Enka Insaat Ve Sanayi as v Banco Popolare Dell'Alto Adige SPA
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 06 October 2009 |
| Neutral Citation | [2009] EWHC 2410 (Comm) |
| Docket Number | Case No: 2008 Folio 1325 & Folio 1326 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 06 October 2009 |
[2009] EWHC 2410 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr. Justice Teare
Case No: 2008 Folio 1325 & Folio 1326
Raymond Cox QC and Henry King (instructed by Shearman and Sterling LLP) for the Claimants
Richard Salter QC and Jonathan Mark Phillips (instructed initially by Matthew Arnold & Baldwin LLP and now by Mischon de Reya) for the Defendants
Hearing dates: 24 July 2009
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 TEARE
Mr. Justice Teare:
This is an application for summary judgment by the Claimant upon Advance Payment and Performance Guarantees issued by two banks, the Defendants. The Claimant says there is no defence to the claims on those guarantees. In essence the Defendants say that they have a defence with a real prospect of success, namely, that the demands on the guarantees were made fraudulently.
The parties
The Claimant, Enka Insaat Ve Sanayi AS (“ENKA”), is a Turkish company which carries out major construction projects in Turkey and Russia. On 12 October 2007 ENKA entered into a contract with the Russian company OAO “KMKI Dobryninsky” (the “Owner”) for the design and construction of a multifunctional retail and office building in Moscow. The façade works sub-contractor was OOO “Frener & Reifer Russia”(“F&R”), a Russian company. On 17 January 2008 ENKA signed a sub-contract with F&R pursuant to which F&R was to design and install the external façade of the building for the fixed price of US$36,304,345.15 plus VAT. The sub-contract obliged F&R to put in place certain guarantees by an international first class bank.
The banks who provided those guarantees were the Italian banks, Banca Popolare Dell'Alto Adige SPA (“BP”) who provided the Advance Payment Guarantees, dated 29 January 2008 and 4 June 2008, and Cassa Di Risparmio Di Bolzano SPA (“CRB”) who provided the Performance Guarantee dated 4 February 2008.
The sub-contract
The sub-contract is governed by the laws of the Russian Federation and disputes are to be referred to arbitration in Moscow. The price payable by ENKA to F&R was payable by an advance payment of 30% of the price, a second advance payment of 10% of the price and thereafter a series of current or monthly progress payments against measured amounts of work. The advance payments were made. They were to be repaid by F&R to ENKA by way of deductions of a certain percentage from each current or monthly payment. In the event no current or monthly payment was made and so F&R retains the Advance Payments. ENKA was also entitled to retain from each current or monthly payment an amount equal to 5% of the amount due “in order to secure the due performance by [F&R] of its obligations hereunder.”
ENKA had power to terminate the sub-contract unilaterally in the event of non-performance and other failures by F&R.
F&R was obliged to put in place two unconditional and irrevocable guarantees by an international bank in respect of the two Advance Payments (totalling in excess of US$13.5m.) in a form exhibited to the sub-contract. F&R was also obliged to put in place a Performance Guarantee by an international first class bank in a form exhibited to the sub-contract in a sum equal to 5% of the purchase price, namely, US$1,815,218.
The Guarantees
The Advance Payment Guarantees given by BP provided for English law and exclusive jurisdiction. They provided as follows:
“We, the undersigned [BP] ………………..hereby unconditionally and irrevocably guarantee to pay without delay to [ENKA] within 5 (five) business days upon presentation by [ENKA] to us of the first and any subsequent written demands duly signed by [ENKA's] authorised signatory (the Demand(s)) any sums specified in such a Demand up to an amount not exceeding ……………..(the “Guaranteed Amount”).
The Demand shall state that:
1. [F&R] has failed to fulfil its obligations to the Contractor under the Subcontract;
2. accordingly [ENKA] is entitled to receive payment of the Advance Payment.
Payment to [ENKA] of the amount contained in the Demand shall be without the need for proof or conditions, and irrespective of the validity, and effects of the abovementioned Subcontract and waiving all rights of objection and defence arising therefrom. The Demand(s)s shall be conclusive evidence of our liability and of the amount of the sum or sums which we are liable to pay to the Contractor, notwithstanding any objection made by the Subcontractor or any other person.
More than one demand may be made hereunder prior to the Expiry Date ….Our maximum aggregate liability under or connection with this Guarantee shall not exceed the Guaranteed Amount which amount shall be decreased by the amount as being recouped by way of deduction from the Subcontractor's monthly invoices upon presentation to us of the relevant invoices duly signed and stamped by [ENKA].”
The Performance Guarantee provided by CRB also provided for English law and jurisdiction. It was in very similar terms save that the demand was to state:
“1. [F&R] has failed to fulfil its obligations to the Contractor under the Subcontract;
2. accordingly the Contractor is entitled to receive payment under this Guarantee.”
The clause providing that more than one demand may be made was in the same terms but ended by saying:
“……..….Our maximum aggregate liability under or in connection with this Guarantee shall not exceed the Guaranteed Amount which amount shall be reduced by any partial amounts already paid by us under this Guarantee. “
The material events
On 26 November 2008 the Owner gave ENKA 14 days notice of termination of the main contract and made demands on guarantees put in place under the main contract by ENKA.
On 2 December 2008 ENKA demanded payment from BP pursuant to the Advance Payment Guarantees in the following terms:
“We hereby state that,
1. [F&R] has failed to fulfil its obligations to us under the subcontract; and
2. Accordingly we as the Contractor are entitled to receive payment of the Advance Payment.
Therefore according to the terms and conditions of the guarantee we kindly request you to pay us, within five business days, the amount of USD 10,346,739 [or USD 3,448,913]……….”
On 2 December 2008 ENKA demanded payment from CRB in the following terms:
“We hereby state that,
1. [F&R] has failed to fulfil its obligations to us under the subcontract; and
2. Accordingly we as the Contractor are entitled to receive payment under this Guarantee.
Therefore according to the terms and conditions of the guarantee we kindly request you to pay us, within five business days, the amount of USD 1,815,218 ……….”
On 22 December 2008 ENKA gave notice to F&R terminating the sub-contract.
ENKA does not contend that as at 2 December 2008 F&R was liable to repay the Advance Payments or that, although it is said that F&R was in breach of the sub-contract in several respects, that such breaches had caused any measurable loss to ENKA. The demands were signed by Mr. Mehmet Gozen, the Deputy General Manager of ENKA. He has said in his witness statement as follows:
“On 2 December 2008 I decided that ENKA should make demands under the Banca Popolare guarantees. At that date I believed that the Banca Popolare guarantees were in effect, and that ENKA was entitled to make demand under those guarantees. ………….
I believed on 2 December 2008 that F&R had failed to fulfil its obligations under the subcontract, and that accordingly ENKA was entitled to receive payment under the guarantees…..That was my belief on 23 April 2009, and I continue to believe that that is the case. The guarantees were expressed to be payable on demand. The demand was required to state that F&R had failed to fulfil its obligations to ENKA under the subcontract, and that accordingly ENKA was entitled to receive payment of the amounts guaranteed. The demands made on 23 April 2009 (and 2 December 2008) made those statements. ……………I decided that those demands should be made by ENKA. When I made those decisions I believed that F&R was in breach of the subcontract, and that accordingly ENKA was entitled to receive payment of the performance guarantee and the amounts guaranteed under the advance payment guarantees.
I believed F&R was in breach of the subcontract for the reasons referred to by Mr. Bevan. Since it was in breach, ENKA was entitled to receive payment of the performance guarantee and of the amount of the advance payments net of any amounts already repaid by F&R by way of deduction from F&R's monthly invoices (as stated in the advance payment guarantees). Since none of the advance payments had been repaid already, ENKA was entitled to receive the full amount of the advance payments. That was my belief at the time of the demands on 23 April 2009 (and 2 December 2008) and it remains my belief.
I do not understand the relevance of the assertions by Ms. Bachmann that the breaches by F&R were not “causative of any loss”. The guarantees did not require that the demand state that the breaches by F&R had caused any particular loss. …………………..”
On 7 January 2009, after the sub-contract had been terminated, ENKA claimed that F&R no longer had a right to retain the advance payments and informed F&R that they had commenced proceedings to recover those sums (and those due under the performance guarantees) from the guarantor banks.
It was later discovered that a formal requirement of the advance payment guarantees had not been complied with as at...
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