Doosan Babcock Ltd (formerly Doosan Babcock Energy Ltd) v Comercializadora de Equipos Y Materiales Mabe Limitada (previously known as Mabe Chile Limitada)
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Edwards-Stuart |
| Judgment Date | 24 October 2013 |
| Neutral Citation | [2013] EWHC 3201 (TCC) |
| Docket Number | Case No: HT-13-370 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 24 October 2013 |
[2013] EWHC 3201 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Building
London EC4A 1NL
Mr. Justice Edwards-Stuart
Case No: HT-13-370
Steven Walker Esq, QC & Miss Serena Cheng (instructed by Pinsent Masons LLP) for the Claimant
Stephen Dennison Esq, QC (instructed by CMS Cameron McKenna LLP) & Rupert Choat Esq for the Defendant
Hearing dates: 18 th October 2013
On 4 October 2013 I granted the Claimant an interim injunction to restrain the Defendant ("MABE") from making a call on two performance guarantees. The injunction was granted for 14 days and so there was a further hearing on 18 October 2013, at which MABE was represented by Mr. Stephen Dennison QC, instructed by CMS Cameron McKenna and Mr. Rupert Choat.
MABE applied to discharge the injunction on the grounds that the Claimant's case was misconceived as a matter of construction of the contract and that, in any event, it was necessary for the Claimant to show that it had an arguable case that MABE's refusal to issue Taking-Over Certificates was not done in good faith and that it had not done so.
The Claimant was represented by Mr. Steven Walker QC (as before), together with Miss Serena Cheng. At the conclusion of the hearing I said that I would extend the injunction until 6 pm on Monday, 21 October 2013, by which time I would have reached a decision as to whether or not the injunction should be continued. The application raises a number of questions which, the hearing being on a Friday afternoon, the parties were, somewhat inevitably, unable to argue as fully as one would have liked.
The background to the hearing of the application on 4 October 2013, which was made on a without notice basis (although MABE was represented), is set out in my judgment dated 11 October 2013. This judgment should be read in conjunction with that judgment, but for the convenience of the reader, I will repeat briefly the background to the dispute that gave rise to the application.
The background
The two performance guarantees the subject of this dispute are "on-demand" guarantees, so the banks concerned are required to pay on receipt of a demand by MABE that complies with the requirements of the guarantees. The application arises out of a contract by which, essentially, the Claimant agreed to supply two boilers for a power plant in Brazil. The performance guarantee in relation to each unit expires either on the issue of a Taking-Over Certificate for that unit or, under the current letters of guarantee, 31 December 2013, whichever is earlier.
The Claimant's case is that it was entitled to Taking-Over Certificates when the boilers were taken into use by MABE, which it says happened on 30 November 2012 for Unit 1 and on 10 May 2013 for Unit 2. By two letters dated 10 July 2013 the Claimant requested the issue of the Taking-Over Certificates. MABE refused, relying on a provision in the contract which, it says, permits it to withhold a Taking-Over Certificate where the unit has been used by the employer only as a temporary measure in accordance with the terms of the contract or by agreement of the parties.
The Claimant submits that this ground for withholding these certificates is spurious. The evidence, which in this respect is largely a matter of public record, shows that the units have been in commercial operation for several months, since when they have exported more than 7,500 hours of power at various loads to the local grid.
The background
Mr. Dennison did not challenge the jurisdiction of the court under section 44 of the Arbitration Act 1996 to grant interim relief in the circumstances of this application, and the points taken in relation to service at the previous hearing were no longer pursued. If I may say so, these were sensible and realistic concessions. His submissions were directed to the question of whether or not there was any material to support the Claimant's case that MABE's refusal to issue the Taking-Over Certificates was a breach of contract, still less a breach of contract that was committed in bad faith.
He also submitted, and I accept, that the court has no jurisdiction to make binding findings of fact or to construe the contract between the parties when they have agreed expressly that any disputes will be determined by arbitration in London.
I must therefore make it absolutely clear that anything that I say in the rest of this judgment is not to be taken either as a finding of fact or as a determination of a point of law that is intended to be final and binding on the parties. As I said in my first judgment (see paragraphs 42–43) the consideration for the court at this stage is whether or not the Claimant has shown a strong case that MABE's refusal to issue the Taking-Over Certificates is a breach of contract, alternatively that it has a reasonable prospect of showing that it was a breach of contract.
Accordingly, and in particular, nothing that I say in this judgment is intended to be binding upon the arbitrators whose task it is to determine any dispute between the parties. The role of the court is limited to the question of whether or not the Claimant is entitled to interim relief. For the avoidance of any doubt, if in this judgment I express any conclusion about the underlying dispute that is in terms that might be thought to be binding on the parties, that is not how it is to be read.
The submissions at the hearing: does the Claimant have a strong case?
Mr. Dennison confined his submissions to the merits of the Claimant's case and the law relating to the grant of interim relief in cases involving performance guarantees. He submitted that the Claimant's case was misconceived because it was based on a misunderstanding both of the contract and of MABE's position. It is not arguable, he submitted, that the Claimant was or is entitled to the Taking-Over Certificates. At paragraphs 12 and 13 of his skeleton argument he made these submissions:
"12. The Contract required [the Claimant] to design supply and deliver the two boiler units and to provide technical services including those required for Tests on Completion to be undertaken; see in particular the scheme for completion at clauses 7–10 of the Contract and Appendix 7. Note in particular clauses 7.4, 8.2 and generally clauses 9 and 10.
13. In essence completion, Taking-Over by MABE, was to occur after the Tests on Completion (including the Performance Tests) had been satisfactorily completed. Post delivery of the boiler units completion of [the Claimant's] scope of works was dependent on the installation of the boilers themselves, completion or sufficient completion of the wider power plant, commissioning and testing. Completion was therefore dependent on performance by [the Claimant] and by others including MABE and the regulatory authorities; see generally the statement of Mr. Travassos at paragraphs 3 to 5 inclusive."
(Original emphasis)
The expression "Tests on Completion" is defined in clause 1.1.3.4 of the contract in the following terms:
"'Tests on Completion' means the tests which are specified in the Contractor's Proposals or agreed by both Parties or instructed as a Variation, and which are carried out under Clause 9 [ Tests on Completion] before the Works or Section (as the case may be) is taken over by the Employer."
The definition of the term "Tests after Completion" is stated not to be used. This is reflected in the fact that clause 12, which concerns Tests after Completion, is deleted in its entirety.
Clause 9.1 of the original standard form was also deleted in its entirety. That clause stated that the Tests on Completion included pre-commissioning and commissioning tests and trial operation. In its place was substituted the following:
"The Contractor shall carry out the Tests on Completion set out in the Project Quality and Inspection Plan set out in the Contractor's Proposals in accordance with this Clause and Sub-Clause 7.4 [ Testing].
The Contractor shall give the Engineer an opportunity to witness any of the Tests on Completion.
The Contractor will notify the Employer of the performance testing procedure 36 months after the Commencement Date (or within such period as may be agreed between the parties).
Unless otherwise agreed, the Employer will carry out the performance tests for the Works in accordance with the performance testing procedure notified by the Contractor within 14 days of being notified of the performance tests.
If the Employer carries out the performance tests in accordance with the performance testing procedure notified by the Contractor the Contractor confirms that the Works will achieve the performance guarantees set out in Schedule 7 [Delay Damages and Performance Liquidated Damages Summary].
…
Notwithstanding anything to the contrary in the Contract, if performance liquidated damages should become payable these shall be the sole remedy for shortfall of performance and no other claims shall be entertained by the Employer, the Owner or any subcontractors of the Employer or the Owner.
Performance liquidated damages are based on a 'no harm/no foul' principle for the Employer and/or the Owner, with the Contractor being able to benefit from overachievement in a performance guarantee to compensate any under achievement in another performance guarantee based on the performance liquidated damages rates set out in Schedule 7 [Delay Damages and Performance Liquidated Damages Summary]. Performance offsets are permitted between the three Units (i.e. the Units supplied under both the Pecem and Itaqui supply...
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