Associated British Ports v Ferryways NV
| Jurisdiction | England & Wales |
| Judge | Lord Justice Maurice Kay,Lord Justice Jacob,The Master of the Rolls |
| Judgment Date | 18 March 2009 |
| Neutral Citation | [2009] EWCA Civ 189 |
| Docket Number | Case No: A3/2008/1700 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 March 2009 |
[2009] EWCA Civ 189
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION (COMMERCIAL)
Mr Justice Field
Royal Courts of Justice
Strand, London WC2A 2LL
The Master of the Rolls
Lord Justice Jacob and
Lord Justice Maurice Kay
Case No: A3/2008/1700
2006Folio1049
Mr Richard Millett QC (instructed by Messrs Asb Law) for the Appellant
Mr Peter Irvin and Miss Victoria Wakefield (instructed by Messrs Constant & Constant) for the Respondent (2)
Hearing date : 16 February 2009
Lord Justice Maurice Kay :
Guarantee or indemnity? That old chestnut was one of the issues that fell to be considered by Field J in this case and it is the only part of his decision which is challenged on appeal. The issue arises most often because the law treats the two concepts differentially when it comes to formality. A guarantee is subject to the formal requirement of section 4 of the Statute of Frauds 1677 but an indemnity is not. A guarantee is, in the words of the Statute, a promise “to answer for the debt default or miscarriage of another person”. There must be another person who is primarily liable. The liability of the guarantor is secondary. By an indemnity, on the other hand, the surety assumes a primary liability. The obligation in issue in this appeal raises no question as to form. It was in writing. However, it illustrates another difference between a guarantee and an indemnity. Because the liability of a guarantor is secondary, it is usually discharged by a bilateral variation of the contract between the creditor and the debtor. In the absence of an express provision to the contrary in the contract of guarantee, the giving of time by the creditor to the debtor will generally discharge the guarantor. However, it will not have that effect if the suretyship is one of indemnity: the liability of the surety, being a primary liability, survives. The basic legal principles in this area were developed in the nineteenth century. With justification, they are described in Chitty on Contracts, 30 th edition, Vol II, paragraph 44–099, as “technical and inconvenient”.
The factual background
There is an ample account of the factual background to this case in the judgment of Field J [2008] EWHC 1265 (Comm). For the purpose of the single issue remaining on this appeal, the facts can be stated more briefly. Ferryways is a Belgian company which was formed in order to operate a roll-on, roll-off ferry service between Ostend and Ipswich. Its share capital was owned as to 40% by the state-owned Belgian investment company Gimvindus (acting through another company); as to 40% by an associated company of MSC Belgium (MSCB), which is in turn indirectly controlled by Mediterranean Shipping Company (SA) Geneva Group, the second largest liner container shipping company in the world; and as to 20% by Mast(GB) Limited, a company owned by the businessmen whose idea had given rise to the project. In furtherance of the project, Ferryways entered into a series of agreements with Associated British Ports (ABP).
By an agreement dated 5 January 2000 (the First Agreement) between ABP and Ferryways, ABP guaranteed a five-hour turnaround of 160 units at its port at Ipswich at designated slot times and at specified rates. The agreement was stated to run for five years. From time to time variations in relation to charging rates were agreed by letter and by an addendum dated 16 June 2001 Ferryways guaranteed an annual throughput of 25,000 units through Ipswich from 7 February 2001 to 6 February 2005. Initially, the business expanded rapidly. However, there were problems with the linkspan across which the trailers traversed at Ipswich. Ferryways wanted ABP to improve it but this required an estimated investment of £6.1 million by ABP, which naturally wanted to secure a long-term commitment from Ferryways. Negotiations led to a new agreement between Ferryways and ABP dated 1 September 2003 (the Second Agreement) which replaced the First Agreement. The Second Agreement was expressed to run from 1 September 2003 until 31 December 2024. It made provision for priority use of appropriate berths by Ferryways, for turnaround time and for the construction of a new linkspan. There was further provision for index-linked charges. Volume was dealt with by way of an annual minimum throughput obligation which also required Ferryways to compensate ABP in the event of a shortfall.
On the same day, 1 September 2003, a written agreement (the Letter Agreement) was concluded between ABP and MSCB. It is enshrined in a letter of that date. Its purpose was to secure the position of ABP by way of recourse against MSCB. It is this agreement that gives rise to the issue on this appeal. It is in the following terms:
“Dear Sirs
We confirm that Ferryways is a member of the same group of companies as [MSCB].
In consideration of … ABP entering into an agreement relating to the Port of Ipswich of even date with this letter (the Agreement), we assume full responsibility for ensuring (and shall so ensure) that, for seven years from the date of this letter, [Ferryways] (i) has and will at all time have sufficient funds and other resources to fulfil and meet all duties, commitments and liabilities entered into and/or incurred by reason of the Agreement as and when they fall due and (ii) promptly fulfils and meets all such duties, commitments and liabilities.
We are aware that ABP will rely on this letter in deciding whether to enter into the Agreement with [Ferryways].
The construction, validity and performance of this letter shall be governed by English law and we submit to the exclusive jurisdiction of the High Court in London in connection with any disputes arising out of this letter.”
The letter concluded with terms as to service of process. It was signed by the Managing Director of MSCB. It had been drafted by ABP's General Counsel, a solicitor.
From about August 2004, disputes arose between ABP and Ferryways about the construction of the Second Agreement. To some extent the position was resolved by an oral agreement at a meeting between representatives of ABP and Ferryways on 23 August 2004. Field J referred to this as the Concession Agreement. However, he concluded that it did not discharge MSCB under the Letter Agreement and there is no issue as to that on this appeal. More importantly, on 17 February 2006, ABP and Ferryways concluded an agreement – the Time to Pay Agreement – which took the form of a supplementary memorandum to the Second Agreement. Field J held that this did discharge the liability of MSCB under the Letter Agreement, which he construed as a guarantee or guarantees and not an indemnity. On behalf of ABP, Mr Richard Millett QC (who did not appear below) now takes issue with that construction, but not with the consequence if the judge's construction was correct.
To complete the narrative, further disputes between ABP and Ferryways arose between March and June 2006. However, negotiations over a possible new agreement to replace the Second Agreement broke down irretrievably. The parties continued to operate under the Second Agreement until 13 June 2007 when Ferryways ceased trading, its share capital having been acquired by a competitor, the Cobelfret Group, on 1 June 200Ferryways was put into liquidation on 27 June 2007 and was declared insolvent by the Belgian court on 7 February 2008. In the present proceedings, ABP sought to recover sums due from Ferryways under the Second Agreement and from MSCB under the Letter Agreement. Field J gave judgment for ABP against Ferryways for damages to be assessed but dismissed the claim against MSCB.
The judgment of Field J
The judgment of Field J on the guarantee/indemnity issue is contained mainly in paragraph 60, which reads:
“… the obligations provided for in both limbs [ie (i) and (ii) in the Letter Agreement] are defined by reference to the duties, commitments and liabilities of Ferryways under the [Second Agreement] and will only become concrete and of practical significance on such duties, commitments and liabilities accruing and if Ferryways is in default thereof. The substance of both limbs is therefore an obligation to see to it that Ferryways performs its obligations under the [Second Agreement] and accordingly both are properly to be characterised in my judgment as giving rise to a secondary liability, rather than a primary liability. This conclusion is more readily reached in respect of limb (ii). My view that limb (i) is a guarantee is reinforced by the holding of the majority in Motemtronic v Autocar that an undertaking to make sure that a company would have the money to meet a contractual obligation was a promise to answer for the debt of another within s.4 of the Statute of Frauds, assuming that the undertaking was an enforceable contractual warranty.”
Construction
Whether a document is a guarantee or an indemnity, or whether it imposes a secondary or a primary liability, will always depend upon “the true construction of the actual words in which the promise is expressed” ( Moschi v Lep Air Services Ltd [1973] AC 331, at page 349C, per Lord Diplock). It is abundantly clear in the present case, not least from the terms as to choice of law, exclusive jurisdiction and the service of process, that the Letter Agreement created and was intended to create legal rights and obligations. It was not merely a letter of comfort giving rise simply to moral obligations (as to which, see...
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