Bolivinter Oil S.A. v Chase Manhattan Bank N.A. (Practice Note)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeTHE MASTER OF THE ROLLS
Judgment Date09 December 1983
Judgment citation (vLex)[1983] EWCA Civ J1209-1
Date09 December 1983
Docket Number83/0497

[1983] EWCA Civ J1209-1

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION (COMMERCIAL COURT)

(MR. JUSTICE STAUGHTON)

Royal Courts of Justice.

Before:

The Master of the Rolls

(Sir John Donaldson)

and

Lord Justice Griffiths

83/0497

1983 B. No. 5433

Bolivinter Oil S.A.
(Plaintiffs) Appellants
and
(1) Chase Manhattan Bank
(2) Commercial Bank of Syria
(3) General Company of Homs Refinery (a body corporate)
(Defendants) Respondents

MR. NICHOLAS PHILLIPS, Q.C. and MR. JOHN THOMAS (instructed by Messrs. Richards Butler & Co.) appeared on behalf of the (Plaintiffs) Appellants.

MR. PETER SCOTT, Q.C. and MR. CHRISTOPHER CLARKE (instructed by Messrs. Allen & Overy) appeared on behalf of the (Defendants) Respondents.

THE MASTER OF THE ROLLS
1

This is the judgment of the court. This appeal once again raises the vexed question of the circumstances in which a bank can and should refuse payment under a performance guarantee.

2

Bolivinter Oil S.A., the plaintiffs in the action and the appellants in this court, are freight contractors. By a contract No. 9/ 82/TR.C.O. dated the 8th June, 1982 they agreed with General Company of Homs Refinery, a Syrian entity which, as its name implies, was a refiner, that they would procure the carriage of about 2.38 million tons of Iranian crude oil from Iran to Syria in the summer of 1982. The freight payable was of the order of U.S. $19 million. The contract provided for a daily penalty of U.S. $25,000 in the event of delay in performance and this was payable in addition to compensation for all loss and damage suffered by the receiver. By clause 16 Bolivinter also agreed to furnish Homs with a performance guarantee in the form of a bank guarantee for U.S. $1 million "according to the formula in use in the Commercial Bank of Syria…established by a first class bank accepted and confirmed by the Commercial Bank of Syria".

3

For our part we read this as an obligation to provide a guarantee by a first class bank, other than the Commercial Bank of Syria ("CBS"), the guarantee being confirmed by CBS and this view is supported by a draft form of guarantee which appears to be annexed to the freight contract. However, nothing turns on this as no complaint is made of what was in fact provided. This was a guarantee by CBS, a letter of credit by Chase Manhattan ("Chase") in favour of CBS, and a counter indemnity and cash deposit by Bolivinter in favour of Chase.

4

The Chase letter of credit was dated the 24th June, 1982 and was in the following terms:

"Commercial Bank of Syria

24/6/82.

Branch No 1

Damascus

Syria

Please issue under our risk and responsibility your Guarantee for amount of US $1,000,000.00 (US Dollars One Million) in favour of 'The Petroleum Marketing Department—in The Council of The Ministers, Damascus-Syria on behalf and for account of General Company of Homs Refinery, Homs-Syria,' for account of Bolivinter Oil S.A., c/o Kassos Maritime Enterprises Ltd., 57 Akti Misouli—Piraues, Greece reading as follows:—

QUOTE

We, Commercial Bank of Syria guarantee jointly and severally Bolivinter Oil S.A., c/o Kassos Maritime Enterprises Ltd., 57 Akti Misouli—Piraues, Greece irrevocably for an amount of US $1,000,000.00 (US Dollars One Million only) which will serve to guarantee the good execution of Transportation Contract between 'The Petroleum Marketing Department—in the Council of the Ministers, Damascus—Syria, on behalf and for account of General Company of Homs Refinery Homs Syria and the above mentioned Company' with respect to each and all of the terms of Contract No. 9/82/TR. CO., signed on 8th June 1982.

This Guarantee shall be valid until October 31st 1982 and cannot be cancelled without your written consent.

We consider ourselves engaged to pay any amount in the limit of this Guarantee at your first request without any other procedures whatsoever from your side.

unquote

In consideration of your having issued your Guarantee as requested above we hereby open in your favour our irrevocable performance letter of credit No. PC 55747 for amount of US $1,000,000.00 (US Dollars One Million only) available against your signed statement that you have duly issued your Guarantee as requested above and that you have received a claim thereunder. This credit is subject to Syrian Laws and Regulations. We also confirm the following:—

1. Our Performance Credit in your favour available by tested telex/cable against your simple claim.

2. Our credit valid at Damascus for payment until expiry of date of Guarantee ie. 31st October 1982."

5

CBS duly issued their letter of guarantee to Homs and notified Chase that this had been done. Bolivinter caused U.S. $1 million to be deposited with Chase and executed a counter indemnity in favour of Chase.

6

In the event there were delays in the performance of the freight contract and Homs indicated claims of U.S. $25 million, subsequently reduced to between U.S. $2 million and U.S. $12 million. There were also claims for contamination of the oil carried.

7

Rather surprisingly in the light of this history, in about November 1982 Bolivinter and Homs entered into a second freight contract on similar terms to that of June 1982, save as to the freight and the amount of oil to be carried. At the same time the expiry date of the letter of credit and of the guarantee was extended or further extended and both now expire on the 31st December, 1983. Neither was applied to the second freight contract.

8

During the currency of the second freight contract, Homs withheld freight to the extent of about U.S. $22 million, no doubt in an attempt to meet their claims under the first contract by self help. According to Bolivinter there then followed negotiations which led to a settlement on terms that Homs would, in effect, pay Bolivinter about U.S. $8.5 million, would establish a letter of credit to cover the freight, demurrage and insurance on the final shipment under the second contract and would establish a further letter of credit in the sum of U.S. $4.3 million to cover disputed items, payment to be against an agreement between the parties or an arbitration award. Finally the settlement provided, according to Bolivinter, that the guarantee or performance bond would be released upon the arrival of the last vessel carrying oil to Syria under the second contract. That vessel arrived on the 3rd October. This settlement agreement was said by Bolivinter to be contained in or evidenced by certain telex messages to which we must return hereafter.

9

It seems that shortly after the arrival of the last vessel, Bolivinter, in reliance no doubt upon the alleged settlement agreement, notified Chase that the performance guarantee had been released by agreement with Homs. This led Chase on the 11th October, 1983 to seek confirmation from CBS that "our performance credit" in favour of CBS had been cancelled and that Chase was released from all liability to CBS. In reply, on the 16th October, 1983 CBS informed Chase that Homs had demanded payment of U.S. $1 million under the CBS guarantee "due to the breaching of Bolivinter to the terms of his [June 1982] contract and existence of enormous penalities". Their telex message went on to claim U.S. $1 million under the letter of credit which Chase had issued in their favour.

10

These events created a dilemma for both Chase and CBS. CBS had agreed to pay Homs up to U.S. $1 million "at your first request without any other procedures whatsoever from your side" and such a request had been made. Chase had agreed to pay CBS upon being informed that (a) CBS had issued the guarantee to Homs and (b) that Homs had made a claim under that guarantee. These conditions had been satisfied and CBS were asking to be paid. On the other hand, Bolivinter was alleging that Homs, as beneficiaries of the CBS guarantee, had agreed to cancel it and, by necessary implication, not to claim on it meanwhile.

11

Before this dilemma could be resolved, Bolivinter on the 31st October, 1983 obtained an injunction in the Commercial Court restraining Homs from claiming on the CBS guarantee, restraining CBS from paying under that guarantee or claiming on the Chase letter of credit and restraining Chase from paying under that letter of credit. The application was technically ex parte, but Chase was in fact present and represented by counsel. The injunctions were further considered by Mr. Justice Staughton on the 29th November, 1983 pursuant to a summons of which all three defendants had notice, but only Bolivinter and Chase attended. The learned judge, after hearing argument on behalf of Bolivinter and Chase, held that the injunctions against Chase and CBS should be discharged, but continued them for such time as was necessary to enable the position to be considered by this court. It is against so much of that order as discharges the injunctions binding Chase and CBS that Bolivinter now appeals.

12

As we have said, the conditions precedent to payment by Chase to CBS and by CBS to Homs have, on the evidence at present available, been duly met. If, therefore, the injunctions sought by Bolivinter can be justified, it must be on the basis that Bolivinter has some right to object to payment which is founded other than on the express terms of the contracts. Mr. Nicholas Phillips, Q.C., appearing for Bolivinter, accepts this approach and founds himself upon a general proposition which he formulated in his admirable skeleton argument in the following terms:

"The Court...

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