Shapoorji Pallonji & Company Private Ltd (a company incorporated under the laws of India) v Yumn Ltd (a company incorporated under the laws of Rwanda)
| Jurisdiction | England & Wales |
| Judge | Pelling QC |
| Judgment Date | 06 April 2021 |
| Neutral Citation | [2021] EWHC 862 (Comm) |
| Date | 06 April 2021 |
| Docket Number | No. CL-2021-000194/CL-2021-000189 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 862 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT
Commercial Court
7 Rolls Building
Fetter Lane
London
EC4A 1NL
HIS HONOUR JUDGE Pelling QC
(Sitting as a Judge of the High Court)
No. CL-2021-000194/CL-2021-000189
and
Mr T. Sprange QC (instructed by King & Spalding International LLP) appeared on behalf of the Claimant.
Mr S. Hale (instructed by Fladgate LLP) appeared on behalf of the Defendant.
Mr Choo appeared on behalf of the Third Party Bank.
DRAFT
This is the hearing of two applications being:
(a) An application in an arbitration claim issued in the Commercial Court on 29 March 2021 between Shapoorji Pallonji and Company Private Limited (SPC) as claimant and Yumn Limited (YL) as defendant for orders
(i) Requiring YL to withdraw its 23 March 2021 demand to Standard Chartered Bank (Bank) for immediate payment of $32.2m, under a first demand bond dated 12 January 2017 issued by bank to YL as beneficiary (the Bond); and
(ii) restraining YL from making any further demands under Bond pending any final order of an ICC Emergency Arbitrator
(“CC application”); and
(b) An application by YL in proceedings issued in the TCC on 31 March 2021 between YL as claimant and the Bank as defendant for an interim order requiring the Bank to pay the sum of $32.2m to YL as beneficiary under the Bond (“TCC application””).
Since these applications were issued, there have been a number of developments which have changed the issues that arise on this hearing. First, the TCC application was heard initially on a without notice basis by Fraser J on 31 March 2021. He was aware that the CC application was to be heard on an urgent basis on 2 April 2021 and, in consequence, directed that the TCC proceedings be transferred to the Commercial Court and that the application by YL against the Bank be heard at the same time and by the same judge who would hear the Commercial Court proceedings. Secondly, the Bank has accepted that YL has made a formally valid demand under the Bond and has agreed to be bound by whatever order I make on this application. SPC does not contend that the demand is formally invalid. It follows that the TCC application can be placed to one side. The real issues between the parties are those that arise on the CC application between YL and SPC.
The other point that I need to refer to at the outset concerns a fundamental difference of law between YL and SPC. SPC contends that I should grant the orders sought in effect without regard to any of the well-established principles relating to the approach an English court takes to attempts to prevent a beneficiary from recovering what is due on an on demand bond, or a similar instrument, on the basis that the substantive agreement between YL and SPC contains an arbitration agreement, that the dispute between the parties as to whether YL is entitled to make a demand under the Bond is one that must be determined under the arbitration agreement and that the question whether YL should be restrained from claiming payment under the Bond should be determined by an emergency arbitrator appointed under the ICC rules, being the institutional arbitration rules the parties have agreed will apply to any arbitration between them. SPC submits that such an arbitrator will apply different and significantly laxer principles than those that are applied by the English courts and that I should therefore grant an interim order that in effect precludes YL from claiming sums due under the Bond until an emergency arbitrator can determine SPC's claim for the relief set out in substantially the terms sought in the CC application..
It was suggested at one stage by Mr Sprange QC, on behalf of SPC, that I should make an order in the terms set out in paragraph 42 of SPC's application to the emergency arbitrator, being as follows:
“42.1 … a provisional order that:
42.1.1 the operation of the Demand be suspended until the Emergency Arbitrator has issued his or her final order on the emergency measures sought; and
42.1.2 the Project Company refrain from calling the Bond until the Emergency Arbitrator has issued his or her final order on the emergency measures sought.”
That cannot be right because (a), no claim or application is made by SPC against the Bank as would be required if an order in the terms of para 42.1.1 or a variant of it was to be made and (b) YL has done all that it is required to do to obtain payment under the terms of bond and thus an order in the terms of 42.1.2 would serve no useful purpose. I suggested to Mr Sprange that, in these circumstances, his application would have to be for an order freezing the proceeds of the Bond in the hands of YL. He did not accept that analysis and, in any event, on the evidence available, SPC cannot satisfy the test that would apply to an application for such an order. In the end, Mr Sprange maintained his applications for the orders sought in the CC application, summarised above but over until any application can be heard by an emergency arbitrator.
Mr Hale on behalf of YL submits that this is all heretical and wrong, that the principles that apply to attempts to preclude a beneficiary seeking to enforce an on demand bond are well-established, based on sound principles of public policy, and apply to an application to an English Court by a party in the position of SPC to restrain either a guarantor bank or a beneficiary from giving effect to such a bond in accordance with its terms, irrespective of whether there is an arbitration agreement between the parties.
Finally, before turning to the facts and law, I record that, for reasons that are entirely unclear, SPC purported to join the Bank as a “ Third Party” to the CC proceedings. This is procedurally wrong. The CC claim is an arbitration claim. The bond is an autonomous contract between YL as beneficiary, and the Bank. It is expressly made subject to English law and critically it is subject to an exclusive jurisdiction clause in favour of courts of England and Wales. There is no arbitration agreement between the Bank and SPC whether relating to the Bond or otherwise. Had SPC wished to seek an injunction that restrained the bank from paying what is due under the Bond, it should have done so under s.37 Senior Courts Act 1981. As I see it as present, there should be an order striking out the arbitration claim to the extent it purports to be bought against the bank but I will hear further form counsel on this issue after delivery of this judgment.
I now turn to the relevant background facts. The underlying contracts are three in number and each concern the design, engineering, construction, commissioning and testing by SPC of a power plant being constructed in Rwanda, which YL will own or operate following completion. The Shapoorji group was required to provide their services under a supply agreement between YL and Shapoorji Limited, a construction contract between YL and SPC and an umbrella agreement between YL, Shapoorji Limited and SPC. Each of these Agreements was made simultaneously on 29 December 2016. The Governing law of each agreement is English law and as I noted earlier, each is subject to an arbitration agreement in substantially the same terms. Each provides for arbitration in accordance with ICC rules and makes Singapore the seat of the arbitration.
Security is provided for by clause 15 of the umbrella agreement. By that agreement, as a condition precedent to being entitled to any payments under the contracts, the Shapoorji parties were required to provide a bond in the form set out in schedule 1 of the umbrella agreement, in the amount of 15 per cent of the aggregate contract price, which was USD$32.2million. The Bond, underwritten by the Bank, was provided pursuant to this obligation. The Bond was originally due to expire on 10 January 2020, but was extended ultimately until 30 June 2021. A factor to be borne in mind is that if YL is forced to withdraw its demand, as SPC seek on this application, it may be precluded from making another one before the Bond expires.
By clause 2 of the Bond, the Bank undertook unconditionally and irrevocably to pay YL no later than two business days after the business day on which it received a written demand from the beneficiary. Any demand had to be in the form set out at annex 2 of the Bond. As I have said, it is common ground that YL's demand satisfies these requirements.
By clause 12 of the Bond, the Bond and all non-contractual obligations arising from or connected with it are governed by English law and, by clause 13, it was provided that the courts of England and Wales would have exclusive jurisdiction to determine any disputes arising from or...
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