Sabah Shipyard (Pakistan) Ltd v Government of Pakistan
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 09 November 2007 |
| Neutral Citation | [2007] EWHC 2602 (Comm) |
| Docket Number | Case No: 2001 Folio 1357 and 2006 Folio 449 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 November 2007 |
[2007] EWHC 2602 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Christopher Clarke
Case No: 2001 Folio 1357 and 2006 Folio 449
Mr Stanley Brodie QC & Mr Yash Kulkarni (instructed by Hamilton Downing Quinn) for the Claimant
Mr Timothy Young QC (instructed by Howard Kennedy) for the Defendant
Hearing dates: 19 th and 20 th September 2007
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.
This is an application by Sabah Shipyard (Pakistan) Ltd (“Sabah”) the claimant, against the defendant, the Islamic Republic of Pakistan, (“GOP”) for summary judgment in the sum of US $ 17,374,893.03, together with further interest, under a written guarantee (“the guarantee”) provided by GOP to Sabah on 5 th May 1996 at Islamabad in Pakistan.
The guarantee was provided as part of a series of agreements relating to the design, construction, operation and maintenance of a barge-mounted electric power plant in Karachi (“the Karachi project”). The plant was to use fuel purchased from the Pakistan State Oil Company (“PSOC”) and to supply electricity to the Karachi Electricity Supply Corporation (“KESC”).
The governing contract for the Karachi project was an Implementation Agreement (“the IA”) dated 6 th March 1996. That agreement was made between Sabah and GOP and envisaged that the Karachi project would be carried out under two related agreements:
(i) a Power Purchase Agreement (“PPA”) between Sabah and KESC;
(ii) a Fuel Supply Agreement (“FSA”) between Sabah and, as it turned out, PSOC.
The PPA was entered into on 7 th March 1996 and the FSA was entered into on 25 th March 1996.
The provisions of the IA
By Article IV of the IA Sabah was to implement the Karachi project in accordance with, inter alia, the PPA and the FSA. By Article VI Sabah was to purchase or lease a suitable site for the project.
In order to carry out the Karachi project Sabah needed finance in the form of equity and loans. GOP was concerned to know that such finance would be available. Accordingly Article XIX of the IA provided that, if Sabah failed to achieve “Financial Closing” by 28 th March 1996, that would constitute an Event of Default giving rise to a right of termination on the part of GOP, provided however that no such event should be an Event of Default by Sabah if it resulted from a breach by GOP of the IA or by KESC of the PPA or by PSOC of the FSA. Article XX provided that, in the event of such a termination, GOP should be entitled to encash the Performance Guarantee (as to which see paragraph 35 below).
Failure to achieve Financial Closing by 28 th March was also a “Company Event of Default” under the PPA
Article 1 of the IA set out a number of definitions including the following:
(i) “Company” means [Sabah] …
(ii) “Complex” means the approximately 288MW …barge mounted power station to be owned and berthed by the Company….”
(iii) “Financial Closing” means the execution and delivery of one or more agreements constituting all or a portion of the Financing Documents that together with the equity commitments of the Initial Shareholders evidence the financing necessary for the construction, testing and completion of the Complex …provided that the receipt of commitments for such equity shall not be less than as is required by the Company in order to satisfy the requirements of the Lenders and the Letter of Support.” (Article 1.34)
(iv) “Financing Documents” means the loan agreements, notes, indentures, security agreements, guarantees and other documents relating to the construction and permanent financing (including refinancing) of the Complex or any part thereof, which shall include the Marubeni Commitment.” (Article 1.35)
(v) “Fuel Supply Agreement” means the agreement between the Fuel Supplier and the Company for the supply of Fuel to be used by the Complex to generate electricity, as amended from time to time.” (Article 1.41)
(vi) “Initial Shareholders” means the shareholders of [Sabah] that caused the incorporation of [Sabah}, including Sabah Shipyard SDN.BHD.” (Article 1.49)
(vii) ““Lenders” means the lenders party to the Financing Documents together with their respective successors and assigns.” (Article 1.57)
(viii) ““Power Purchase Agreement” means the agreement dated 1996, entered into between KESC and the Company for the purchase and sale of electric power generated by the Complex, as amended from time to time, on financial terms acceptable to GOP.” (Article 1.79)
Sabah had been incorporated in Pakistan for the purposes of the Karachi project. Its shareholders were, in equal proportions:
(i) Sabah Shipyard, Sdn.Bhd, a Malaysian company (“Sabah
Malaysia”);
(ii) Westmont Industries Berhad (“Westmont Industries”), Sabah's
parent company;
(iii) Marubeni Corporation (“Marubeni”); and
(iv) Marubeni-Westmont (“M-W”), a Singaporean company.
Until late 1996 or early 1997 Sabah was under the control of Dato Joseph Chong Ah (“Mr Chong”), a Malaysian businessman, whose business empire was run through the Westmont Group of companies, whose ultimate holding company was Westmont Holdings Sdn Bhd (“Westmont Holdings”), of which Mr Chong and his wife appeared to own 49%. Mr Chong was until 26 th November 1996 Managing Director of Westmont Industries and a director until March 2000. He was Managing Director of Sabah Malaysia until 16 th October 1996. He appears also to have been a director of Wing Tiek Holdings Bhd (“Wing Tiek”) between, at least, August 1994 and December 1995 during which period Westmont Holdings controlled nearly 33% of Wing Tiek.
Article XX1 of the IA provided that the IA was to be governed by the laws of England.
Article XXII provided that:
“The GOP shall, at Financial Closing, execute and deliver to [Sabah] the Guarantee, as per Schedule 3”.
The PPA between Sabah and KESC provided for any dispute to be settled by arbitration in accordance with the Rules of Procedure for Arbitration Proceedings (the “ICSID Rules”) of the International Centre for the Settlement of Investment Disputes established by the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States. But it also provided that unless and until the GOP implemented the Convention any dispute should be settled by ICC arbitration. By Article XXI of the IA GOP approved KESC's consent in the PPA to arbitration under the ICSID Rules.
The guarantee sued on is a guarantee of the obligations of KESC and FSA under the PPA and the FSC. I shall consider its specific provisions later in this judgment.
KESC draws on the Letter of Credit established by Sabah pursuant to the PPA
During the course of the Karachi project KESC drew on a standby letter of credit (“the BOA letter of credit”) in the sum of $ 6.84 million which Sabah had established through the Bank of America (“the BOA”) as required by clause 9.4 (f)(i) (A) and (B) of the PPA for amounts which were disputed by Sabah. Sabah claimed that this was a breach of Article 9.4 (f) (i) (C) of the PPA, which provided that, if Sabah was required to pay liquidated damages to KESC and failed to pay them when due, KESC would be entitled to draw or collect such amounts “less any amounts disputed by [Sabah]” from the letter of credit on presentation of a certificate from KESC stating (i) that amounts shown in an accompanying invoice were due and payable, and (ii) that an invoice for the amount in question had been delivered to Sabah and either no amounts had been disputed or only an identified portion.
Sabah claimed that KESC was in breach of that Article because it had claimed for amounts that were disputed (and not due) and had wrongfully provided a certificate to the BOA which did not disclose that the amounts claimed in KESC's invoices was disputed.
The Tompkins Award
On 8 th December 2000, following arbitration between Sabah and KESC, to which GOP was not a party, the Honourable Sir David Tompkins QC, a former member of the New Zealand Court of Appeal, who was the sole arbitrator, issued an Interim Award, which he confirmed in a Final Award (“the Tompkins Award”) on 4 th June 2001. He determined that KESC was not entitled to draw against the letter of credit and ordered KESC to repay to Sabah $ 6.84 million being the total amount drawn down, together with interest at the rate of 11.75% compounded semi-annually, and costs. It is that sum for which Sabah seeks judgment.
On 27 th June 2001 Sabah made a demand on KESC to honour the Award. KESC failed to do so and on 25 th March 2004 Sabah was given permission by Creswell J to enforce the Tompkins Award in the same manner as a judgment. A later application by KESC to set aside the order was adjourned, conditional on the provision of $ 10 million by way of security which was never paid.
Attempts to enforce the guarantee – the first action
On 8 th June 2001 Sabah wrote to KESC on the strength of the Interim Award demanding payment of the sum of $ 8,462,712.41 under the guarantee. On 3 rd September 2001 Sabah made a second demand of GOP under the guarantee on the strength of the Final Award. Thereafter Sabah has been engaged in so far fruitless attempts to obtain payment under the guarantee. On 12 th December 2001 it issued proceedings (“the first action”) against KESC and GOP seeking payment of the Tompkins Award.
GOP's anti-suit injunction
On 11 th December 2001 David Steel J had made an e...
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