Ostfriesische Volksbank EG v Fortis Bank [2010] EWHC 361 (Comm)

2009 Folio 909[2010] EWHC 361 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of JusticeDate Friday 29 January 2010
Strand
London WC2A 2LL
Before
MR JUSTICE BURTON
Between
OSTFRIESISCHE VOLKSBANK EGClaimant-v-
Between
FORTIS BANKDefendant
Digital Transcript of Wordwave International, a Merrill Communications Company 101 Finsbury Pavement London EC2A 1ERTel No: 020 7422 6131   Fax No: 020 7422 6134Web: www.merrillcorp.com/mls       Email: mlstape@merrillcorp.com(Official Shorthand Writers to the Court)
MR S O’SULLIVAN (instructed by Stephenson Harwood) appeared for Claimant.MR S SNOOK (instructed by OMH) appeared for Defendant.
J U D G M E N T
[1]This is the hearing of a claim for €1 million pursuant to an Advance Payment Guarantee dated 19th 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.[2]The event upon which the sums were repayable and hence claimable under the Guarantee was the non-delivery of the vessel by 28th February 2009, leading to what was called “rescission” of the Contract: and the expiry date of the Guarantee was expressed to be 15th March 2009. A Notice of Rescission was given on 1st March 2009 and the demand made under the Guarantee, in circumstances which I shall describe, prior to 15th March 2009, but the Defendant bank has declined to pay under the Guarantee. I shall describe the issues in due course.[3]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.” (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. 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 …[4]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.[5]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. Issue 1 The Defendant bank asserts that on a true and proper construction of the Guarantee, if a notice of dispute was served and there was then a requirement for a Lloyd’s decision, that Lloyd’s decision had to be or to have been delivered by 15th March, or the Guarantee would be null and void. The facts in this case are, as it happens, that(i) the notice of dispute was not served until 19th March, i.e. after the 15th March date;(ii) the Defendant bank actually wrote to the Claimant bank on 20th March as follows (in material part):
“We hereby inform you that we received, within eight banking days in Brussels after receipt of your demand, a tested swift message from Yapi Ve Kredi Bankasi certifying that the Owner’s right to reject the vessel and rescind the Construction Contract is in dispute between the Owner and the Builder, as per terms of our above-mentioned guarantee. Therefore now your demand must be further supported by an original of a written decision signed by a surveyor of the Lloyd’s Register of Shipping, as per terms of the guarantee.”
But the Defendant bank relies on what it submits to be the “strict construction” of the Guarantee. The Claimant bank asserts that its demand was valid and in time prior to 15th March, and that is all that was required to keep the Guarantee in force, and that, if a notice of dispute was served within eight banking days of the demand, then there was no obligation to produce (nor, as it happens in this case, any possibility of producing) the Lloyd’s decision prior to 15th March. Issue 2 As a fallback, if the Defendant bank is wrong on the construction issue, it contends that there is an implied term in the Guarantee that the claimant was obliged to provide the Lloyd’s decision within a reasonable period of time of the notice of dispute, and that it failed to do so in not delivering the Lloyd’s decision until 4th May 2009. The Claimant does not admit that there was such an implied term, but, if there was, asserts in the light of the oral evidence adduced at trial and the material documentation that there was no breach of that term.

The law

[6]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.[7]The principles so far as construction of the Guarantee is concerned were, accordingly:(i) Strict construction of time deadlines in guarantees.(ii) Reference to the factual matrix at the time of the entry into the Guarantee, but not to the particular circumstances of how the events played out thereafter.(iii) Construction of a commercial contract so as to avoid absurdity, if necessary concluding that “something must have gone wrong with the language” in order to avoid such a result – see The Antaios [1985] AC 191, Chartbrook Ltd v Persimmon Homes Ltd [2009] 4 All ER 677.[8]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.

Construction

[9]The agreed factual matrix and the structure of the provisions of the Guarantee were as follows.(i) The starting point of the Guarantee was 28th February 2009. Whether or not the underlying Shipbuilding Contract could have been ‘rescinded’ for non-delivery of the vessel earlier than that (and that was an issue I did not need to resolve), for the purposes of a claim under the Guarantee the relevant date was non-delivery at that date, leading to ‘rescission’ on that ground.(ii) There was no express term in the Guarantee as to when the Notice of Rescission had to be given, but the demand could not be made until after it because the demand had to be accompanied by a declaration that the contract had been rescinded.(iii) Such demand had to be made in a particular way (paragraph numbered 7 of the Guarantee) involving a process of the confirmation of signatures by a prime German bank and delivery for the Defendant bank in Brussels by a DHL special courier.(iv) There was no deadline for such service of the demand, except that the demand could not be made before the ‘rescission’, i.e. post 28th February, and it could not be made after the expiry date of the Guarantee (15th March).(v) The notice of dispute by Yapi certifying a challenge by the Builder to the ‘rescission’ could be made at any time within eight banking days after receipt of the demand. Thus, if the demand were on a Friday, that could mean as many as eleven actual days. There is no requirement that the notice of dispute must be served on the Defendant bank by Yapi before 15th March, and there is no requirement that the notice of dispute must be served on the Claimant, although no doubt it would be expected to be passed straight on by the Defendant bank to the Claimant, as in fact happened in this case when the notice of dispute served by Yapi on 19th March was notified by the Defendant bank to the Claimant bank by the letter of 20th March, which I have recited above.[10]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.[11]Mr Snook’s submissions were as follows.(i) A valid claim had to be made by 15th March 2009, or the Guarantee expired and was automatically null and void. Such valid claim had to be “as detailed above”. “As detailed above” was not, or not just, a reference to the methodology of service of the demand in paragraph 7, but to the provision in paragraph 5 requiring that, if there were a notice of dispute, then there were “additional conditions for a valid demand” – the provision of a Lloyd’s decision – and these additional conditions for a valid demand had to be complied with before there could be a valid claim. And so, without them, i.e. without the Lloyd’s decision, there could be, and was, no valid claim. He submitted that “valid claim” must mean something different from “valid demand”.(ii) He recognised that this caused a difficulty if, as here, there was no notice of dispute until after 15th March. He submitted that this still meant that all there was on 15th March was a valid demand and not a valid claim. It could not be seen until after 15th March in such event whether it was a valid claim, i.e. whether (a) there would be no notice of dispute; (b) there would be, or had been, a notice of dispute and no Lloyd’s decision letter; and (c) there would be, or had been, a notice of dispute, and Lloyd’s agreed with the Builder.(iii) Because he did not accept that it was the norm, or indeed likelihood, that the notice of dispute would not be served before 15th March (nor any requirement that it should be so), he described such a case in his skeleton as “one potential oddity with the structure and wording of the Guarantee which appears to have arisen on the facts in this case”. He submitted, nevertheless, that the provision for the additional conditions for a valid demand under this Guarantee simply meant that the Lloyd’s decision had to be provided before 15th March (whether the occasion for it, by reference to the notice of dispute, had arisen or not), and, if it were not, then the Guarantee expired.[12]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.(i) Although no doubt it would be in the interests of the Claimant to act speedily, there is a period of fifteen days between 1st March (the day after the prescribed last day for delivery of 28th February) and the expiry of the Guarantee, in which he can (a) put in a Notice of Rescission; (b) serve, complying with the strict requirements of paragraph 7, the demand. If the submission of Mr Snook is right, then the Claimant must do all this at breakneck speed in order to seek to get, as he must, the Lloyd’s decision (if it arises), served by the expiry date of 15th March. It seems to me, at best, that rescission, obtaining of signatures, instruction of DHL and delivery of the demand from Germany to Belgium would take through to 3rd March. There are then eight banking days (up to eleven actual days) for the Builder, for whom there is no reason to take other than the full amount of time, to arrange for Yapi to serve a notice of dispute. That could take it to 14th March. It is simply impossible to suggest that, even if Lloyd’s had been pre-instructed, they could inspect a vessel in Turkey and report so as to produce a decision letter by 15th March.(ii) The provision for a Lloyd’s decision would not arise unless there is a notice of dispute, so there is no call for any implication that the Claimant would be obliged to go to the expense and trouble of obtaining a Lloyd’s decision prior to the demand, or, in particular, prior to the receipt of the notice of dispute.(iii) Lloyd’s Register of Shipping is a third party, in no way under a claimant’s control, and a highly responsible body not willing to cut corners in order to provide a certificate. It is, in my judgment, difficult to think that even the full fifteen days would be sufficient, never mind one or two, for a Lloyd’s decision.(iv) The contention that Mr Snook puts forward in order to justify his distinction between valid demand and valid claim is, at best, far-fetched and, at worst, deprives the Guarantee of any commercial efficacy at all. He has to accept that (a) there may be a notice of dispute; (b) such notice of dispute may be served (as it was in this case) after 15th March. This means that, on his case, as he accepted, it is impossible to determine as at 15th March whether what is plainly as at that date a valid demand is also a valid claim. It is not simply that it becomes clear subsequently that it is not a valid claim if the notice of dispute is then served, so that it becomes apparent that the additional conditions for a valid demand have not been complied with prior to 15th March, but it must, in effect, be, on his case, that there can be no valid claim as at 15th March unless there has, by that time, been a notice of dispute and a service of a Lloyd’s decision, because there still could be up until the expiry of the eight banking days a notice of dispute. It is not his case that the claim is valid as at 15th March but subsequently ceases to be a valid claim if there is a notice of dispute and no Lloyd’s decision, because that means that the Guarantee did not expire on 15th March. His case is that, if a Lloyd’s decision has not been served by 15th March, irrespective of whether a notice of dispute triggering it has been served, then the Guarantee expires.(v) The basis of this absurd construction is his case that valid claim in paragraph 8(1) of the Guarantee must mean something different from valid demand. I reject that submission. I conclude that, although the words valid claim are used there for the first time, there is not intended to be any distinction in meaning between a valid claim and a valid demand, and I accept Mr O’Sullivan’s submission that the reference to receipt of a “valid claim from you as detailed above before the expiry date” is a reference to paragraph 7, which imposes the stringent form of requirements for service of the demand, “otherwise it will not be considered valid”.[13]The only conceivable commercial construction of the Guarantee, in my judgment, is that it provides that, if there is a valid demand by 15th March, the Guarantee continues in place. If there is, whether before or after 15th 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 15th March. Any construction which requires the Lloyd’s decision to be provided prior to 15th March is absurd within the Antaios and Chartbrook principles. Reasonable time[14]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 15th 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 20th 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”.[15]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 …”
[16]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 30th 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.[17]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.[18]Mr Snook split the passage of time into six periods:(1) 14th November 2008 to 27th February 2009;(2) 27th February 2009 to 11th March 2009;(3) 11th March 2009 to 23rd March 2009;(4) 23rd March 2009 to 17th April 2009;(5) 17th April 2009 to 29th April 2009;(6) 29th April 2009 to 4th May 2009.[19]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 20th March (“the antecedent period”). He did not complain of delay during the period (5).[20]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 20th March all of those requirements were met. Lloyd’s contract for consultancy services, sent in executed form by fax on 10th 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 20th March of any matters antedating that date.[21]I turn to the time subsequent to 20th 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 17th and 19th March 2009 between Lloyd’s and the Claimant’s solicitors) as from 28th 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 28th March.[22]On 20th 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 23rd March. Information was sought by Lloyd’s on the same day, which was supplied on 24th March and forwarded by Lloyd’s to the nominated contractor on 25th 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 1st 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 7th 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 20th 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.”
We do understand the urgency and will revert very shortly.”[23]Mrs Kremer-Tiedchen chased this up on 24th April (it is worth noting that, as set out above, no complaint is made about the period between 17th April and 29th 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 24th 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.”
[24]Lloyd’s provided the statement to Conship by a statement dated 28th 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 29th April) and then delivered by the Claimant bank to the Defendant bank under cover of a letter dated 4th May 2009. I reject that criticism.[25]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.[26]Accordingly, I grant judgment to the Claimant.