Export Credits Guarantee Department v Universal Oil Products Company

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Roskill. I agree with it, and for the reasons he gives I would dismiss the appeal.

I have had the benefit of reading in draft the speech to be delivered by my noble and learned friend, Lord Roskill. I agree with it, and for the reasons he gives I too would dismiss the appeal.

I have had the benefit of reading in draft the speech to be delivered by my noble and learned friend, Lord Roskill. I agree with it, and for the reasons he gives I too would dismiss the appeal.

This appeal involves a very large sum of money but a very short, and I venture to think, simple question of construction of clause 7(1) of an agreement dated 16th October 1970 and concluded between the appellants and the respondents. This agreement, known as the "Premium Agreement" was one of a number of interlocking agreements concluded between, inter alios, a group of Newfoundland companies, the appellants, and a group of bankers headed by Kleinwort Benson Ltd. ("Kleinworts"), and the respondents, regarding the design, construction and installation of a refinery in Newfoundland, and the financing of those operations. It is unnecessary to relate the details of those highly complex agreements in order to determine the present issue which is whether the obligation seemingly clearly imposed on the appellants by the respondents by clause 7(1) is a penalty so that the sum of £39,571,001.54 which the respondents seek to recover from the appellants in the events which occurred is for that reason irrecoverable in law. It is sufficient to say that the Newfoundland companies made and issued a series of promissory notes for different sums maturing on different dates, and Kleinworts, in return for the promissory notes, provided the requisite funds to one of the Newfoundland companies. The respondents guaranteed those promissory notes but as part of the interlocking transactions required the Premium Agreement to be entered into by the appellants. The appellants paid a premium of over one million pounds sterling in consideration of the guarantee given by the respondents to Kleinworts. A large number of those promissory notes which matured between the 30th September 1973 and the 30th September 1981 were dishonoured. Kleinworts claimed the sum due on the dishonoured notes from the respondents who duly discharged their obligations and now seek to have recourse against the appellants under the Premium Agreement by reason of clause 7(1).

My Lords, the question whether the obligation imposed by clause 7(1) is a penalty is not the only issue raised in the present action. The dimensions of the action can perhaps best be gauged by the fact that the present issue was raised in paragraphs 24 and 131 of the defence and counterclaim and in paragraph 86 of the reply and defence to counterclaim. There is another action of equally large dimensions proceeding between various of the parties to these interlocking agreements with which happily your Lordships are not concerned.

Goff J., as he then was, ordered the question whether clause 7(1) operated as a penalty to be tried as a preliminary issue. Both Staughton J. and the Court of Appeal (Waller and Slade L.JJ. and Sir Sebag Shaw) had no difficulty in concluding that it was not, and for substantially the same reasons. The Court of Appeal refused leave to appeal but your Lordships' House subsequently gave leave upon being told that this challenge to the efficacy of clause 7(1) as an effective recourse provision was of great general importance since the respondents had issued guarantees...