Ostfriesische Volksbank EG v Fortis Bank

This is the hearing of a claim for €1 million pursuant to an Advance Payment Guarantee dated 19^th July 2007 given by the defendant bank in respect of the liability of Madenci Gemi Sanayi Ltd Sti (“the Builder”), a Turkish company, to repay monies paid in advance to the builder for the construction of a vessel under a Shipbuilding Contract. The entitlement under the Guarantee has been assigned by the owner, Conship Bereederungs-Und Verwaltungsgesellschaft MBH (“Conship”), to the Claimant bank. There is no issue in these proceedings about the assignment, and I shall refer to the Claimant alone as the claimant under the Guarantee.

The event upon which the sums were repayable and hence claimable under the Guarantee was the non-delivery of the vessel by 28^th February 2009, leading to what was called “rescission” of the Contract: and the expiry date of the Guarantee was expressed to be 15^th March 2009. A Notice of Rescission was given on 1^st March 2009 and the demand made under the Guarantee, in circumstances which I shall describe, prior to 15^th March 2009, but the Defendant bank has declined to pay under the Guarantee. I shall describe the issues in due course.

The Advance Payment Guarantee records as follows in material part. (I shall incorporate paragraph numbering into the document which was not there in the original for ease of reference).

“1.

Our customer Madenci Gemi Sanayi Ltd Sti…Istanbul, Turkey (hereinafter called ‘the Builder”) has advised us that on 27.10.2005 a contract … has been concluded (hereinafter called ‘the Construction Contract’) between you (hereinafter called ‘the Owner’) and the Builder in connection with the finalisation of one diesel driven container vessel being builder’s hull no. 36 (hereinafter called ‘the Vessel’).

2.

We have been informed that article 16(1) of the Construction Contract provides for an advance payment of €1,000,000 as first instalment against a down payment guarantee of €1,000,000.

3.

We, Fortis Bank NV, Contracting & Credit and Loan Administration….Brussels, Belgium, therefore guarantee you irrevocably and unconditionally the payment of an amount of maximum €1,000,000 to be increased with interest on the claimed amount at the rate of 6 months Euribor plus 1 percent per annum from the date of payment, as defined below, of the advance payment to the Builder until payment under this guarantee.

4.

We shall pay you twelve (12) banking days in Brussels after receipt of your first demand without regard to the merits of your demand, against receipt by us of your signed written demand and your signed written declaration, stating that…

(2)

the Owner has rejected the Vessel and/or rescinded the Construction Contract on the grounds that the Vessel has not been delivered prior to 28.02.2009 and the claimed amount has not otherwise been paid to the Owner.

5.

Furthermore, if within eight (8) banking days in Brussels after receipt of your demand as per above mentioned condition 2, we have received a tested swift message from Yapi Ve Kredi Bankasi Istanbul, Turkey certifying that the Owner’s right to reject the Vessel and/or rescind the Construction Contract is in dispute between the Owner and the Builder, then your demand must be further supported by an original of a written decision signed by a surveyor of the Lloyd’s Register of Shipping ... stating expressly that the Vessel is not completed before 28.02.2009 and/or the Vessel is not in conformity with the Construction Contract before 28.02.2009 provided that these additional conditions for a valid demand under this guarantee are also complied with, Fortis Bank NV will pay you immediately without regard to the merits of your demand or of the decision of the surveyor of the Lloyd’s Register of Shipping.

6.

This guarantee will enter into force as soon as Yapi Kredi Bankasi…has advised us by tested swift that the above-mentioned advance payment of €1,000,000 has been credited to the EUR account opened in the name of Yapi Kredi Bankasi in our books…for further credit to the Builder.

7.

Any demand under this guarantee must reach us by special courier DHL to be delivered at Fortis Bank NV…Brussels, Belgium through a prime bank in your country which must confirm that the signatures on your demand are legally binding upon you, otherwise it will not be considered valid.

8.

This advance payment guarantee shall expire and shall become automatically null and void:

1.

on its expiry date being 15.03.2009 unless we have received a valid claim from you as detailed above before the expiry date …

10.

This guarantee is subject to the law of England and the jurisdiction of the English courts.”

I shall call the tested Swift message referred to in paragraph numbered 5 of the document “a notice of dispute”, and the written decision of Lloyd’s Register of Shipping (also in paragraph 5) as “a Lloyd’s decision”. I shall call the bank referred to in paragraphs 5 and 6 of the Guarantee “Yapi”, seemingly the Builder’s bank and the provider of counter-security to the Defendant bank.

The issues as between the Claimant bank, represented by Mr Sean O’Sullivan of counsel, and the Defendant bank, represented by Mr Sean Snook of counsel, are as follows.

With regard to the construction issue, there was common ground between the parties as to the legal approach. Obviously they agreed that I could look at the factual matrix. There were only two areas of dispute in that regard, both of which were resolved at the outset of the trial. In his skeleton (for the first time and without any evidence to support it) Mr Snook submitted that the claimant was the originator (proferens) of the Guarantee wording, so that in the event of any ambiguity or dispute as to construction the Guarantee should be construed contra proferentem. As a matter of fact, Mr O’Sullivan did not accept this, and he consequently resisted any application of such doctrine, if in fact the need should arise. He resisted any reliance upon it, given the absence of the necessary foundation for it from pleading, from agreed List of Issues and from the evidence: and evidence would have been required from both parties, no doubt including production of documents, with regard to the antecedent history of what had in fact been a number of transactions between the Builder and Conship, which was neither sought to be produced by the Defendant, nor, because the issue has not been raised, dealt with by the Claimant. I ruled it out. Similarly, Mr O’Sullivan, in a footnote to his skeleton, referred to the fact that there was in the form of the counter-indemnity which the Defendant bank had obtained from Yapi, no similar provision from which it could be inferred that the counter security might expire after the making of a demand, and asserted that the form of the counter-security was known to the parties and hence a part of the factual matrix. This too I ruled out on similar grounds.

The principles so far as construction of the Guarantee is concerned were, accordingly:

As to the implied term, issues of necessity, business efficacy, clarity and precision were canvassed in the skeletons, but they were taken for granted at the hearing.

The agreed factual matrix and the structure of the provisions of the Guarantee were as follows.

Mr Snook submitted that an earlier bank guarantee in relation to a different vessel, also being built under a shipbuilding contract by the Builder for Conship, provided for a longer period, six months, between the earliest possible date of ‘rescission’ and notice of demand and the expiry date of the guarantee, but I heard no evidence about that guarantee and I am satisfied that I must, and can, construe the terms of this Guarantee with its very short timescale.

Mr Snook’s submissions were as follows.

I hope that I treated Mr Snook’s decisions with due deference in the course of arguments, although I did not, in the event, call on Mr O’Sullivan in reply, but I consider them wholly unarguable for the following reasons (among others), and in accordance with Mr O’Sullivan’s submissions.

The only conceivable commercial construction of the Guarantee, in my judgment, is that it provides that, if there is a valid demand by 15^th March, the Guarantee continues in place. If there is, whether before or after 15^th March, a notice of dispute served within the eight banking days of receipt of the notice of demand, then that triggers the need for a Lloyd’s decision, which is then an additional condition for a valid demand [to be] complied with. But the provision of the Lloyd’s letter is not required to be given and, in the event, could almost inevitably not be given, prior to 15^th March. Any construction which requires the Lloyd’s decision to be provided prior to 15^th March is absurd within the Antaios and Chartbrook principles.

I accept Mr Snook’s submission that there must be an obligation as to time in relation to the provision of the Lloyd’s decision. It cannot be that the Defendant bank would be left on risk after 15^th March for some indefinite time. My conclusion is that there is indeed an obligation on the Claimant bank to provide the Lloyd’s decision within a reasonable time of the receipt of a notice of dispute, which in this case was provided to the claimant by the letter of 20^th March (from which I have recited above), notifying them that “now your demand must be further supported by a [Lloyd’s decision], as per terms of the Guarantee”.

I accept Mr O’Sullivan’s submission (and it was not put in issue by Mr Snook) that it is for the court, in hindsight, to fix what a reasonable time was – see paragraph 15 in the judgment of Maurice Kay LJ in Peregrine Systems Limited v Steria Limited [2005] EWCA (Civ) 239:

“…in all the circumstances which are by then known to have happened …”

I shall determine that time. It seems to me, however, though this did not form part of what I have to determine in the event (for reasons that will appear), that that alone might leave the question of terminability of the Guarantee too uncertain. It would, in my judgment, have been open to the Defendant bank to give a reasonable notice, making time of the essence – see, generally, Chitty on Contracts (Vol 1 30^th Ed) at 21014-5. In this case, however, the Defendant bank did not seek to make time of the essence, so this did not arise. There is no evidence of its ever complaining of delay at the time. The issue for me is simply whether, as Mr Snook asserts, the Lloyd’s decision was not provided in a reasonable time in breach of the implied term, which in consequence of his fallback argument, and notwithstanding the non-acceptance by Mr O’Sullivan, I conclude must be implied as a matter of business efficacy.

In relation to resolution of this issue, Mr Snook cross-examined Mrs Kremer-Tiedchen, a German lawyer instructed at the time by the Claimant bank (and by Conship), upon a witness statement served by her and by reference to the disclosed documents, at some length. A statement by her colleague, Mr Thomas Brugerman, was also read on the Claimant’s behalf, as was one from the Defendant’s manager of its Corporate Guarantee Desk, Mr Gautier Bernhart, from whose evidence I derived no benefit at all and, in particular, he had no evidence to give on the issue of reasonable time.

Mr Snook split the passage of time into six periods:

The first, the second and much of the third periods antedate the service of the notice of dispute, which triggered the obligation to provide the Lloyd’s decision. Mr Snook accepts that he cannot specifically complain of delay in that period, but rather submits that, had the Claimant acted more diligently in pursuit of Lloyd’s Registry during this period, in case they were required, matters would have been expedited after 20^th March (“the antecedent period”). He did not complain of delay during the period (5).

I can deal with the antecedent period very shortly indeed. There were considerable dealings between the Claimant and Lloyd’s, because similar decisions were required in relation to other guarantees involving the same Builder, and it seems that Lloyd’s were at one time reluctant to cooperate, at any rate without the agreement of the Builder, which it was thought unlikely would be obtainable, and that it may be that the Claimant was slow to accommodate Lloyd’s requirements. However, it is quite clear that by 20^th March all of those requirements were met. Lloyd’s contract for consultancy services, sent in executed form by fax on 10^th March 2009 (although there seems to be some unexplained delay in its reaching the appropriate person at Lloyd’s), had been completed. Lloyd’s had confirmed that it was prepared to provide the requested statement, and the contractor in Turkey had been selected by Lloyd’s. I do not conclude that there is any impact upon the issue before me as to breach by the Claimant in respect of the period from 20^th March of any matters antedating that date.

I turn to the time subsequent to 20^th March. The contractor nominated by Lloyd’s (who was the same contractor who had done work on two related projects) intended to be used by Lloyd’s was away on holiday for a period (described as 12 nights and/or 10 days in an exchange of emails on 17^th and 19^th March 2009 between Lloyd’s and the Claimant’s solicitors) as from 28^th March 2009. Mr Snook makes no criticism of the choice of such contractor with the inevitable result of the delay while he was on holiday, but questions whether sufficient efforts were taken by the Claimant to accommodate the fact that he was to be away as from 28^th March.

On 20^th March the Claimant’s solicitor queried with Lloyd’s whether there would be time for the statement to be issued before the nominated contractor went on holiday, and specifically wondered whether, in the light of the fact that the main engine had not yet been installed in the vessel, a detailed analysis was going to be required. By email of the same day in response, no guarantee was given by Lloyd’s of completing a report in that timeframe. The necessary contact details were given to Lloyd’s on 23^rd March. Information was sought by Lloyd’s on the same day, which was supplied on 24^th March and forwarded by Lloyd’s to the nominated contractor on 25^th March, together with a draft of a statement which would be required from Lloyd’s. It seems that the contractor may well have been able to inspect the vessel prior to his going on holiday, because, in response to an email in enquiry from Mrs Kremer-Tiedchen of 1^st April 2009, Mr Lawless of Lloyd’s responded that

“The report is now being reviewed and I will be able to revert very shortly.”

A further chasing email from Mrs Kremer-Tiedchen of 7^th April 2009 received the response from Mr Lawless that

“Before finalising any such statement, we need to speak with our contractor who has been away on leave. As stated, we must be totally satisfied before any such statement is issued.”

After a further chasing email from the claimant’s solicitor dated 20^th April, Mr Lawless responded:

“We are currently liaising with our contractor to seek clarification on a couple of points. These are not major issues but do need to be resolved.

We do understand the urgency and will revert very shortly.”

Mrs Kremer-Tiedchen chased this up on 24^th April (it is worth noting that, as set out above, no complaint is made about the period between 17^th April and 29^th April by Mr Snook) and there was also a chasing email from the Claimant’s solicitors to Mr Lawless of the same date, indicating that the Claimant would “appreciate receiving the certificate as a matter of urgency”. Mr Lawless’ response of 24^th April concluded as follows:

“We have been seeking further clarification so that we are 100% sure with the statement being provided by us. I can assure you that we are working as fast as we can.”

Lloyd’s provided the statement to Conship by a statement dated 28^th April 2009. Mrs Kremer-Tiedchen expressed her concern that the decision/statement was not addressed to the Defendant bank, particularly in the light of similar technical points having been taken by the Builder in relation to previous disputes. Mr Snook in relation to his period (6) criticises the fact that it then took another few days for the Lloyd’s decision to be reissued addressed to the Defendant bank (done on 29^th April) and then delivered by the Claimant bank to the Defendant bank under cover of a letter dated 4^th May 2009. I reject that criticism.

I have no doubt whatever, having reviewed the evidence, that the Claimant bank was not in breach of an implied term to procure the Lloyd’s decision within a reasonable time, or indeed to use reasonable endeavours in doing so, given that they were dependent upon the services of a reputable and independent third party, whom they did their best to encourage to expedition.

Accordingly, I grant judgment to the Claimant.