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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Meritz Fire and Marine Insurance Co Ltd v Jan De Nul NV (Rev 1) [2010] EWHC 3362 (Comm) (21 December 2010) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2010/3362.html Cite as: [2011] 1 All ER (Comm) 1049, [2010] EWHC 3362 (Comm), [2011] 1 CLC 48, 134 Con LR 252, [2011] TCLR 2, [2011] BLR 320 |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
Meritz Fire and Marine Insurance Co Ltd |
Claimant |
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- and - |
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Jan de Nul NV |
1st Defendant |
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-and- |
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Codralux SA |
2nd Defendant |
____________________
Iain Milligan QC and Mark Humphries (instructed by Linklaters LLP) for the Defendants
Hearing dates: 29 November 2010 - 1 December 2010
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Crown Copyright ©
Mr Justice Beatson :
I. Introduction
II. The Evidence
1) Neither of the defendants knew of the existence of the Basic Agreement, the share pledges, the personal guarantees, or the reinsurance contracts on the dates when the APGs were issued;
2) Neither of the defendants was aware of the proposal to merge HWS into Buyoung Heavy Industries Co Ltd or to partition Asia Heavy Industries from Buyoung until after those events respectively had occurred; and
3) The defendants were free to rely on the documents as evidence in support of their contention that Meritz affirmed the APGs.
III. The three Shipbuilding Contracts
"As soon as possible after the signature of this Contract, the Builder shall at his expense provide to the Owner through a First-Class Bank a guarantee in the form as per Annex 3 to guarantee the faithful and timely performance of the Builder's obligations under the Contract."
The pro forma in Annex 3 is headed "Advance Payment Guarantee (Letter of Guarantee)".
"17.1 The Owner may immediately terminate the Contract by notice to the Builder if at any time before takeover of the Vessel:
(a) The Owner demonstrates that the Builder is in delay on any one of the Milestones…by more than one hundred and fifty (150) Days; or
…
(d) The Builder has a receiver, administrator or administrative receiver, trustee, liquidator or like person appointed over any substantial part of its assets under any jurisdiction or law relating to the reorganisation, arrangement or adjustment of debts or the dissolution, administration or liquidation of corporation.
17.2 In the event of such termination of the Contract the Owner shall have the option – at its discretion – either (i) to take possession of the Vessel as it is constructed and to take over all the materials, equipments, design and services purchased by the Builder for this project and have it completed by a third party, whereby the Builders shall promptly repay the Owner all sums not used in the construction of the Vessel plus the extra costs incurred in the completion thereof up to the amount guaranteed under the [APG], [or] (ii) the Builder shall refund to the Owner the amount of all monies paid by the Owner under the Contract together with interest…
In the event the Owner opts for scenario (ii) under the previous paragraph, the builder shall…either return to the Owner such Owner-Supplied Items as indicated by the Owner, at the Builder's cost and expense, or reimburse the purchase and delivery value thereof to the Owner. If and when any Owner-Supplied Item has not been returned under this provision to the Owner within sixty (60) Days from termination of the Contract or the Owner – as applicable – has not received repayment under this provision within ten (10) Days from termination of the contract, the Owner shall be entitled to draw on the [APG] provided by the Builder and be reimbursed all monies remaining on the escrow account without prejudice to any other remedy at law or otherwise.
17. 3 The refund as provided in the foregoing paragraph 17.2 by the Builder to the Owner shall forthwith discharge all the obligations, duties and liabilities of each of the parties thereto to the other, without prejudice however to any obligations, duties and liabilities under Common Law. … "
IV. The Advance Payment Guarantees
"[1] We hereby issue the irrevocable Advance Payment Guarantee (Letter of Guarantee Number…) in favor of [Jan de Nul NV/Codralux SA]…(hereinafter called "the Buyer") for the account of Heun Woo Steel Co., Ltd., a shipyard organized and existing under the laws of the Republic of Korea…(hereinafter called "the Builder") in connection with the shipbuilding contract…(hereinafter called "the Shipbuilding Contract") made by and between the Buyer and the Builder for the construction [the Vessel is then identified by description and its Builder's Hull number]…(hereinafter called "the Vessel").
[2] If, in connection with the terms of the Contract, the Buyer shall become entitled to a refund of advance payments made to the Builder prior to the delivery of the Vessel, we hereby irrevocably and unconditionally guarantee the repayment of the same to the Buyer within Thirty (30) days after demand is made not exceeding the sum [specified[1]]…together with interest…
[3] Under no circumstances shall the amount of this Advance Payment Guarantee (Letter of Guarantee) exceed [the specified sum, being an amount equal to 20% of the total Contract Price in the case of HS1005 and HS1006 and 70% of the total Contract Price in the case of HS1007] plus interest thereon at the rate of Six percent (6%) per annum…
[4] The Buyer's demand for payment under this Advance Payment Guarantee (Letter of Guarantee) is payable upon our receipt of the Buyer's signed statement certifying that the Buyer's demand for refund is made in conformity with Clause 17 of the Contract and that the Builder has failed to make the refund.
…
[6] Notwithstanding the provisions hereinabove, in the event that within Thirty (30) days from the date of your claim to the Builder referred to above, we receive written notification from either you or the Builder stating that your claim for refund hereunder is disputed by the Builder and has been referred to arbitration in accordance with the provision of the Contract, we shall, under this Advance Payment Guarantee (Letter of Guarantee), refund to you the sum as per the award issued under such arbitration immediately upon receipt from you of a demand for the sum so adjudged together with a copy of the arbitration award, and not before.
[7] This Advance Payment Guarantee (Letter of Guarantee) [shall] become null and void upon receipt by the Buyer of the sum guaranteed hereby or upon acceptance by the Buyer of the delivery of the Vessel in accordance with the terms of the Contract…
[8] This Advance Payment Guarantee (Letter of Guarantee) is valid from the date herein stated below until such time that the Vessel is delivered by the Builder to the Buyer in accordance with the provisions of the Contract.
[9] This Advance Payment Guarantee (Letter of Guarantee) shall be governed by and construed under the substantive law of England and the undersigned hereby submits to the non-exclusive jurisdiction of the courts of England.
[10] ***** This Advance Payment Guarantee (Letter of Guarantee) is subject to the Uniform Rules for Demand Guarantee of the International Chamber of Commerce (ICC), ICC Publication No. 458."
V. Post-Contractual exchanges concerning the Shipbuilding Contracts:
(a) Communications between the shipbuilder and the claimant about the corporate reorganisations
(b) Communications between the defendants and the claimant about the delays and the corporate reorganisations
"We have understood that Meritz is aware of and, in view of its commitment under the advance payment guarantees, very concerned by the current situation."
and
"…To better assess the range of options available, we would very much appreciate if Meritz could indicate us what type of additional financial support it would be ready to provide in order to cover any advance payment acceleration or extra financial resources needed to finalise the vessels".
"1) Meritz will exert its best efforts within its business scope to come up with a solution so that the loan can be facilitated to [Asia Heavy] with the goal of completing the construction and delivery the three vessels…
2) In this regard, Meritz would like to ask [Jan de Nul] to wait in making any claims for pay-out on the R/Gs issued by Meritz until such options have been attempted.
3) In reply to this, Meritz was advised that there is not much time left to pursue other options since [Asia Heavy] is currently insolvent with no money to continue its operations, so it is uncertain how much longer [Jan de Nul] would be able to wait in pursuing its own courses of action, such as making claims for pay-out on the R/Gs. …"
"in our view Jan de Nul has agreed to extend the captioned contracts with Asia Heavy Industries without our consent. Therefore please understand that we reserve the right to take necessary actions to preserve our legal rights".
(c) Communications between the defendants and shipbuilder about the corporate reorganisations and the delays
"Could you please confirm our understanding that this name change procedure implies that only the name of the legal entity that is currently building the vessels has changed and not that Buyoung Shipbuilding Co Ltd is a wholly new legal entity existing separately from [HWS] to which all the contracts need to be transferred".
"Actions, decisions, considerations, etc by [Jan de Nul] in the frame of the meetings are undertaken for purpose of having the vessels completed – circumstances permitting – and cannot in any whatsoever way be interpreted as waiver of its rights and title under the contracts."
The minutes also state that Asia Heavy submitted new milestone dates earlier than those in the dates estimated in the schedule in the first defendant's "reality check" letter and record discussion about the various matters in that letter. Item 10 recorded:
"As an incentive for timely completion according to the revised delivery dates offered by [Asia Heavy], a bonus system of 1 million USD for each vessel is tabled. A thirty days grace period would apply with respect to these dates. In the event without prejudice to its continuing right to terminate the contract for reason of [Asia Heavy's] default as originally agreed in the contract, [Jan de Nul]would also postpone its claim for liquidated damages and link application thereof to the new delivery dates…" (emphasis added)
"[Jan de Nul] is not willing to alter the terms of the shipbuilding contracts and as a result is not willing to make an early payment of next instalment. As [Asia Heavy] is well aware, this was clearly agreed and accepted by [Asia Heavy] last week."
There are other letters dated 3 December faxed by the first and second defendants to Asia Heavy. These confirmed an agreement with Asia Heavy that, if it successfully completed and delivered the vessels before new delivery dates specified in the letter, "no penalties will be levied on [Asia Heavy] and a delivery bonus of 1,000,000 USD shall be paid to [Asia Heavy]". The new delivery dates specified were 30 August 2009 for HS1005, 28 February 2010 for HS1006, and 30 November 2009 for HS1007. The next day, the first defendant wrote stating that the letter is "to clarify" that the letters dated 3 December were sent on a "without prejudice" basis and, referring inter alia to the meetings on 23 and 24 October. This letter asked Asia Heavy to note again "that the shipbuilding contracts that we have signed…are not amended in any whatsoever way by this correspondence and the Owner does not waive any whatsoever rights, remedies etc. under the provisions of these contracts that continue to have full legal standing". The second defendant wrote in identical terms about HS1007.
"We … require (i) in accordance with clause 17.2(ii)…[Asia Heavy] to refund to the Owner the amount of all monies paid by the Owner under the contract together with interest at the interest rate; and (ii) to return to us, at your cost and expense, all owner-supplied items as listed in the schedule to this letter."
(d) The correspondence between the claimant and the reinsurance and insurance brokers
VI. Discussion:
Issue 1: Are the APGs performance bonds?
(1) The APGs, as guarantees, are to be strictly construed so that no liability is imposed upon the guarantor which is not clearly and distinctly covered by their terms. He relied on Blest v Brown (1862) 4 De G, F & J 367 at 376 (Lord Campbell); Coghlan v SH Lock (Australia) Ltd (1987) 3 BCC 183, at 189 (Lord Oliver); and General Surety and Guarantee Co Ltd v Francis Parker Ltd (1977) 6 BLR 18, 21 (Donaldson J).
(2) Any ambiguity in the construction of an instrument should be construed in favour of the surety: Coghlan v SH Lock (Australia) Ltd at 189.
(3) It is the substance of an instrument and not the terminology it uses that determines its nature. The question thus is whether the obligation of the guarantor (Meritz) in the APGs is in substance secondary to the primary obligation of the principal debtor, the shipbuilder, or whether Meritz's obligation is a primary obligation.
(4) The APGs were not issued by a bank and are not banking instruments. Accordingly, the cases concerned with banking instruments issued by banks and described as or assumed to be performance bonds are of limited or little guidance: Marubeni Hong Kong v Government of Mongolia [2005] 2 Lloyds Rep 231 at [28]. Carnwath LJ stated those cases "provide no useful analogy for interpreting a document which was not issued by a bank and which contains no overt indication of an intention to create a performance bond or anything analogous to it".
(5) In a transaction outside the banking context, the absence of language either in the face of the instrument or in the supporting legal opinion letter describing the instrument as a "demand bond", although not conclusive, creates a strong presumption against the instrument being construed as a "demand bond" or "performance bond": Marubeni Hong Kong v Government of Mongolia at [30].
(1) The APGs do not state that the claimant's obligation is that of a principal and not a surety as the guarantee in IIG Cpital LLC v Van der Merwe [2008] 2 Lloyds Rep 187 did. They were not issued by a bank and (see [50](5)) the strong presumption against them being performance bonds referred to by Carnwath LJ applies.
(2) The words "irrevocably and unconditionally" in paragraph [2] of the APGs do not suggest they are performance bonds. In Marubeni v Government of Mongolia at [31] the use of the terms "unconditionally pledges" and "simple demand" did not displace the presumption that the instrument was not a demand bond.
(3) The APGs do not contain a number of provisions which courts have regarded as indicating the obligation in an instrument to pay is an independent obligation. Thus, by contrast with the instruments considered in Bache & Co (London) Ltd. v Banque Vernes et Commerciale de Paris SA [1982] QB 84 and IIG Capital LLC v Van der Merwe [2008] 2 Lloyds Rep 187, the APGs do not provide that a bank certificate is the trigger to payment, that a refusal to refund the advance payments is to be conclusive evidence of default, or that the demand cannot be challenged.
(4) The word "if" in paragraph [2] of the APGs is a positive indication that points to the claimant's liability being secondary. A provision that, "if" the defendants become entitled to a refund of advance payments to the shipbuilder, the claimant guarantees repayment imposes liability on a contingency. The language is thus consistent with a "see to it" guarantee, that is secondary liability.
(5) The provision in paragraph [6] of the APGs is another positive indication that the liability of the claimant under the APGs is secondary. This is because, if the claim/demand for refund from the shipbuilder is challenged in arbitration, the liability of the claimant is dependent on the determination in the arbitration of the underlying obligations between the defendants and the shipbuilder. Additionally, payment under the APGs is stated to be "the sum as per the award issued under such arbitration". That sum may differ from the amount claimed/demanded from the shipbuilder in accordance with paragraph [4] of the APG. There are thus material differences from the position in the Gold Coast case, where a provision for arbitration did not preclude an instrument from being construed as a performance bond. In that case the sum was certain, and arbitration only provided an opportunity to change the date on which it was paid.
(6) The provision in paragraph [7] of the APGs that upon receipt by the defendants of the sum guaranteed or upon their acceptance of the vessel the APGs "shall become null and void" is also language consistent with a secondary rather than a primary obligation.
(7) The reference to the ICC's Uniform Rules for Demand Guarantees in paragraph [10] of the APGs cannot change the nature of the obligation in them. That is to be determined by the substance of the language in them: see [50(3)] above.
"[m]eans any guarantee, bond or other payment undertaking, however named or described, by a bank, insurance company or other body or person…given in writing for the payment of money on presentation in conformity with the terms of the undertaking of a written demand for payment and such other document(s) (for example, a certificate by an architect or engineer, a judgment or an arbitral award) as may be specified in the guarantee, such undertakings being given
(i) At the request or on the instructions and under the liability of a party…or
(ii) At the request or on the instructions and under the liability of a bank, insurance company or any other body or person…acting on the instructions of a principal to another party…"
It is clear that the provisions of the APGs satisfy the definition of "demand guarantee" in the Uniform Rules and there is no inconsistency between them and the Uniform Rules. The APGs are payment undertakings, issued by an insurance company, in writing, for the payment of money on presentation in conformity with the terms i.e. a written demand for payment: see (paragraphs [2] and [4]). The written demand must be accompanied by a statement certifying that it is made in conformity with clause 17 of the shipbuilding contract (paragraph [4]) or the arbitration award (paragraph [6]) and the buyer has failed to make the refund. The APGs were issued "for the account of" HWS in connection with the shipbuilding contracts: paragraph [1].
Issue 2: If the APGs are contracts of suretyship, has the claimant been discharged from liability under them as a result of the changes in the corporate identity of the shipbuilder or material variations in the shipbuilding contracts?
Issue 3: Once HWS ceased to exist were the defendants able to make a contractual demand which triggered liability under the APGs?
VII. Conclusion
Note 1 In the case of HS1005 and 1006 the specified sum is US$6,300,000; in the case of HS1007 it is €15,050,000. [Back]