United Trading Corporation S.A. v Allied Arab Bank Ltd (Note)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ACKNER |
| Judgment Date | 17 July 1984 |
| Judgment citation (vLex) | [1984] EWCA Civ J0717-1 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 84/0302 1984-M.-No.2236 |
| Date | 17 July 1984 |
[1984] EWCA Civ J0717-1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM AN ORDER OF MR JUSTICE NEILL
Royal Courts of Justice
Lord Justice Ackner
Lord Justice Slade
Sir John Megaw
84/0302
1984-U.-No.770
1984-M.-No.2236
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MR R.M. YORKE Q.C. and MR G.I. BENNETT, instructed by Messrs Wm. F. Prior & Co., appeared for the Appellants (Plaintiffs) in both appeals.
MR R. WALKER Q.C. and MR J.A. HOOPER, instructed by Messrs Steggles Palmer, appeared for the First Respondent (First Defendant) in the first appeal.
THE SECOND DEFENDANTS in both appeals were not represented.
MR N.A. PHILLIPS Q.C. and MR J.W. HIRST, instructed by Messrs Coward Chance, appeared for the Third and Fourth Respondents (Third and Fourth Defendants) in the first appeal.
MR P.J. CRESSWELL Q.C. and MR I.W. GEERING, instructed by Messrs Durrant Piesse, appeared for the Fifth Respondents (Fifth Defendants) in the first appeal.
MR N. STRAUSS Q.C. and MR S.A. NATHAN, instructed by Messrs Landau & Scanlan, appeared for the First Respondents (First Defendants) in the second appeal.
This is the judgment of the court on two appeals from judgments of Neill J. given in one action respectively on 7th June 1984 and 15th June 1984 and in another action on 18th June 1984.
United Trading Corporation S.A. ("United") is a Luxembourg corporation. It has an English subsidiary called Murray Clayton Ltd. ("Murray Clayton"). A Brazilian company called Safsa Unida Sulamericana De Comercio Internacional Limitada ("Safsa") is a member of the same group.
United and Murray Clayton are the appellants in the first of the two appeals. Murray Clayton and Safsa are the appellants in the second. In this judgment the expression "the plaintiffs" will, according to the context, include all or any of these appellants.
The plaintiffs, among other activities, have carried on trade with Iraq by supplying foodstuffs to the State Establishment for Agricultural Products Trading, Baghdad ("Agromark"), which is controlled by the Iraqi Ministry of Agriculture. The volume of this trade has been substantial. Their evidence is that, since it began in 1979, the trade of United and Murray Clayton with Agromark has consisted of 19 contracts for the supply of eggs, chicken, lamb and beef to a total value of about 950 million U.S. dollars up to the end of 1983.
Agromark has commonly, though more recently not in every case, required the plaintiffs to secure performance of their obligations under a contract of sale by procuring Agromark's bank, Rafidain Bank ("Rafidain"), which is a state bank of Irao, to issue an appropriate performance bond in favour of Agromark. We have been referred to a typical contract of sale (this one dated 24th June 1980) at pases 73 to 78 to our bundle "B".
Clause 8 provides: "SELLER to submit an unconditional Bank Guarantee confirmed by the Iraqi Rafidain Bank at 10% from the total value of the contract and that Guarantee should be valid until the full execution of the Contract with all its conditions, and will not be returned until SELLER had complied with all their commitments towards the Contract."
Clauses 14–16 provide: "14. The BUYER'S Government laws and regulations will be applicable to this Contract. 15. All clauses of the Contract are subject to Force Majeure circumstances. These are external happenings which the SELLER cannot foresee and encounter and this is subject to the Iraqi Commercial Law No. 149 of 1970 and its amendments. 16. In case of disputes between the two parties resulting from the execution of this Contract, the Iraqi Courts will be the designated body to rule the dispute."
It is thus clear that the plaintiffs have agreed with Agromark that in the ordinary way disputes arising from the contracts of sale will fall to be determined by the Iraqi courts and no other court.
We have been told that all the performance bonds procured by the plaintiffs and issued by Rafidain in favour of Agromark pursuant to those contracts have ( mutatis mutandis) taken the same form, namely, that to be found at page 18 of our Bundle "D". It is addressed by Rafidain to Agromark. It contains both an English and an Arabic text. It states in the English text that Rafidain has issued in favour of Agromark "as beneficiaries this letter of guarantee to indemnify you against any damages that you may sustain" up to a stated amount "covering a performance bond" to support a specified contract. It continues: "We undertake to pay you, unconditionally, the said amount on demand, being your claim for damages brought about by the above-named principal." It goes on to provide that the letter of guarantee is personal to the parties and not assignable. It continues: "By this present letter of guarantee we undertake to pay to you any amount or claim not exceeding under any circumstances the above mentioned amount, provided the claim falls within the direct scope of the matter to he indemnified and is irrelevant to any other matter, even if resulting from the subject to be indemnified or relevant thereto, when particular to any other party, whatsoever its origin such as taxes, duties, social security or any other service whatsoever, since this letter of guarantee is in your favour as the sole beneficiaries….." It also provides for the liability of Rafidain to cease if no claim is received by Rafidain by a specified date.
On receipt of the plaintiffs' performance bond Agromark would open an irrevocable letter of credit in their favour with Rafidain and thus the sale could ordinarily proceed to completion.
For the purpose of procuring the requisite performance bond, the plaintiffs did not themselves make the direct approach to Rafidain. They requested their own bankers, Allied Arab Bank Limited ("Allied"), Arab Bank Limited ("Arab Bank") or The Fidelity Bank ("Fidelity") to instruct Rafidain to issue the performance bond. In consideration of Allied, Arab Bank or Fidelity complying with this request, the plaintiffs would give them a written indemnity. A typical indemnity is to be found at page 6 of our bundle "C", by which United agreed to indemnify Arab Bank against all losses etc. which it might incur by reason of giving such instructions and agreed that "any demand made upon you by [Rafidain] for the payment of any sums of money in pursuance of your having instructed them as aforesaid shall be a sufficient authority to you for your making any such payment and it shall not be incumbent upon you to enquire whether any such amount is in fact due". The indemnity also provides that all matters arising out of it shall be construed and determined according to English law.
Rafidain itself always required a counter-indemnity from the bank at whose request it issued the performance bond. One of the standard terms of such counter-indemnity provided (see e.g. page 28 of Bundle B): "In case of implementation, any claim or claims will be paid to us on first demand, despite of any contestation between principals and the beneficiaries."
In the case of some contracts, Allied, on receiving instructions, coupled with an indemnity, from one or other of the plaintiffs, itself instructed Barclays Bank International Limited ("B.B.I.") to procure that Rafidain should issue the requisite performance bond, which B.B.I. did on receiving an appropriate counter-indemnity from Allied. The following contracts fall into this category:
| Date of Contract | Number of ( Allied) Letter of Guarantee | Amount of Performance Bond | Subject-matter |
| 25th June 1980 | 109/80 | U.S. $2,500,000 | 280 million eggs |
| 9th October 1980 | 145/80 | U.S. $550,000 | 60 million eggs |
| 24th June 1980 | 112/80 | U.S. $1,875,000 | 7,500 metric tonnes of lamb (later varied to include an additional 1500 tonnes) |
| 5th August 1980 | 122/80 | U.S. $1,400,000 | 7,500 metric tonnes of frozen chicken |
| 1st November 1980 | 163/81 | U.S. $8,888,886 | 1 billion eggs |
In the case of one contract, European, on receiving instructions coupled with an indemnity from one of the plaintiffs, itself instructed Rafidain to issue the requisite performance bond, which Rafidain did on receiving an appropriate counter-indemnity from European.
| Date of Contract | Number of ( Allied) Letter of Guarantee | Amount of Performance Bond | Subject-matter |
| 19th January 1982 | 033 | U.S. $950,000 | 500 metric tonnes of lamb |
In the case of three contracts Arab Bank, on receiving instructions coupled with an indemnity from one or other of the plaintiffs, itself instructed Rafidain to issue the requisite performance bond, which Rafidain did on receiving an appropriate counter-indemnity from Arab Bank.
| Date of Contract | Number of ( Allied) Letter of Guarantee | Amount of Performance Bond | Subject-matter |
| 2nd May 1981 | 10682/80 | U.S.$4,590,000 | 30,000 metric tonnes of frozen chicken |
| 16th September 1980 | 10726/80 | U.S. $9,864,000 | 36,000 metric tonnes of frozen lamb |
| 2nd May 1981 | 10727/80 | U.S. $2,800,000 | 8,000 metric tonnes of boneless beef (later varied to include an additional 1500 tonnes) |
In the case of one contract Fidelity, on receiving instructions coupled with an indemnity from one or other of the plaintiffs, itself instructed Al Ahli Bank of Kuwait ("the Kuwaiti Bank") to procure that Rafidain should issue the requisite performance bond, which the...
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