Caterpillar Motoren Gmbh & Company K.G. v Mutual Benefits Assurance Company
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 31 July 2015 |
| Neutral Citation | [2015] EWHC 2304 (Comm) |
| Docket Number | Case No: 2014 FOLIO 876 AND 2014 FOLIO 946 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 31 July 2015 |
[2015] EWHC 2304 (Comm)
Mr. Justice Teare
Case No: 2014 FOLIO 876 AND 2014 FOLIO 946
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Jasbir Dhillon QC and Kyle Lawson (instructed by Walker Morris LLP) for the Claimant
Lawrence Power and Christopher McCarthy (instructed by Simon Bethal Solicitors LLP) for the Defendant
Hearing date: 23 July 2015
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.
This is an application for summary judgment by the Claimant on its claims against the Defendant for US$3,176,397 said to be due pursuant to two Advance Payment Bonds and for US$1,623,711 said to be due pursuant to two Performance Bonds. The application raises a question of construction in relation to both forms of bonds, namely, are they "on demand" bonds or are they bonds in the nature of a true guarantee, such that the claimant has to prove that the defendant's customer is in fact liable to the claimant.
The background
The Claimant ("Caterpillar") is a German company which manufactures and provides industrial equipment and services. It is a subsidiary of an American company. The Defendant ("MBAC") is a Liberian insurance company. It is a subsidiary of a Nigerian company.
In late 2013 Caterpillar entered into contracts to deliver two power plants in Liberia, one at the port of Buchanan and the other at Tokadeh. Caterpillar also entered into two sub-contracts with International Construction & Engineering Inc. ("ICE") for the provision of construction services at Buchanan and Tokadeh.
The sub-contracts were in materially identical terms. By clause 7.1 ICE was required to procure an Advance Payment Bond and a Performance Bond in favour of Caterpillar. The Advance Payment Bond ("APB") was defined as "an instrument offered by a surety acceptable to [Caterpillar]" in the amount of US$1,460,235 in respect of the Buchanan contract and in the amount of US$1,716,162 in respect of the Tokadeh contract "that guarantees the due performance by [ICE] for an advance payment made by [Caterpillar] to [ICE] for sundry activities and/or task." The Performance Bond ("PB") was defined as "an instrument offered by a surety acceptable to [Caterpillar] in the amount of 10% of the Contract price…that guarantees the due performance of all Work by [ICE]". The forms of the bonds were exhibits to the sub-contracts.
Thus the APBs were intended to provide security to Caterpillar in the event that activities intended to be financed by an advance payment were not carried out by ICE and the PBs were intended to provide security to Caterpillar in the event that the further obligations of ICE were not performed.
On 10 January 2014 the required bonds were issued by MBAC.
MBAC has a license from the Central Bank of Liberia to "function as a non-bank financial institution and to carry out composite insurance business in Liberia." The website of its parent company notes that "bond insurance" is provided. "Bond insurance" is defined as "a financial guarantee that is usually taken by contractors to indemnify their principals (owner of the contract) against any default. It is a strict liability policy." The cover provided is said to include advance payment bonds and performance bonds. Mr. Momo Fortune, the general manager/CEO of MBAC has stated that all products sold by MBAC, the subsidiary company, are provided by the parent company. He has further stated that the reference to bond insurance in the website of the parent company is "mere marketing" and that he is unaware of the parent company selling "on-demand bonds". Whether the bonds in question are "on demand bonds" is a question of construction but the bonds, whatever their construction, appear to have been provided by MBAC in the ordinary course of its business. A letter dated 24 January 2014 from Mr. Fortune informed Caterpillar that the bonds (described as performance and advance payment bonds) had been provided and that MBAC's liabilities under them were insured and reinsured. I have therefore concluded that the website of the parent company is truthful as opposed to being "mere marketing."
The terms of the bonds
It is necessary to set out in full the terms of one of each type of bond.
IRREVOCABLE AND UNCONDITIONAL ADVANCE PAYMENT GUARANTEE
No.: MBA/APB/ 2/0228/A/014
This IRREVOCABLE AND UNCONDITIONAL ADVANCE PAYMENT GUARANTEE, executed this 10 th day of January, 2014, by MUTUAL BENEFITS ASSURANCE COMPANY with address at 17 th Street and Tubman Boulevard, Sinkor, Monrovia, Liberia, hereinafter the "GUARANTOR" in favor of CATERPILLAR MOTOREN GmbH & Co. K.G., Liberian Branch, with address at c/o Voscon Inc., 80 Broad Street, 3 rd Floor, Monrovia, Liberia, hereinafter the "BENIFECIARY" on behalf of International Construction & Engineering, Inc. having its principal address at Monrovia, Liberia, hereinafter the "CONTRACTOR" hereby:
WITNESSETH:
WHEREAS, the CONTRACTOR has represented to the GUARANTOR that on the 10 th day of January, 2014 the BENEFICIARY and the CONTRACTOR have entered into and executed Contract No. POB 267161 C116A (SC1) General Terms and Conditions of Contract for Construction Services for the performance, by the CONTRACTOR for the BENEFICIARY. The Said Contract No. POB 267161 C116A (SC1) is hereby incorporated into, and made an integral part of this instrument by reference; and
WHEREAS, pursuit to the reference Contract No. POB 267161 C116A (SC1), the CONTRACTOR raised and submitted to the BENEFICIARY its request for advance payment in the amount of One Million Four Hundred Sixty Thousand Two Hundred Thirty Five United States Dollars (US$1,460.235.00) against the project cost/contract price for sundry activities and/or tasks to be performed by the CONTRACTOR; and listed as per said request; and
WHEREAS, in keeping with the agreement of the parties, a condition precedent to the BENEFICIARY'S disbursing the requested advance payment is the posting and/ or issuance of an Advance Payment Guarantee Bond on behalf of the CONTRACTOR'S and in favor of the BENEFICIARY by a reputable third party institution engaged in the insurance or banking business; and
WHEREAS, the CONTRACTOR has requested, and the guarantor has agreed to issue an Advance Payment Guarantee Bond on the CONTRACTOR'S behalf and in favor of the BENEFICIARY as herein provided and in keeping with the agreement of the BENEFICIARY and the CONTRACTOR on the terms and conditions herein set forth and contained;
NOW THEREFORE, THESE PRESENTS:
1. We, Mutual Benefits Assurance Company, as GUARANTOR of the CONTRACTOR, do hereby guarantee and undertake to pay, without reference to the CONTRACTOR, the BENEFICIARY herein forthwith on demand at any time no later than the dates and maximum amounts stated herein below as may be claimed by the BENEFICIARY to be due from the CONTRACTOR on account of the failure of the CONTRACTOR in observance and performance of the terms and conditions of the contract No. POB 267161 C116A (SC1), and in particular, the CONTRACTOR'S failure to fully satisfactorily and timely execute the tasks for advance payment and in respect of which the sum of USD1,460.235.00 is paid by the BENEFICIARY to the CONTRACTOR in advance.
2. The GUARANTOR hereby acknowledges and agrees that the decision of the BENEFICIARY as to whether any money is payable by the CONTRACTOR to the BENEFICIARY or whether the CONTRACTOR has made any such default or defaults as aforesaid and the amount or amounts to which the BENEFICIARY is entitled by reason thereof will be binding on the GUARANTOR and the GUARANTOR shall not be entitled to as[k] the BENEFICIARY to establish its claims or claims under this GUARANTOR or to claim any such amount from the CONTRACTOR its first instance but shall pay the same to the BENEFICIARY forthwith on demand without any demur, reservation, recourse, contest, or protest and/or without any reference to the CONTRACTOR.
Any such demand made by the BENEFICIARY on the GUARANTOR shall be conclusive and binding notwithstanding any difference between the BENEFICIARY and the CONTRACTOR or any dispute pending before any court, tribunal, arbitrator(s) or any other authority — judicial, quasi-judicial or administrative.
3. The GUARANTOR further undertakes not to revoke this Guarantee during its currency except with the prior written consent of the BENEFICIARY and this Guarantee shall continue to be enforceable until the date of its expiry or the last date of an extended period, if any, agreed upon by the GUARANTOR and the BENEFICIARY in writing, unless during the currency of the Guarantee all amounts due the BENEFICIARY have been duly paid and its claims satisfied or discharged or the BENEFICIARY certifies that the tasks enumerated as per the CONTRACTOR'S request for advance payment have been fully carried out by the CONTRACTOR and the Guarantee is thereby discharged.
4. This Guarantee shall not be affected by any change in the constitution of the CONTRACTOR or any extension or forbearance to the CONTRACTOR by the BENEFICIARY and GUARANTOR.
5. The amount herein Guarantee is the sum of US$1,460,235.00 (One Million Four Hundred Sixty Thousand Two Hundred Thirty Five United States Dollars), advance[d] or to be advance[d] the CONTRACTOR by the BENEFICIARY, subject of this Advance Payment Guarantee Bond.
6. That for and in consideration of the Advance Payment Guarantee herein given the BENEFICIARY for and on behalf of the CONTRACTOR, the CONTRACTOR hereby agrees and undertakes to pay or cause to be paid to the GUARANTOR a Guarantee Bond...
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