British Arab Commercial Bank Plc v Bank of Communications
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair,MR JUSTICE BLAIR |
| Judgment Date | 17 February 2011 |
| Neutral Citation | [2011] EWHC 281 (Comm) |
| Docket Number | Case No: 2007 FOLIO 1449 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 February 2011 |
[2011] EWHC 281 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before :Mr Justice Blair
Case No: 2007 FOLIO 1449
Mr Alain Choo-Choy QC (instructed by Stephenson Harwood) for the Claimant
Mr Simon Kverndal QC (instructed by Ince & Co) for the 1 st Defendant
Mr Daniel Toledano QC (instructed by Ashurst) for the 2 nd Defendant
Hearing dates: 25, 26, 27, 28 January 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice BlairMr Justice Blair:
This is the trial of an action concerning bank guarantees entered into in connection with the Tishrin Dam Project, which is a project on the River Euphrates in Northern Syria. The General Organisation for Land Development ("GOLD") is the Syrian state owned entity responsible for the project, and a Chinese company called Sichuan Machinery and Equipment Import and Export Corporation ("Sichuan Machinery") is the contractor. The contract between them was entered into on 31 December 1992. Various disputes arose, and though the parties entered into a settlement agreement in 2009, GOLD has not released a performance bond that was issued to it in 1993. This has had consequences for the three banks involved in the transaction namely the Claimant, British Arab Commercial Bank plc ("BACB"), which is an English bank, the First Defendant, Bank of Communications ("BOC"), which is a Chinese bank, and the Second Defendant, Commercial Bank of Syria ("CBS"), which is a Syrian state bank.
In summary, under the terms of the contract between them, Sichuan Machinery was obliged to submit to GOLD a "Good performance bond issued by [CBS] as per the text accepted by said Bank and amounting to (5%) of the total value of the Contract". In value terms, the performance bond was to be for an amount of up to US$8,790,000. That was duly done, and a counter-guarantee was given to CBS by BACB, and a counter-guarantee was given to BACB by BOC, thereby passing liability up the line. At the end of 2001, there was a disputed demand by GOLD under the performance bond, and thereafter disputed demands by CBS against BACB, and by BACB against BOC, under their respective counter-guarantees. It is plain that very considerable efforts have been made to settle the underlying issues between the employer and contractor. But given the lapse of time without an apparent resolution, and no doubt concerned about limitation periods expiring, these proceedings were commenced by BACB against BOC and CBS in order to ascertain the parties' respective rights under the counter-guarantees. There are three principal issues for the Court to determine. First, what law governs the counter-guarantee BACB gave to CBS? BACB says it was English law, CBS says it was Syrian law. Secondly, is CBS right to say that under Syrian law BACB is liable under its counter-guarantee until 31 December 2011, alternatively liable to pay to CBS the full amount of the performance bond? Thirdly, does BOC have any liability under the counter-guarantee it gave to BACB?
Other than in respect of Syrian law, the facts are not in dispute. There is a witness statement from Mr Gary Bishop, BACB's Head of Operations, and his evidence was not disputed (he did not give oral evidence at trial). The documents show that the banks began exchanging brief communications with each other in early 199The first contact was between BOC's Chengdu Branch in China and BACB (then called UBAF Bank Ltd) in London on 25 February 200At that point in time, a five year bond in favour of GOLD was envisaged expiring in July (later agreed to be November) 1998. In Syria at this time, all bonds of this nature were issued by CBS, which did so against counter-guarantees from its correspondent bank abroad. As will be seen, a major issue so far as Syrian law is concerned is that such counter-guarantees were always issued on the basis of standard terms contained in applicable CBS circulars, the operative one being its circular 164/40 of 19 January 1988. In chronological order, the three instruments which are relevant for present purposes are as follows.
The counter-guarantee given by BOC to BACB
The first in time is the counter-guarantee given by BOC to BACB, following arrangements (which are not in evidence) between BOC and its customer in China, the contractor Sichuan Machinery, pursuant to which BOC presumably took security in some form or other. The terms of the counter-guarantee to BACB, as agreed by telexes dated 4 and 5 March 1993 between BOC and BACB were as follows:
"AT OUR FULL RISK AND RESPONSIBILITY, PLS INSTRUCT [CBS] TO ISSUE A PERFORMANCE BOND AGAINST YOUR COUNTERGUARANTEE.
….
[There then followed the language of the performance bond to be issued by CBS and the language of counter-guarantee from BACB to CBS]
IN CONSIDERING OF YOUR INSTRUCTING [CBS] … TO ISSUE THE ABOVE MENTIONED PERFORMANCE BOND …
….
WE HEREBY IRREVOCABLY UNDERTAKE TO PAY TO YOUR ORDER UPON YOUR SIMPLE DEMAND BY TESTED TELEX OR LETTER ANY AMOUNT UP TO FULL AMOUNT OF THIS GUARANTEE INCLUDING THE COMMISSIONS INTERESTS AND EXPENSES IN FOREIGN CONVERTIBLE CURRENCIES AT RATES RULING AT COMMERCIAL BANK OF SYRIA PROVIDED SUCH CLAIM(S) FROM BENEFICIARY REACH COMMERCIAL BANK OF SYRIA, BRANCH 6 ON OR BEFORE JULY 25TH, 1998, 1:00 P.M. [the original expiry date] AND MUST REACH US SOONEST THEREAFTER. OUR LIABILITY UNDER THIS GUARANTEE TOWARDS YOURSELVES WILL CEASE ONLY UPON RECEIPT OF YOUR ADVICE THAT YOU HAVE OBTAINED FROM COMMERCIAL BANK OF SYRIA, BRANCH 6, DAMASCUS, THE RELEASE OF YOUR COUNTER GUARANTEE. OUR COUNTERGUARANTEE TO YOU WILL AUTOMATICALLY BECOME ENFORCEABLE WHEN YOUR A/M COUNTERGUARANTEE BECOMES ENFORCEABLE."
"OUR COUNTER INDEMNITY TOWARDS YOU AND ALL MATTERS ARISING THEREOUT SHALL BE CONSTRUED AND DETERMINED ACCORDING TO ENGLISH LAW."
It was expressly agreed between BACB and BOC therefore that the BOC counter-guarantee to BACB should be construed and determined according to English law.
The counter-guarantee given by BACB to CBS
The terms of the BACB counter-guarantee were set out in a telex dated 15 March 1993 from BACB to CBS. CBS says (correctly) that the whole telex is relevant. By it, a request is made by BACB to CBS to issue the performance bond, the terms of which are quoted, followed by the text of the counter-guarantee given by BACB to CBS as issuing bank:
"DATE: 15TH MARCH 1993
TEST 60/804 ON USD 8,790,000
TO: COMMERCIAL BANK OF SYRIA, BRANCH 6, P.O. BOX 2655 GENERAL MANAGEMENT BLDG, YOUSEL EL-AZMEH SQUARE, DAMASCUS, SYRIA TLX 411351/411476
FROM: UBAF BANK LTD LONDON
PLS ISSUE A PERFORMANCE BOND IN ACCORDANCE WITH THE TERMS OF YOUR OFFICIAL TEXT AND H.O. CIRCULAR 164/40/FM DATED 19.1.88 AGAINST OUR COUNTERGUARANTEE (OUR REF. NO. G93/1742) AS FOLLOWING AND TRANSMIT IT TO THE BENEFICIARY: GENERAL ORGANISATION FOR LAND DEVELOPMENT (GOLD), MINISTRY OF IRRIGATION, SYRIAN ARAB REPUBLIC.
QUOTE
PERFORMANCE BOND
TO: GENERAL ORGANIZATION FOR LAND DEVELOPMENT (GOLD), MINISTRY OF IRRIGATION, SYRIAN ARAB REPUBLIC
L/G NO. ( ) FOR USD8,790,000.00 VALID UNTIL JULY 25TH 1998, 1:00 P.M.
WE INFORM YOU THAT WE HEREBY GUARANTEE SICHUAN MACHINERY AND EQUIPMENT IMPORT AND EXPORT CORP, 27 HONG ZHAO BI STREET, CHENGDU, SICHUAN, P.R. CHINA (HEREINAFTER REFERRED TO AS 'SCMEC'). JOINTLY AND SEVERALLY FOR AN AMOUNT OF USD8,790,000.00 (SAY EIGHT MILLION SEVEN HUNDRED NINETY THOUSAND U.S. DOLLARS ONLY).
IN RESPECT OF GOOD EXECUTION OF THE CONTRACT NO. 627/92 OF THE TISHRIN DAM HYDROPOWER PLANT AND EQUIPMENT OF 6X105MW WHICH IS THE SUBJECT OF THE TENDER NO. 917/D/3 DATED JULY 22ND, 1991 ISSUED BY GOLD (HEREINAFTER REFERRED TO AS THE 'CONTRACT'). THIS GUARANTEE IS VALID AND OPERATIVE FROM THE DATE WHEN SCMEC RECEIVES THE LETTER OF CREDIT UNDER THE CONTRACT AND SHALL REMAIN VALID UNTIL JULY 25th, 1998, 1:00 P.M. AND CANNOT BE CANCELLED DURING ITS VALIDITY WITHOUT YOUR WRITTEN CONSENT.
WE UNDERTAKE TO PAY TO YOUR ORDER THE ABOVE MENTIONED AMOUNT OR ANY PART THEREOF OWING TO BREACH OF NON-COMPLIANCE BY THE GUARANTEED PARTY (SCMEC) WITH ANY OF THE OBLIGATIONS INCUMBENT ACCORDING TO THE CONTRACT TERMS UPON YOUR SIMPLE DEMAND BY TESTED TELEX OR LETTER WHICH SHOULD BE DELIVERED AND REACH US OFFICIALLY DURING ITS VALIDITY LATEST ON JULY 25TH, 1998, 1:00 P.M.
AUTOMATICALLY THEREAFTER OUR OBLIGATION UNDER THIS GUARANTEE WILL CEASE WITHOUT NEED FOR WARNING OR ANY OTHER PROCEDURE, AND ALL CLAIMS RECEIVED WILL BE IGNORED AND WILL BE CONSIDERED CANCELLED UNLESS WE PROCEED TO EXTEND OR RENEW IT IN WRITING.
WE DECLARE THAT THAT THIS PERFORMANCE BOND IS SUBJECT TO SYRIAN LAWS AND REGULATIONS AND WE CHOOSE THE FOLLOWING ADDRESS AS OUR DOMICILE IN ALL THAT CONCERNS THE EXECUTION OF THIS GUARANTEE:
THE COMMERCIAL BANK OF SYRIA, BRANCH NO. 6, SYRIAN ARAB REPUBLIC.
UNQUOTE"
There then follows set out in the telex immediately below the terms of the BACB counter-guarantee to CBS:
"IN CONSIDERING OF YOUR ISSUING THE ABOVE MENTIONED PERFORMANCE BOND, WE, UBAF BANK LIMITED LONDON, HEREBY UNDERTAKE TO PAY TO YOUR ORDER UPON YOUR SIMPLE DEMAND BY TESTED TELEX OR LETTER ANY AMOUNT UP TO FULL AMOUNT OF THIS GUARANTEE INCLUDING THE COMMISSIONS INTERESTS AND EXPENSES IN FOREIGN CONVERTIBLE CURRENCIES AT RATES RULING AT YOUR BANK PROVIDED YOU RECEIVE SUCH CLAIM(S) FROM BENEFICIARY ON OR BEFORE JULY 25TH, 1998, 1:00 P.M. AND THIS CLAIM(S) MUST REACH US SOONEST THEREAFTER. OUR COUNTERGUARANTEE TO YOU WILL AUTOMATICALLY BECOME ENFORCEABLE WHEN YOUR A/M PERFORMANCE BOND BECOMES ENFORCEABLE.
PLEASE NOTE, WE REITERATE THAT ANY CLAIM(S) SUBMITTED UNDER THIS GUARANTEE MUST BE RECEIVED BY YOURSELVES FROM THE BENEFICIARY ON...
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