Kvaerner John Brown Ltd v Midland Bank Plc [QBD]
| Jurisdiction | England & Wales |
| Judge | Cresswell J |
| Judgment Date | 20 January 1998 |
| Court | Queen's Bench Division |
| Date | 20 January 1998 |
Queen's Bench Division.
Cresswell J.
Iain Milligan QC (instructed by Linklaters & Paines) for the plaintiff.
Richard Field QC and Daniel Stilitz (instructed by Herbert Smith) for the defendant.
The following cases were referred to in the judgment:
Bolivinter Oil SA v Chase Manhattan Bank NAWLR [1984] 1 WLR 392
Brink's Mat Ltd v ElcombeWLR [1988] 1 WLR 1350
Cargill International SA v Bangladesh Sugar and Food Industries Corp [1998] CLC 399
Group Josi Re v Walbrook Insurance Co Ltd [1995] CLC 1532; [1996] 1 WLR 1152
Harbottle (R D) (Mercantile) Ltd v National Westminster Bank LtdELR [1978] QB 146
Owen (Edward) Engineering Ltd v Barclays Bank International LtdELR [1978] QB 159
State Trade Corp of India Ltd v E D & F Man (Sugar) Ltd [1981] Com LR 235
Themehelp Ltd v West [1995] CLC 703; [1995] 4 All ER 215 (CA)
United Trading Corp SA v Allied Arab Bank LtdUNK [1985] 2 Ll Rep 554n
Letter of credit — Letter of credit required demand to certify that written notice had been given to plaintiff — Defendant made demand certifying that notice had been given when it had not — Whether bank would be restrained from paying on letter of credit.
This was an application by the second defendant, Polyprima, to discharge an injunction restraining the first defendant bank, Midland, from making payment to Polyprima under a standby letter of credit and restraining Polyprima from receiving such payment or making further demand under the letter of credit.
The plaintiff, KJB, entered into an agreement with Polyprima for KJB to supply plant and materials and provide design and engineering services for the construction of a chemical plant in Java, Indonesia. KJB's performance obligations under the contract were to be secured by a performance bond and pursuant to that obligation, KJB procured an irrevocable standby letter of credit with Midland in Polyprima's favour. To obtain payment under the letter of credit Polyprima had to certify that KJB was in default under the contract and that Polyprima had given written notice to KJB in accordance with art. 8.3 of the contract. Polyprima purported to make demand on Midland stating that it had given notice to KJB. The evidence was that Polyprima had not given any written notice, as required by cl. 8.3, but thought that several oral notices in the context of negotiations were sufficient. Polyprima thought its intentions were abundantly clear and believed that the notice requirements had been complied with. KJB obtained and interlocutory injunction which Polyprima applied to discharge.
Held granting an injunction restraining Midland from making payment to Polyprima under the letter of credit pursuant to the certificate and restraining Polyprima from receiving such payment pursuant to the demand but not restraining the service of a further demand:
It was only in exceptional cases that the courts would interfere with the machinery of irrevocable obligations assumed by banks under letters of credit independent of the underlying contracts. Thus the courts would refuse to grant an injunction to restrain a bank from paying in the case of a first demand bond or standby credit, save where there was clear and obvious fraud of which the bank had. The certificate which was included by Polyprima with the sight demand to Midland stated that Polyprima had given KJB the notice required in accordance with art. 8.3 of the agreement. That was manifestly untrue, and must have been known by Polyprima to be untrue. In the wholly exceptional case where a demand under a performance bond or standby credit purported to certify that a written notice had been given as required by the underlying agreement when it plainly had not been given, the court would, in the exercise of its discretion, grant an injunction to restrain the beneficiary from maintaining the demand accompanied by what was in fact a false certificate. It was clearly arguable that the only realistic inference was that the demand was made fraudulently and that it was, in the circumstances, dishonest to maintain the demand.
Cresswell J: This is an application by the second defendants (“Polyprima”) to discharge an injunction granted by Toulson J on 6 January 1998. The injunction granted by Toulson J was in these terms:
“2.…an injunction be granted until trial or further order restraining the first defendant from paying the second defendant the sum of US$6,700,000…or any part thereof pursuant to an irrevocable standby letter of credit…dated 16 March 1995 (as amended on 30 December 1996 and on 31 July 1997) (“the letter of credit”) pursuant to a sight draft...
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