Banque Saudi Fransi v Lear Siegler Services Inc.
| Jurisdiction | England & Wales |
| Judgment Date | 22 July 2005 |
| Neutral Citation | [2005] EWHC 2395 (Comm) |
| Docket Number | Claim No: 2004 Folio 1049 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 July 2005 |
[2005] EWHC 2395 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Central London Civil Justice Centre
His Honour Judge Mackie QC
Claim No: 2004 Folio 1049
Mr Philip Marshall QC (instructed by Baker and McKenzie) appeared on behalf of the Claimant
Mr Laurence Rabinowitz QC (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) appeared on behalf of the Defendant
Introduction
This is an application for summary judgment under CPR Part 24 based on a call of a guarantee given by the Defendant company of its subsidiary's indemnity to the Claimant bank for providing a Performance Bond. At the end of the Hearing I informed the parties that there would be judgment for the Claimant. I considered that the Defendant had no realistic prospect of success with its Defence essentially because the material it relied on to allege fraud was far too thin. I referred briefly to my reasons but informed the parties that I would set these out in writing.
Facts
The Claimant ("BSF") is a commercial bank carrying on business in Saudi Arabia and elsewhere. The Defendant ("LSI") is a Delaware company, part of the group which manufactures the well known Lear Jets, providing maintenance services. LSI has a subsidiary UNC Lear Services Inc ("UNC") which on 6 November 1996 entered into a service contract with the Ministry of Defence and Aviation and General Inspectorate Saudi Royal Air Force ("MODA") for its F-5 aircraft. UNC was, under this contract, obliged to arrange a performance bond. UNC opened an account with BSF and on 27 November 1997 BSF granted a performance bond facility up to Saudi Riyals 21,075,000. On 1 December 1997 LSI entered into a Deed of Guarantee and Indemnity ("the Guarantee") unconditionally and irrevocably undertaking to pay to BSF on its first written demand any and all amounts which UNC failed to pay to BSF. A certificate from BSF as to these amounts was to be conclusive. The Guarantee was subject to English law and to the non exclusive jurisdiction of the English courts. On 30 December 1997 UNC provided a "guarantee application and counter indemnity" to BSF in respect of the proposed performance bond undertaking to indemnify the claimant for all sums paid to MODA. On the same date BSF issued a performance bond described as "letter of guarantee for final deposit" in the sum of Saudi Riyals 21,075,000. Despite the titles of these documents they are written in familiar international banking terms.
The performance bond was extended from time to time and on 19 June 2004 MODA demanded payment of Saudi Riyals 21,075,000. BSF paid this demand on 20 July 2004 and then claimed under the counter indemnity from UNC and the Guarantee from LSI. There has been no compliance with either demand.
On 11 July 2004, before paying, BSF wrote to LSI to inform them of MODA's demand and to seek payment under the counter indemnity. On 15 July LSI replied, through Mr Stuart Young, Vice-President and General Counsel, rejecting the request for payment on "at least the following grounds". He submitted that there was no proper written evidence of renewal of the original facility letter of agreement. He challenged the validity of the notification to the bank from MODA, queried the effectiveness of extensions of time and alleged that the call was a clear abuse of rights under the various contracts with MODA. As he saw it the contract with MODA was at an end subject to the release of final payments to LSI and it was an abuse for MODA to claim when performance had been satisfactorily concluded 3 years before. BSF wrote on 21 August emphasising that both UNC and LSI were in default on their obligations. On 31 August Mr Young again responded that this call was a clear abuse, the underlying contract having been performed.
The Litigation
After further exchanges BSF brought this action on 7 December 2004 seeking payment of Saudi Riyals 21,075,000 and other relief based on the alleged failure of LSI to pay under the Guarantee.
LSI served a Defence on 6 April 2005 which appears to rely mainly on the claim by LSI that the maintenance contract between MODA and UNC had been completed and could therefore give rise to no liability on the part of LSI which would warrant a call by MODA under the Guarantee. As LSI conceded at the Hearing when applying to amend that defence cannot, as it stands, succeed. It is now common ground that the only basis upon which LSI could succeed in its defence would be by establishing fraud.
This application was brought on 20 April 2005. There are two witness statements from Mr Jawa, Deputy Managing Director, of BSF and one from Mr Young for LSI. Mr Jawa sets out the events I have referred to above relying on the demands made against UNC and in turn LSI and BSF's certificate of the amount due.
LSI produced a draft amended Defence at the Hearing to advance a case that:—
a) MODA's claim for payment under the performance bond was made by MODA dishonestly and without it having any entitlement to make such a claim and
b) BSF paid MODA in circumstances where it knew or must have known that MODA had no entitlement to make such a claim and, in so doing, BSF was complicit in a dishonest scheme on the part of MODA to defraud LSI of the amount paid under the Performance Bond
c) BSF is not entitled to reimbursement from UNC for the amounts paid by it to MODA and LSI is not liable to indemnify BSF under the guarantee for those amounts either.
Mr Young having set out the background describes the underlying F-5 TSP contract which he says was extended until 8 November 2000 by which date UNC had successfully completed all its obligations. He points to BSF's knowledge of and involvement in payments under the underlying contract. He says that MODA had never disputed this and that from November 2000 the only outstanding issues concerned the amount of money that MODA was obliged to pay to UNC. He says that by April 2002 BSF through a Mr Wilson and Mr Suheimat knew that performance had been completed and acknowledged this in a letter of 17 April. He says that in April 2004 Mr Wilson was again told by Mr Young and a colleague from LSI that performance had been completed and about UNC's efforts to obtain outstanding certificates. Mr Young says that by mid-July 2004 BSF would have been aware of abuses by MODA of another performance bond issued by BSF on behalf of LSI. Mr Young asserts that BSF like other Saudi banks operates in an environment where they do not want to risk losing the Government's favour and pay out on demands even where these are not presented with any good reason or good faith. In answer to a Request for information Mr Young relies on being told by Mr Wilson during the meeting in March 2004 that "in substance …….. BSF would defer to any...
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