronics relied as of 31 January 2018 were as follows. Mr Rumbol's first witness statement made it clear that an immediate demand from the Bank for the sum of £3.08 million would make Tetronics immediately insolvent. An immediate injection of funds would be required from the shareholders to avoid this, and they would be unlikely to be able to make such an injection. The financial position of Tetronics was worsened by the fact that "an interim payment negotiated as a precondition to providing the new bond" which was due to be paid by Blue Oak to Tetronics had not been paid. Further, he said that Tetronics would not be able to fund and pursue arbitration proceedings against "Blue Oak for an improper and false call on the Bond." There were signs that Blue Oak itself was experiencing its own "cash flow shortages" and Blue Oak was a special purpose vehicle or SPV. Mr Rumbol stated in his first statement that it was impossible to determine if Blue Oak would still be in existence financially at a future point were Tetronics to pursue litigation in respect of a fraudulent call on the bond. Very little information was available to permit the Dunn & Bradstreet Report that Tetronics commissioned concerning Blue Oak's financial standing to be of any assistance at all.
- The different statements about Blue Oak and its difficult financial position, and in particular its likelihood or capacity to survive and repay the sum should the demand on the guarantee be found to be fraudulent, were not met with any evidence to the contrary. It was therefore the case that when considering these matters in the exercise of the balance of convenience, there was no evidence at all from Blue Oak to correct the picture given to me by Mr Rumbol in his first witness statement about Blue Oak's affairs. However, the statement from Mr Rumbol concerning Tetronics' own position were made from a position of complete knowledge (or should have been made from a position of complete knowledge) about the company of which he was the Chief Executive Officer.
- I considered all the information contained in the two witness statements from Mr Rumbol and Mr Weaser (each their first statements, and as of 31 January 2018, their only statements) when considering the balance of convenience after the hearing of 31 January 2018, together with the very sizeable obstacle in the way of having that balance determined in Tetronics' favour. There was one other point that I considered should also be taken into account specifically in this exercise, which was the point concerning the requirement in the guarantee itself that "any claims must bear the confirmation of your bankers that the signature(s) thereon are authentic." I have dealt with this above at  to . That conclusion was not one that I had reached after the hearing of 31 January 2018 because at that point I did not have Mr Weaser's second witness statement.
- There was also another matter which I considered was highly material when considering the balance of convenience as of 31 January 2018. In this case, unlike in so many others, the Bank itself had expressly required from Blue Oak, prior to the issue of the guarantee, the comfort of a letter stating that Blue Oak knew of no grounds as at that date of 13 November 2017 which would justify a call on the guarantee. Mr Rumbol stated in his first witness statement that this was a "precondition" to issue by the Bank of the guarantee, and was included in the application for the guarantee itself. Given what occurred later, I considered that this meant that in this case, there was a seriously arguable case that the guarantee itself had been obtained by fraud. If the statements made by Blue Oak in the call itself were not fraudulent, which would mean that Tetronics were in breach in the terms alleged, and given Blue Oak accepted the facts in Mr Rumbol's witness statement must be taken to be true on the application as of 31 January 2018 (which was to the effect that nothing has changed since 13 November 2017) this would mean that the contents of the letter of 13 November 2017 would be fraudulent. It states "as far as we are aware there are no current circumstances that would give rise to a demand for breach of the underlying supply contract….." That letter pre-dated the issue of the guarantee. Were the injunction to be lifted, the Bank would pay out under the guarantee and seek to recover those sums from Tetronics. On Mr Rumbol's analysis of the facts in his first witness statement, Tetronics would become immediately insolvent (which must mean that the Bank would be highly unlikely to recover any of the funds paid out under the guarantee) and even if it could pursue Blue Oak, that company as a SPV may no longer exist. The shareholders of the entity that controls Blue Oak would benefit from the fraud; the other parties before the court would not only not benefit, they would be financially damaged (in the case of the Bank) or destroyed (in the case of Tetronics).
- As of the evidence available on 31 January 2018, I considered this to be a set of extraordinary facts. In my judgment, on the extraordinary facts as at that stage, and very unusually and after applying the extremely high threshold test, I concluded that the balance of convenience tilted in favour of continuing the injunction against the Bank. For these reasons I found in my first draft judgment that the injunction obtained against the Bank by Tetronics should be continued.
- I noted two further points in my draft judgment. One was a point concerning whether my conclusion in continuing the injunction contravened the policy that underpinned the autonomy principle. I considered that it did not. More relevantly, the other concerned an ICC arbitration. That, for reasons that are made clear below, came very much to the forefront of matters in early February. I will therefore deal with that point now, in Section VI of this judgment.
VI. Events since distribution of the first draft judgment
- Counsel for Tetronics Ms Hitching informed the court during the hearing of 31 January 2018, that Tetronics had commenced an International Chamber of Commerce ("ICC") arbitration against Blue Oak under the Supply Contract. The Request for Arbitration to the ICC (which in ICC arbitrations is what initiates such proceedings) in fact pre-dated the obtaining of the emergency injunction from me on 18 January 2018. Those acting for Blue Oak at the hearing on 31 January 2018 were unaware that an arbitration had been commenced, until Ms Hitching told the court. The governing law of the Supply Contract is the law of the State of New York. Blue Oak was using US attorneys in those ICC proceedings. At the end of the hearing of 31 January 2018 I reserved judgment.
- In a further letter on the subject that post-dated the return date hearing, Tetronics' solicitors (stating that this was made in compliance with the duty of full disclosure) notified the other parties and the court that it had applied for emergency relief against Blue Oak in those ICC proceedings in terms of restraint concerning the call on the guarantee. Further correspondence to the court prior to the distribution of the first draft judgment made it clear that the ICC had appointed what is called an Emergency Arbitrator to deal with that application. This arbitrator was Dr Gerbay.
- This was during the period when the draft judgment was being prepared. On 6 February 2018 Blue Oak's solicitors sent the following e mail to the court:
"The Intervener submits that the application for emergency relief in the arbitration which the Claimant made to the ICC on 2 February immediately after the hearing in the TCC (and while judgment is pending) is not relevant to the merits of the application before the TCC, and further notes that the Claimant could have applied for such relief at any time after it commenced the arbitration on 17 January."
I agreed with the sentiments expressed in this letter, and I did not then consider that the commencement of the ICC proceedings was relevant to discharge or continuation of the injunction against the Bank. I did not therefore take the ICC proceedings into account in preparing my first draft judgment, and I did not consider that their existence or content affected my analysis or conclusions.
- My first draft judgment was sent out on 7 February 2018 stating it would be handed down on 20 February 2018. In that judgment I found that the injunction should be continued. This was met with a request by Blue Oak that the return hearing be re-listed so that further submissions could be made by Blue Oak on three points upon which it was said Blue Oak "did not have a proper opportunity to address the court". These three points were:
1. that it was sufficient for Tetronics to establish (only) that the Bank had knowledge of the seriously arguable case of fraud in order to bring the case within the fraud exception;
2. the court's conclusions in the first draft judgment that the delay by Blue Oak's bankers in responding to the Bank's request to clarify the signature on the demands was relevant to the balance of convenience; and
3. that it was highly material to consideration of the balance of convenience that Blue Oak must have obtained the guarantee by fraud if its demand under the guarantee was not fraudulent.
- Blue Oak stated that as a result of the conclusions on the above points, upon which it was said Blue Oak did not have a proper opportunity to address the court and which the court had found were "dispositive of the applications", the court had made clear errors. It was also argued that publication of the draft judgment would have a material adverse impact on the conduct of banking business in the UK.
- This was put as a matter of legal argument, and Mr Lazarus in a further skeleton argument explained that due to the way in which Tetronics had put its case – which he submitted was essentially inadequate – on 31 January 2018 the court "did not receive the assistance it ought to have had from counsel".
- Any further legal argument and delaying of the handing down of the first draft judgment was resisted by Tetronics, whose position is best summarised in a letter from its solicitors dated 15 February 2018:
"This is not a case where the court should revisit its careful and considered judgment, delivered after full argument on all points which each of the parties wished to raise. Further it was a decision made in the light of BlueOak's tactical decision not only not to adduce any factual evidence but to invite the court to treat Tetronics' factual evidence as true. BlueOak clearly dislikes the result.
BlueOak can of course if it sees fit (as it regrettably indicates that it does) apply for permission to appeal.
Our prime position is therefore that the application should be dismissed on its face, and that judgment is formally handed down on 20 February as diarised and that a short hearing to deal with consequential matters is fixed thereafter if the parties cannot agree on the terms of an order."
- I decided that oral submissions should first be made on 20 February 2018 as to whether Blue Oak's application to relist for further argument would be granted, or whether the judgment should simply be handed down. Mr Lazarus had in his skeleton cited the well known authority that I had power to relist for further argument, namely In re. L and another (Children)(Preliminary Finding: Power to Reverse)  UKSC 8. This states that a judge has the power to reverse his or her decision at any time before the order is drawn up and perfected, which under the CPR means when the order is sealed by the court. This also states that a less restrictive approach should be adopted than was heretofore thought to be the case (the earlier authority, In re. Barrell Enterprises  1 WLR 19 using the test of "most exceptional circumstances"). Every case would depend upon its own circumstances, and the test was the overriding objective of dealing with cases justly.
- There appears to be a tendency for many legal advisers to treat receipt of a draft judgment as the starting point for yet another round of submissions, this time aimed at the findings or analysis in that draft judgment, rather than their opponent's case at the substantive hearing. Nor is this tendency restricted solely to submissions; on occasion fresh evidence is submitted too. For example, in Kazakhstan Kagazy PLC and others v Baglan Abdullayevich Zhunus  EWHC 369 (Comm) Picken J dealt with a situation where the defendant sought to adduce new evidence which was said at  as being "of central importance to the issue of quantum and which therefore must be taken account of when the Court is assessing quantum" and of which the defendant had no awareness at the trial. Picken J refused the application to allow such evidence. In doing so he said at  "There needs to be finality in litigation. This applies as much to high-value and complex litigation as it does to low-value and simple litigation."
- Statements concerning the requirement for finality in litigation have been made at appellate level too. In Ogale Community and others v Royal Dutch Shell and another  EWCA Civ 191, a lengthy appeal was heard in November 2017 from a first instance decision striking out a claim against the defendants in relation to oil pollution in the Niger Delta in Africa. In January 2018 the (ultimately unsuccessful) appellants made an application to the Court of Appeal that giving judgment should be postponed until after the appellants had the opportunity to consider "a whole raft of yet further Shell documentation" that had come into their possession and which could be potentially relevant. In stating why that application was refused, the Chancellor of the High Court stated at  "In my judgment, there has to be finality to litigation determining jurisdictional questions within a reasonable timescale and, for that reason alone, proceedings cannot be delayed to allow unlimited attempts to gather evidence that might be said to support the claim." At  in the same case Simon LJ restated the requirement in terms of the Court of Appeal admitting fresh evidence in the following terms:
"For the Court of Appeal to exercise its discretion to admit evidence it must be satisfied that the 'fresh evidence': (1) could not have been obtained with reasonable diligence for use at the hearing of the application; (2) would probably have an important, although not necessarily decisive, influence on the result; and (3) is apparently credible: see CPR Part 52 .21(2), Ladd v. Marshall  1 WLR 1489 CA and White Book 1 52.21.3."
- No lesser a test should be applied, in my judgment, to an application to adduce fresh evidence after a draft judgment has been distributed. The issue of whether the contents of any of the nine new witness statements containing evidence was available at the time of the first hearing (or could with reasonable diligence have been obtained) is a relevant consideration. The importance of the evidence is also highly material. However, these two points are not overwhelmingly determinative of whether fresh evidence should be admitted. Whether to admit such evidence is a matter of discretion.
- In my judgment, statements concerning finality are applicable to all litigation, but if one is to consider such matters on the basis of the type of case, I would venture that whether injunctions remain in force or not, particularly one such as this which relates to a call on a financial instrument, are issues that should be resolved as promptly as possible. For those reasons, had I come to determine the application by Blue Oak solely on the basis of the three points identified at  above, I would have rejected that application and handed down the judgment. However, yet further developments were in store.
- On 19 February 2018 (although the statement did not reach the court until 20 February 2018, just before the hearing on that day) Mr Howarth, a solicitor acting for Blue Oak, referred to:
"important new evidence disclosed by [Tetronics]…. which came to my attention late in the afternoon of Friday 16 February 2018 when I received a copy of Dr Gerbay's Order rejecting [Tetronics'] application for urgent relief in the arbitration (the "Order"). It is necessary to bring this new evidence to the attention of the court because it materially contradicts the important evidence given by Mr Rumbol at paragraphs 86-88 of his witness statement in these proceedings dated 17 January 2018".
This was a reference to Mr Rumbol's first witness statement. In my judgment, this was highly material new evidence, and given the date when it arose, plainly could not have been deployed at the hearing of 31 January 2018. Its contents were also very important in the context of the injunction proceedings, whether it should have been granted and whether it should be continued.
- This new evidence was as follows. Further to the matters to which I have referred at  above, the ICC appointed Dr Gerbay as the Emergency Arbitrator to hear the application by Tetronics for emergency relief. In the context of that the issue arose whether, were the injunction to be discharged, Blue Oak should be ordered to pay the sum of £3.08 million into an escrow account to be held there pending determination of the substantive arbitration proceedings. A telephone hearing was conducted by Dr Gerbay. Tetronics was represented by Mr Sheehan (of its US lawyers), Mr Griffiths (of its English solicitors), Mr Rumbol and Mr Lafferty, a non-executive director. Blue Oak was represented by its US lawyers and Mr Garas, its CEO. Blue Oak argued that paying the funds into an escrow account would not achieve Tetronics' objective of avoiding insolvency, as Mr Rumbol's evidence (in his first witness statement) was that Tetronics would become immediately insolvent when the Bank demanded reimbursement of the £3.08 million.
- The Order of Dr Gerbay, extracts of which were exhibited to Mr Howarth's first witness statement, stated the following that was relevant to Mr Rumbol's evidence about Tetronics' insolvency (at  in his reasons), referring to Tetronics as the Applicant:
"At the Hearing, however, when asked by the Emergency Arbitrator to confirm the point, counsel for the Applicant conceded that the shareholders of the Applicant would in fact be able to make additional contributions to the Applicant for the purposes of satisfying a request for reimbursement by HSBC…..the shareholders would however likely not be willing to do so, unless any monies paid out by HSBC were placed in an escrow account (as requested by the Application). This concession greatly undermined Mr Rumbol's statement. The Applicant now claims that, contrary to Mr Rumbol's Statement, a shareholder injection would be forthcoming if the Bond funds are placed into escrow, and further, that such an injection would not threaten the survival of the Applicant."
(emphasis in original)
- Blue Oak relied on this for two main grounds. Firstly, that the balance of convenience did not support the grant or continuation of the injunction. Secondly, that the court had been misled, at either or both of the hearings on 18 January 2018 and 31 January 2018, on this particular point. At the hearing of 20 February 2018, therefore, two different matters arose which I considered to be of an entirely different character to those concerning further argument on existing points. The first was whether this new evidence should be admitted, and the second was the way forward if the answer to that was yes.
- Although just a few minutes before the hearing on 20 February 2018 three further witness statements were served by Tetronics, these simply muddied the waters yet further, as they contradicted what it was said by Blue Oak had been actually said on Tetronics' behalf to Dr Gerbay. These were the second witness statement of Mr Rumbol, the first witness statement of Mr Sheehan and the first witness statement of Mr Griffiths. These statements were to the effect that Dr Gerbay's Order did not reflect the submissions in fact made to him, and that he had been invited to correct his Order accordingly.
- I concluded that the correct course to adopt, in the interests of justice, was not to hand down the draft judgment, and to admit the new evidence from Mr Howarth. I also explained that I would give reasons for this in this judgment. I gave directions for further evidence. Dr Gerbay had recorded the proceedings before him. It seemed sensible for the parties to request a copy of the transcript from him. Given this request was to be made, and time had to be allowed for this to be done and for further evidence to be served by Blue Oak and Tetronics, the further hearing that was obviously necessary could not take place until 19 March 2018.
- This jurisdiction utilises the adversarial system. Each party will serve evidence, make submissions, and is given an opportunity not only to put its own case, but also to meet the case brought against it. An exception to this is an application that is made without notice, where the other party is not represented or even before the court. As the notes to CPR Part 25.3.5 state:
"As a matter of principle no order should be made in civil proceedings without notice to the other side unless there is a very good reason for departing from the general rule that notice must be given (eg where to give notice might itself defeat the ends of justice). To grant an interim remedy in the form of an injunction without notice "is to grant an exceptional remedy"; Moat Housing Group-South Ltd v Harris  EWCA Civ 287….
It is well established that an applicant who applies for an interim remedy without notice to the respondent is under a duty to investigate the facts and fairly present the evidence on which they rely…..In Memory Corporation plc v Sidhu (No.2)  1 WLR 1443, CA, Mummery LJ said (at p.1459) it is a "high duty" and requires the applicant to make full, fair and accurate disclosure of material information to the court and to draw the court's attention "to significant factual, legal and procedural aspects of the case".
- These principles are well known. Analysis is usefully set out in Millhouse Capital UK Ltd and Abramovich v Sibir Energy plc and others  EWHC 2614 (Ch) where Christopher Clarke J (as he then was) stated at  to  what the requirements are, and why. He said:
67 "The applicants submit that, in making their application to Evans Lombe J in November 2007 the Petitioners owed duties of full and frank disclosure, as a series of well-known authorities establish; e.g. R v Kensington Income Tax Comrs, ex p Princess Edmond de Polignac  1 KB 486 ("the fullest possible disclosure of all material facts").
68 As Bingham, LJ, said in Siporex Trade SA v Comdel Commodities Ltd  2 Lloyd's Rep 428. 437 an applicant for ex parte relief must:
"identify the crucial points for and against the application, and not rely on general statements, and the mere exhibiting of numerous documents…He must disclose all facts which reasonably could or would be taken into account by the judge in deciding whether to grant the application. It is no excuse for an applicant to say that he was not aware of the importance of matters he has omitted to state. If the duty of full and fair disclosure is not observed the Court may discharge the injunction even if after full inquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure".
69 In Memory Corporation v Sidhu (No 2)  1 WLR 1443, 1459-1460 Mummery LJ said:
"It cannot be emphasised too strongly that at an urgent without notice hearing for a freezing order, as well as for a search order or any other form of interim injunction, there is a high duty to make full, fair and accurate disclosure of material information to the Court and to draw the Court's attention to significant factual, legal and procedural aspects of the case. It is the particular duty of the advocate that … at the hearing, the Court's attention is drawn by him to unusual features of the evidence adduced, to the applicable law and to the formalities and procedure to be observed …"
70 Amongst the principles set out by Ralph Gibson LJ in Brink's Mat Ltd -v- Elcombe  1 WLR 1350.1356 was this:
"(2) The material facts are those which it is material for the Judge to know in dealing with the application as made: materiality is to be decided by the Court and not by the assessment of the Applicant or his legal advisers."
71 In Re City Vintners Ltd, (Unreported 10th December 2001), a case in which a provisional liquidator was sought inter alia on the grounds that the assets of the company were said to be in jeopardy, Etherton J referred to the passage from Memory Corporation -v- Sidhu (No 2) quoted above, and then said:
"Full disclosure of these matters is of particular and critical importance in relation to applications for the appointment of a Provisional Liquidator."
He went on to draw attention to the passage in Paragraph 5.16 of the Chancery Guide which states:
"The representatives for the Applicant must specifically direct the Court to passages in the evidence which disclose matters adverse to the application."
72 The rationale for the duty is plain:
"The reason for this requirement is obvious: the Court is being asked to grant relief in the absence of the defendant and is wholly reliant on the information provided by the claimant. Moreover, it is not only the duty of the claimant to disclose material facts: he must also present fairly the facts which he does disclose."
"The principles are well-established and well-known on applications without notice for injunctions and other interim relief, but they are fundamental to the proper functioning of the Court's process on any application without notice. It is of course the very fact that the application is made without notice to other interested parties which makes these principles so important. Other parties do not have the opportunity to correct or supplement the evidence which has been put before the Court."
(all emphasis present in original)
- Such statements are not restricted to applications to appoint liquidators, or any other specific field. They are of wide application. They are also fairly well known, if not to lay clients, but certainly to legal advisers. They are fundamental. They apply in this case, even though the Bank had about one hour's notice of the emergency application. That was not sufficient for the Bank to attend on the application for urgent relief.
- It is against these requirements that the statements by Mr Rumbol in his first witness statement, and the subsequent statements to Dr Gerbay on the insolvency issues, must be considered. In his first statement Mr Rumbol said the following:
"85. Were an immediate demand for £3.08m made it would render the Claimant insolvent.
86. I attach [management accounts] as evidence of the Claimant's current financial position. I also exhibit a cash flow forecast……It can be seen that as a result of Blue Oak not paying the interim payment negotiated as a pre-condition to providing the new bond the Claimant is forecasted to have a working capital shortfall early February 2018 to late March 2018 of up to £600,000. Whilst shareholders are willing and able to provide the necessary working capital to bridge this immediate gap, they are very unlikely to be able to immediately inject a further £3.08m into the business to satisfy an immediate HSBC demand. Any further support from shareholders will be in the form of debt. The ongoing impact of the debt burden to repay the £3.08m, on the business should they do so, would be disastrous to the future viability of the business.
87. In summary, in satisfying a £3.08m demand from HSBC, the business would become insolvent without an immediate injection by the shareholders. They are unlikely to be able to make that injection and were they to do so it would in any event impact the debt burden to such an extent that the company would be unlikely to survive.
88. The Claimant would therefore either no longer exist or would certainly not be able to fund pursuing Blue Oak for an improper and false call on the Bond. Given that the Contract is governed by New York law and contains an arbitration clause these proceedings would be lengthy and costly. The Claimant would either not survive that long or not be able to fund them. The Claimant's only hope is therefore that HSBC does not pay out on the Bond in the first place".
- I consider the above statements to be unequivocal. The evidence of Mr Rumbol in this first statement was that were an immediate demand for £3.08m to be made by the Bank it would render Tetronics insolvent. The shareholders were "very unlikely to be able to immediately inject a further £3.08m into the business to satisfy an immediate HSBC demand" but that even if they did, that support would be in the form of debt. The ongoing impact of the debt burden to repay the £3.08m were this to occur "would be disastrous to the future viability of the business." Also, "the company would be unlikely to survive".
- The further evidence that was served by all the parties for the hearing on 19 March 2018, all of which was served after the first draft judgment had been distributed, was:
1. For the Claimant, the second and third witness statements of Mr Rumbol; the first and second witness statements of Mr Sheehan; and the second and third witness statement of Mr Griffiths.
2. For the Bank, the second witness statement of Mr Weaser.
3. For Blue Oak, the first and second witness statements of Mr Haworth.
- In addition, Dr Gerbay made available to the parties (and they made available to the court) the transcript of the hearing before him to which I have referred, and for which I am grateful. Arbitration proceedings are by their nature confidential, although neither Blue Oak nor Tetronics took any point that I should not consider what occurred on the application for emergency relief. The other e mail communications to and from the Emergency Arbitrator were also exhibited. It is only necessary to refer to one. Tetronics' US counsel had invited Dr Gerbay to reconsider and modify his Order (which included the passage quoted at  above). He declined to do so. He also stated in his e mail to the parties of 21 February 2018 the following:
"The Applicant is stating that there was a misconstruction of its remarks at the hearing, and therefore an improper conclusion not supported by the record as to its willingness and ability of the shareholders to extend further funding to the Applicant. I have listened to the recording of the hearing again. I regret that I cannot change my mind on this issue. The Applicant made multiple statements at the hearing to the effect that the shareholders are in fact able to make contributions (in the sense that they would have the financial means) but that they were not willing to do so absent an escrow arrangement being in place. The distinction between ability and willingness to make contributions was one that I expressly raised at the hearing, repeatedly. I raised the issue in questions addressed to the Applicant directly."
(emphasis in original)
- I consider that there are three points, dealt with by Mr Rumbol in his first statement, which concern Tetronics and its future viability. They are:
1. Were an injunction not granted, the claim made on Tetronics by the Bank would render it insolvent immediately.
2. The shareholders of Tetronics were not able to provide the cash injection necessary to avoid this.
3. Even if they could, the impact of the added debt upon Tetronics would irreparably damage the company and it would not survive.
- The position as explained to Dr Gerbay on the application by Tetronics on these three areas was as follows. I summarise what was said at pages 71 to 78 of the transcript of that hearing. I have read the whole transcript with care, and not simply adopted Dr Gerbay's summary of what was said to him.
1. Tetronics would not be made immediately insolvent. "Well, Tetronics wouldn't immediately be insolvent after meeting the claim from HSBC…."
2. The shareholders of Tetronics were able to provide the cash injection necessary.
3. However, the shareholders of Tetronics would not be willing to do so unless the Emergency Arbitrator were to order that the £3.08 million be paid into an escrow account.
There was a distinct and, in my judgment, crucial distinction made when Tetronics were making submissions to the Emergency Arbitrator, between the shareholders' ability to advance further funds, and the shareholders' willingness to do so. Such distinction was not only wholly lacking in the evidence in Mr Rumbol's first statement, but he expressly told the court that the shareholders were unable to do so.
- I have come to an independent conclusion that matches that of the Emergency Arbitrator's summary of what was submitted to him at the hearing he conducted. Arbitration is a quasi-judicial forum for the resolution of commercial disputes. The reasons he identified at  above were part of his actual Order. He is highly unlikely to have got such a point wrong, and I do not consider that he did so, even though I have not in any way considered whether he was wrong or not – that is not part of this exercise. This exercise is to compare the statements made to him by Tetronics on these critical issues, with what the Tetronics told the court. Further, Dr Gerbay was expressly asked to reconsider his conclusion and did reconsider it. Having read the whole transcript, it seems to me that his summary of what he was told is correct. Although Tetronics witness evidence on this (including from its own US counsel) was very strenuously to argue that the two positions (before me in the High Court, and before Dr Gerbay in the ICC proceedings) were entirely consistent, I disagree.
- Ms Hitching's submissions on this were, primarily, that there was no inconsistency at all between  and . She also submitted that if there were any inconsistency, the submissions that were made to Dr Gerbay were made without instructions and with Tetronics' counsel being "on a frolic of his own". I reject both of those explanations, if explanations they are. These are highly material matters. They underpinned the whole basis of the application as it was contained in the first witness statement of Mr Rumbol deployed before me on 18 January 2018. Tetronics' case then was that it would become immediately insolvent when the Bank claimed the sum of £3.08 million, which at the hearing of 31 January 2018 was stated would occur by the Bank debiting its account, and that its shareholders were unable to provide funds to avoid this. Dr Gerbay was told that Tetronics would not become immediately insolvent, and although its shareholders could advance further funds, they would not be willing to do so unless an order was obtained from him that the sum be placed in escrow. It is impossible to reconcile those two statements as being consistent.
- Immediate insolvency is directly contradicted, in one way, even by seeking relief from an Emergency Arbitrator that money be paid into escrow. Whether that is right or not, one can well understand why Dr Gerbay explored this in such detail during the hearing before him. If immediate insolvency were to follow if the injunction was lifted and the £3.08 million paid to Blue Oak by the Bank, what would be achieved by ordering that the sum be paid into an escrow account?
- If Mr Rumbol's first witness statement is taken at face value, there would have been no point whatsoever in seeking such alternative relief from the Emergency Arbitrator. Whether the £3.08m went to Blue Oak directly, or into an escrow account, would not make any difference as (if the first witness statement of Mr Rumbol was correct) insolvency of Tetronics would follow immediately in either event, and the shareholders had no ability to provide further funds. The very seeking of such alternative relief itself contradicted the evidence put before the court on 18 January 2018 and again relied upon on 31 January 2018. But even if that were not right, the picture presented to Dr Gerbay by Tetronics was entirely different to the picture presented to the High Court in London.
- Mr Rumbol's first witness statement is dated 17 January 2018 and the statements made to Dr Gerbay were made on 12 February 2018. The application to the ICC for the appointment of an Emergency Arbitrator had not been made as of 31 January 2018, the return date for the injunction application. A great deal can change in almost a month. However, the evidence served by Tetronics for the hearing on 19 March 2018 did not address any business or financial developments that would, or could, explain the two different positions, both of immediate insolvency and inability of shareholders to advance further funds. Rather, they were aimed at demonstrating that the two positions were not different at all. I reject those attempts at reconciliation of the two positions. The argument that its US counsel exceeded his instructions is a weak point, not least because Mr Rumbol himself was a participant in the telephone hearing.
- I explored what I saw as the clear inconsistencies between the two positions at  and  at the hearing of 19 March 2018 with Ms Hitching. She could not go further than what was in her written skeleton argument, which in any event only attempted to explain the "able and willing shareholders" aspect, and not the immediacy or otherwise of the insolvency of Tetronics if the Bank paid out on what I had considered to be a fraudulent call on the guarantee.
- I have concluded that Tetronics failed to comply with the principles I have set out at  above in respect of its evidence in Mr Rumbol's first witness statement, as demonstrated by what Tetronics itself told Dr Gerbay. I consider, taking the evidence as a whole and reading the submissions made to Dr Gerbay fairly, that Tetronics would not be made immediately insolvent were the payment to be made by the Bank, and that its shareholders are not unable to advance further funds. Whether they are willing to do so, or not, is not relevant at all, in my judgment. In those circumstances, and as a matter of discretion, I would discharge the injunction on that ground alone, regardless of whether it was otherwise justified to keep it in place.
- Out of completeness, however, and in case I am wrong about what I have found in  (although it is a matter of my discretion and I have taken all relevant matters into account) I will still go on to consider the balance of convenience as at 19 March 2018 on all the material before the court on that occasion.
VII Reconsideration of the balance of convenience as at 19 March 2018
- In the circumstances of this case I consider I should perform the same exercise in respect of the balance of convenience, but to do so on the basis of the evidence as it was before me on 19 March 2018 concerning Tetronics future viability and the position of its shareholders. This means taking account of the situation as it was presented to Dr Gerbay and recorded in his Emergency Order.
- The unavoidable and immediate insolvency of Tetronics, as it was presented in the first witness statement of Mr Rumbol, was clearly an important factor in the earlier exercise of considering the balance of convenience as of 31 January 2018. I have decided that I must, when considering the matter afresh, not be influenced by the determination of the outcome of that exercise as of 31 January 2018. In other words, I must disregard as a starting point that I concluded the balance of convenience was in favour of continuing the injunction on that earlier, and incomplete, material.
- Undertaking the exercise as of 19 March 2018, and coming to the matter afresh, I have concluded that in this exercise the balance of convenience does not favour continuation of the injunction; rather it favours its discharge. The immediate insolvency of Tetronics was a significant factor in favour of continuing the injunction. Given that is no longer the case – at least, not on the basis of how the case was put most recently to Dr Gerbay in the emergency application before him – there are few factors in favour of continuing the injunction.
- The injunction granted by me on an urgent ex parte basis against the Bank on 18 January 2018 will therefore be discharged.
- This is an unusual case, and I have found that it contains extraordinary facts. Not including the initial emergency ex parte hearing on 18 January 2018, all three of the parties were before the court on three separate occasions, namely 31 January 2018, 20 February 2018 and 19 March 2018. On that final occasion, the listing was to have been one full day, although this estimate was made on 20 February 2018 before all the new witness statements were available. In the event, only half a day was available then due to other listing necessities, and the parties were therefore given the opportunity to put reply submissions in writing, limited to 3 pages each. I am satisfied that the time available did not cause any of the three parties any unfairness. If the parties cannot agree a suitable order for all the consequential matters, one further short hearing will be required.