CIMC Raffles Offshore (Singapore) Ltd and Another (Appellants/Claimants) v Schahin Holding SA (Respondent/Defendant)
| Jurisdiction | England & Wales |
| Judge | Sir Bernard Rix,Lady Justice Arden,Lord Justice McCombe |
| Judgment Date | 07 June 2013 |
| Neutral Citation | [2013] EWCA Civ 644 |
| Docket Number | Case Nos: A3/2012/1404 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 June 2013 |
[2013] EWCA Civ 644
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
(QUEEN'S BENCH DIVISION) (COMMERCIAL COURT)
BLAIR J
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Mccombe
And
Sir Bernard Rix
Case Nos: A3/2012/1404
Mr Christopher Butcher QC & Mr Marcus Mander (instructed by Linklaters LLP) for the Appellants
Mr Michael Ashcroft QC & Mr David Lewis (instructed by Curtis Davis Garrard LLP) for the Respondent
This appeal concerns the summary enforcement of a guarantee. The guarantee was given by a holding company for the sums due on delivery of two drilling rigs to their buyers, being two companies within the holding company's group. The guaranteed party was the builder of the rigs, and the guarantee was concerned with payment of the sums due on delivery under variations of the building contracts designed to take account of the failure of the builder to build the rigs on time. After the guarantee was made, the sums due on delivery were substantially increased by further agreement between the builder and the buyers, and the delivery dates were also delayed. The sums due on delivery were payable in twelve instalments over a period of one year from delivery, and the later increase was because more of the contracts' stage payments were postponed to the time of delivery. The builder sues to enforce its guarantee, and it claims not merely the sums originally guaranteed, but the substantially larger sums ultimately due under the latest variation of the shipbuilding contracts. The guarantor submits: that the guarantee has been discharged by reason of the changes in the buyers' obligations made without its consent, and in any event does not cover the larger liability. The builder ripostes: that the guarantee expressly extended to such variations, and was also so worded as to impose primary liability on the guarantor and thus to avoid all doctrines designed to protect a secondary party such as a guarantor from being prejudiced by material changes to the underlying contract. The judge held that the guarantee has not been discharged and that the guarantor is liable at least for the lesser sums due under the originally guaranteed variations of the building contracts; but that the question of any larger guaranteed liability would have to go to trial because matters of factual background were relevant to that question.
The guarantor appeals against the summary judgment to pay the sums originally guaranteed to the builder; and the builder cross-appeals the judge's decision to give leave to defend to the guarantor in respect of the greater amount due to the builder under the final variation of the underlying contracts.
The parties and the guaranteed contracts
The claimants in this litigation, CIMC Raffles Offshore (Singapore) Limited (formerly known as Yantai Raffles Shipyard Limited) and Yantai CIMC Raffles Offshore Limited (formerly known as Yantai Raffles Offshore Limited), operate a shipyard in China. It is unnecessary to distinguish between them. I will refer to them as the "builder". In this court they are respondents.
The buyers are Baerfield Drilling LLC ("Baerfield") and Soratu Drilling LLC ("Soratu") (together, the "buyers"). In 2006 they entered into shipbuilding contracts with the builder for the construction of two semi-submersible drilling rigs. The contract price for each rig was US$234 million. The rigs were purchased for the purpose of letting to Petrobras SA, the major Brazilian state oil and gas company, under long term charters. The guarantee and the judgment below also refer to Baerfield and Soratu as BDL and SDL respectively.
Baerfield and Soratu are part of a group of companies active in the offshore oil and gas industry (known as Schahin Offshore Operations) ultimately owned and controlled by the Schahin family of Brazil.
The guarantor is Schahin Holding SA, the defendant in this litigation and in this court the appellant (the "guarantor"). The guarantor is the holding company of other interests of the Schahin family, known as Grupo Schahin, which is active in real estate, electricity, telecommunications, engineering as well as oil and gas. The guarantor's only role in the transactions with which this litigation is concerned was as guarantor.
Any facts to which I refer in this judgment are based on the evidence in the case, which, because the litigation is still at the stage of either summary judgment (in part) or pre-trial proceedings (in part), are not yet findings of any court and may be more or less controversial. Of course, the various transactions speak for themselves, and the question at this stage is whether they speak sufficiently clearly.
The builder was late in constructing and delivering the rigs, which has put the buyers in turn in difficulties with Petrobras. There is currently an arbitration between the builder and the buyers concerning the final bill. The buyers say that payments otherwise due to the builder on delivery have been more than swallowed up in a set-off for damages for defective construction and delayed delivery. The builder seeks to recover the nominal amounts due on delivery, as varied by variations of the shipbuilding contracts, under the guarantee which is the subject-matter of this litigation.
In the course of the shipbuilding contracts, various amendments were made to them. We are concerned with the seventh and eighth amendments to the Baerfield contract and the eleventh and twelfth amendments to the Soratu contract.
On 27 September 2009 the seventh and eleventh amendments to the respective contracts were entered into. The guarantee is dated 18 December 2009. I shall call these earlier amendments the "pre-guarantee" amendments. The eighth and twelfth amendments to the contracts were entered into on 24 May 20I shall call these later amendments the "post-guarantee" amendments.
Among other matters dealt with in the pre-guarantee amendments was the problem of an increase in project costs caused to the buyers by the delays in construction and the insufficiency of financing to cover them. The builder and the buyers therefore agreed to defer the greater portion of the final "Milestone Payment" due on delivery to the year following delivery, by which time it was anticipated that the rigs would be generating revenue under the Petrobras charters. Thus only one-twelfth of this final payment instalment would be made on delivery and the balance would be paid in eleven monthly instalments thereafter. In the case of Baerfield, the delivery payment ("milestone 19"), net of substantial liquidated damages for delay, was nearly $36 million. This was called "Adjusted Milestone 19". It was payable as to just under $3 million on delivery, and by eleven monthly instalments of $3 million. In the case of Soratu, the "adjusted milestone 21", net of liquidated damages, was just over $35 million, payable in twelve instalments in the same way.
The amendments provided for the setting up of an account into which part of the proceeds from the rigs' earnings would be paid to secure and support the due payment of the post-delivery instalments.
The post-guarantee amendments were caused by still further delays to the construction and delivery of the two rigs. The builder and the buyers therefore agreed to a substantial rescheduling of outstanding milestone payments, going significantly beyond the final milestones due on delivery. Thus in the case of the Baerfield contract the 13 th to 18 th milestones were all deferred to the time of delivery and the total of these instalments, plus "Adjusted Milestone 19" under the pre-guarantee amendment, were redefined as a new "Adjusted Milestone 19". The new total deferred to delivery was now, net of liquidated damages for delay, nearly $51 million. This was, as before, to be paid over a year (in fact eleven months) in twelve instalments beginning with delivery. Each instalment was now nearly $4.25 million. In the case of Soratu, the newly re-adjusted "adjusted milestone 21" now included the deferred 15 th to 20 th milestones, to give a total due on delivery, payable in twelve instalments of over $4.7 million, of some $57 million.
Delivery dates were also re-adjusted. Ultimately, the Baerfield rig was delivered on 25 April 2011 (the pre-guarantee revised delivery date had been 30 September 2010); and the Soratu rig was delivered on 15 November 2010 (the pre-guarantee revised delivery date had been 30 September 2010).
It probably makes sense, for the sake of clarity, to define the re-adjusted "Adjusted Milestone 19" and "Adjusted Milestone 21" under the post-guarantee amendments as the "Re-adjusted Milestones".
The guarantee
It will be necessary to set out large parts of the guarantee, which I have done in Annex A to this judgment. In this section I shall limit citation to the critical wording over which there has been debate.
On the present evidence the guarantee was not required by the builder, which, because of its defaults, was hardly in a position to demand one, but by the banks financing the projects. The banks were concerned, in the light of the pre-guarantee amendments, that if part of the payments due to the builder were to be outstanding after delivery, and if the buyers and the builder were to look to post-delivery earnings of the rigs to support the buyers' instalments (which was the logic of the deferral of eleven-twelfths...
To continue reading
Request your trial
-
GPP Big Field LLP v Solar EPC Solutions SL (formerly known as Prosolia Siglio XXI)
...liability, sufficient to displace the rule in Holme v Brunskill”. 36 7 th ed, 2015, at 9–025 37 [2012] EWHC 1758 (Comm) at [27] 38 [2013] EWCA Civ 644, 1. [2013] 2 All ER (Comm) 760 at [65] 39 Simply stating that a guarantor should be treated as a primary obligor and not merely as a sure......
-
Levin (Applicant/Claimant) v Tannenbaum (Respondent/Defendant)
...a demand on the surety. That is not how I read this clause; this clause is what Sir Bernard Rix in the recent case of CIMC Raffles (Singapore) Limited v Schahin Holding SA [2013] EWCA Civ 644 described as a clause which was a fairly standard recognition that, "There never is any need for th......
-
Bitumen Invest as v Richmond Mercantile Ltd FZC
...There is however doubt as to whether this is necessarily effective – see CIM Raffles Offshore (Singapore) Ltd v Schahim Holding SA [2013] EWCA Civ 644 at paragraph [57]. Whilst the decision of Fisher J in Heald v O'Connor [1971] 1 WLR 497 at 503D relates that the inclusion of the "primary o......
-
Downing LLP v Sanguine Hospitality Ltd
...and controversial one. That is apparent from Rix LJ's analysis in CIMC Raffles Offshore (Singapore) Limited v. Schahin Holding SA [2013] 2 All ER (Comm.) 760, [2013] 2 Lloyd's Rep. 575, at [38]–[52]. For present purposes, however, I think I can approach the matter in a relatively straight......
-
Security for performance
...guaranteed provisions (such as “indulgence clauses”), is “somewhat opaque”: CIMC Rales Ofshore (Singapore) Ltd v Schahin Holding SA [2013] EWCa Civ 644 at [65], per Sir Bernard rix. 106 Woodcock v Oxford & Worcester Railway Co (1853) 1 Drew 521 [61 Er 551]. 107 See, eg, Beck Interiors Ltd v......