Rainy Sky SA and Others v Kookmin Bank

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeSir Simon Tuckey,Patten L JJ,Thorpe
Judgment Date27 May 2010
Neutral Citation[2010] EWCA Civ 582
Docket NumberCase No: A3/2009/2470

[2010] EWCA Civ 582

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM COMMERCIAL COURT

Mr Justice Simon

Before: Lord Justice Thorpe Lord Justice Patten

and

Sir Simon Tuckey

Case No: A3/2009/2470

Between
Kookmin Bank
Appellant (Defendant)
and
(1) Rainy Sky S.A.
(2) Seiland Shipping & Trading Co.
(3) Islay Navigation Inc.
(4) Seapride Navigation Corp.
(5) Seabrize Ltd.
(6) Recif Corp.
(7) Metrobulk Holdings S.A.
Respondent (Claimants)

Guy PHILIPPS Q.C. & James CUTRESS (instructed by Linklaters LLP) for the Appellant Andrew BAKER Q.C. & Socrates PAPADOPOULOS (instructed by Ince & Co.) for the Respondents

Hearing dates: 29 April 2010

SIR SIMON TUCKEY

SIR SIMON TUCKEY:

Introduction

1

This is an appeal from an order made by Simon J. in the Commercial Court in which he gave summary judgment for the Seventh Claimant against the Defendant Korean bank (“the Bank”) for a total of US$46,652,000 plus interest under the terms of six materially identical on demand advance payment bonds or guarantees issued by the Bank.

2

The bonds were issued by the Bank to secure certain obligations assumed by its Korean customer, Jinse Shipbuilding Co Ltd (“the Builder”), under six materially identical shipbuilding contracts made with the First to Sixth Claimants as buyers. The Seventh Claimant is the assignee of those Claimants’ rights under their respective bonds.

3

Each shipbuilding contract entitled the claimant (“the Buyer”) to require the Builder to refund the full amount of all advance payments made in the event of the Builder's insolvency or the like. The issue for the judge was whether this obligation was covered by the bonds. The judge held that it was. The Bank says it was not and the judge has given the Bank permission to appeal on this point.

4

The Bank had also argued that its obligations under the bond had not been triggered by the demands which were made. The judge rejected this argument and refused permission to appeal on this point. It has not been pursued before this Court.

The bonds

5

Each bond is in the form of a letter from the Bank to the Buyer and is dated 22 August 2007. I set out the relevant paragraphs which I have numbered in the same way as the judge did. It says:

ADVANCE PAYMENT BOND

“(1) We refer to the shipbuilding contract dated 11 May 2007 (as amended, varied or novated from time to time, the “Contract”) entered into between Jinse Shipbuilding Co., Ltd of … Pusan, Korea (the “Builder”) and yourselves for the construction and delivery of a new-built ….”Vessel” to be delivered before …. Other terms and expressions used in this Bond shall have the same meaning as in the Contract, a copy of which has been provided to us.

(2) Pursuant to the terms of the Contract, you are entitled, upon your rejection of the Vessel in accordance with the terms of the Contract, your termination, cancellation or rescission of the Contract or upon a Total Loss of the Vessel, to repayment of the pre-delivery instalments of the Contract Price paid by you prior to such termination or a Total Loss of the Vessel (as the case may be) and the value of the Buyer's Supplies delivered to the Shipyard (if any), together with interest thereon at the rate of seven per cent (7%) per annum (or ten per cent (10%) per annum in the case of a Total Loss of the Vessel) from the respective dates of payment by you of such instalments to the date of remittance by telegraphic transfer of such refund.

(3) In consideration of your agreement to make the pre-delivery instalments under the Contract and for other good and valuable consideration (the receipt and adequacy of which is hereby acknowledged), we hereby, as primary obligor, irrevocably and unconditionally undertake to pay to you, your successors and assigns, on your first written demand, all such sums due to you under the Contract (or such sums which would have been due to you but for any irregularity, illegality, invalidity or unenforceability in whole or in part of the Contract) PROVIDED THAT the total amount recoverable by you under this Bond shall not exceed US$[26,640,000] (United States Dollars Twenty Six Million, Six Hundred and Forty Thousand only) plus interest thereon at a rate of seven per cent (7%) per annum (or ten per cent (10%) per annum in the event of a Total Loss of the Vessel) from the respective dates of payment by you of such instalments to the date of remittance by telegraphic transfer of such refund.

(4) Payment by us under this Bond shall be made without any deduction or withholding and promptly upon receipt by us of a written demand (substantially in the form attached) signed by two of your directors stating that the Builder has failed to fulfil the terms and conditions of the Contract and as a result of such failure, the amount claimed is due to you and specifying in what respects the Builder has so failed and the amount clamed. Such claim and statement shall be accepted by us as evidence for the purposes of this Bond alone that the amount claimed is due to you under this Bond.”

Other terms followed which included an English law and Commercial Court exclusive jurisdiction clause.

The shipbuilding contracts

6

Each shipbuilding contract is dated 22 May 2007 and was for the construction of a specified vessel for a price of US$33,300,000. Article X. 2(a) of the contract required 20% of the price (US$6,660,000) to be paid within three days of signing the contract. The remainder of the contract price was to be paid by three further 20% pre-delivery instalments at various stages during the construction of the Vessel and a final payment on delivery.

7

But Article X.8 made provision for what is described as a “Refund Guarantee”, a condition precedent to such payments. This paragraph said:

“8 REFUND GURARANTEE

The Builder shall as a condition precedent to payment by the Buyer of the first instalment deliver to the Buyer an assignable letter of guarantee issued by a first class Korean bank …. to Buyer's Financiers for the refund of the first instalment, and at the same time, together with the letter of guarantee related to the first instalment Builder shall also deliver to the Buyer an assignable letter of guarantee issued by a first class Korean bank …. for the refund of the respective instalments following the way of the payments stipulated in this Article. The refund guarantees by the Builder to the Buyer shall be indicated pre-delivery instalments plus interest as aforesaid to the Buyer under or pursuant to paragraph 5 above in the form annexed hereto as Exhibit A which is yet to be agreed.”

No form of guarantee was in fact annexed to the Contract.

8

Article X. 5 says:

“5 REFUND BY THE BUILDER

The payments made by the Buyer to the Builder prior to the delivery of the Vessel shall constitute advances to the Builder. If the Vessel is rejected by the Buyer in accordance with the terms of this Contract, or if the Buyer terminates, cancels or rescinds this Contract pursuant to any of the provisions of this Contract specifically permitting the Buyer to do so, the Builder shall forthwith refund to the Buyer in US dollars, the full amount of total sums paid by the Buyer to the Builder in advance of delivery together with interest thereon as herein provided within thirty (30) banking days of acceptance of rejection.

If the Builder is required to refund to the Buyer the instalments paid by the Buyer to the Builder as provided in this paragraph, the Builder shall return to the Buyer all of the Buyer's Supplies as stipulated in Article XIII which were not incorporated into the Vessel and pay to the Buyer an amount equal to the cost to the Buyer of those Buyer's Supplies incorporated into the Vessel.”

9

Article X. 6 says:

“6 TOTAL LOSS

If there is a Total Loss or a constructive Total Loss of the Vessel prior to delivery thereof, the Builder shall proceed according to the mutual agreement of the parties hereto either:

(a)to build another vessel in place of the Vessel so lost. … or

(b)to refund to the Buyer the full amount of the total sums paid by the Buyer to the Builder under the provisions of paragraph 2 of this Article and the value of Buyer's Supplies delivered to the Shipyard, if any, together with interest thereon at the rate of ten percent (10%) per annum …”

10

Article XII is headed “BUILDER'S DEFAULT”. Paragraph 3 of this Article says:

3. If the Builder shall apply for or consent to the appointment of a receiver, trustee or liquidator, shall be adjudicated insolvent, shall apply to the courts for protection from its creditors, file a voluntary petition in bankruptcy or take advantage of any insolvency law, or any action shall be taken by the Builder having an effect similar to any of the foregoing or the equivalent thereof in any jurisdiction, the Buyer may by notice in writing to the Builder require the Builder to refund immediately to the Buyer the full amount of all sums paid by the Buyer to the Builder on account of the Vessel and interest thereon at seven percent (7%) per annum on the amount to be refunded to the Builder, computed from the respective date such sums were paid by the Buyer to the date of remittance of the refundable amount to the Buyer and immediately upon receipt of such notice the Builder shall refund such amount to the Buyer. Following such refund the Builder may, but shall not be obliged to, by notice in writing to the Buyer given within ten (10) business days terminate this contract. If the Builder does not so terminate the Contract the Buyer's obligation to pay further instalments prior to delivery of the Vessel under Article X paragraphs 2(a),(b),(c) and (d)...

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