Vossloh AG v Alpha Trains Ltd
| Jurisdiction | England & Wales |
| Judge | SIR WILLIAM BLACKBURNE,Sir William Blackburne |
| Judgment Date | 05 October 2010 |
| Neutral Citation | [2010] EWHC 2443 (Ch) |
| Docket Number | Case No: HC09C00478 |
| Court | Chancery Division |
| Date | 05 October 2010 |
[2010] EWHC 2443 (Ch)
Before: Sir William Blackburne (Sitting as a Judge of the High Court)
Case No: HC09C00478
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Geraldine Andrews QC and James Willan (instructed by Trowers and Hamlins LLP) for the Claimant
Stephanie Barwise QC and Jennifer Jones (instructed by DLA Piper UK LLP) for the Defendant
Hearing date: 30 June 2010
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.
Sir William Blackburne:
Introduction
These proceedings are concerned with the true construction of an agreement in writing executed as a deed and dated 15 September 2009. It is between the claimant, Vossloh Aktiengesellschaft (“VAG”), and Angel Trains International Limited. The latter has since undergone a change of name to Alpha Trains (UK) Limited (“Alpha”). The agreement describes itself as a “Guarantee”. I shall refer to it as the “2009 Guarantee”. VAG is described in it as the “Guarantor”, and Alpha and its affiliates are collectively referred to as the “Angel Trains Group”. Members from time to time of that group “and their respective agents, assigns, directors, employees, officers, secondees and servants” are each described as a “Beneficiary” with “Beneficiaries” construed accordingly.
The issue which I am asked to decide is the basis on which, under the 2009 Guarantee, VAG can be required to make payment to a Beneficiary.
It is the contention of VAG, which has appeared by Geraldine Andrews QC and James Willan, that its liability under the 2009 Guarantee is triggered upon proof (whether by admission or by decision of a competent court of law) of a breach of contract by any one or more of those entities referred to in it as the “Guaranteed Party”. That expression is defined as meaning two named companies in the Vossloh Group “and each other member from time to time” of that group.
It is the contention of Alpha, which is sued in its own right and as representative defendant on behalf of all the Beneficiaries under the 2009 Guarantee and has appeared by Stephanie Barwise QC and Jennifer Jones, that VAG's liability under it is triggered by a demand alone. By that is meant (as counsel described it in their skeleton argument) that the obligation undertaken by VAG is in the nature of an “on demand performance guarantee” in that it constitutes an unconditional independent promise to pay on demand all amounts demanded.
VAG was prompted to bring these proceedings with a view to determining the basis of its liability under the 2009 Guarantee following the receipt by it of a letter of demand to VAG claiming in excess of €17 million. That letter was replaced by a revised demand dated 22 February 2010 in the sum of €17,267,354. VAG contends that none, or at the most only a small part, of that sum is payable under 2009 Guarantee.
Background
VAG is the parent company of the Vossloh Group of companies which are leaders in the rail infrastructure and technology market. One of its subsidiaries is Vossloh Locomotives GmbH (“VL”) which manufactures and supplies locomotives. It previously had another name.
Alpha, under its former name Angel Trains International Ltd, was a member of the Angel Trains Group which was formerly owned by the Royal Bank of Scotland Group plc (“RBS”). On completion of the sale of the Angel Trains Group by RBS in August 2008, its UK and international operations were separated and now function under separate ownership and separate management. From December 2009 the international businesses began using the Alpha Trains name.
The commercial dealings between the Alpha Group (as it is now called) and the Vossloh Group relevant to these proceedings date back to 2000. On 13 September 2000 a company in the (then) Angel Trains Group entered into a co-operation agreement with VAG to facilitate a mechanism for the sale of locomotives by Vossloh Group companies to Angel Trains Group companies and to create an operations and maintenance services facility for the locomotives. This led to the establishment that same year of two companies owned, albeit in unequal shares, by the two Groups. One of those two companies was called Locomotive Capital Ltd (“LCL”), 10% of whose shares were held by the VAG Group and the remaining 90% by the Angel Trains Group. LCL in its turn had three wholly-owned subsidiaries. One of them, referred to for short as LCUKL, was the purchasing party under a Master Purchase Agreement (the “MPA”) (also known as the “German MPA”) dated 23 April 2001 and made with VL. Another of the subsidiaries was the purchasing party under other purchase agreements including, in particular, two agreements referred to in evidence as the “German Agreements” and another which was referred to as the “2001 Agreement”.
The MPA acted as a framework agreement pursuant to which LCUKL could purchase locomotives from VL from time to time by issuing “Call Off Notices” (“CONs”). The German Agreements and the 2001 Agreement operated in a similar manner.
The other jointly owned company was set up to provide the maintenance and services operation. This company was owned 10% by the Angel Trains Group and the remaining 90% by the Vossloh Group. A representative of the minority shareholder was appointed to the board of each of the two jointly owned companies.
From at least 2002 onwards, locomotives were purchased from VL by various members of the Angel Trains Group, issuing CONs under the MPA. The purchasers included group affiliates in Belgium, Germany, Switzerland and Luxembourg. The same happened under the German Agreements and the 2001 Agreement.
Prior to the sale of the Angel Trains Group in the summer of 2008, RBS, the ultimate parent of the Group, used its own money to finance the purchase of locomotives pursuant to the MPA. The Group purchased locomotives on a speculative basis before any third party customers had committed to acquiring them. Payment was in stages prior to the delivery of the locomotives and before therefore any income could be generated from them. By the end of 2002, the Group was committed to the spending of €95 million on purchasing locomotives from VL.
In around late 2002, RBS, in the light of the level of its financial outlay and exposure, made it a condition of the grant of its approval to any further locomotive purchases from VL that VAG should provide a parent company guarantee of VL's obligations under the MPA. The first such guarantee was entered into on 5 March 2003. It was given in favour of LCUKL alone. This guarantee was replaced by a guarantee dated 15 September 2006 which extended the guarantee to the obligations of a VL affiliate in respect of an order for the purchase of locomotives in Spain. The 2006 guarantee also enabled other companies within the Angel Trains Group to benefit from the guarantee and to make claims under it.
In consequence of the sale and restructuring of the Alpha/Angel Trains Group in the summer of 2008, the 2006 guarantee was replaced on 15 September 2009 by the further guarantee, namely the 2009 Guarantee which is the subject of these proceedings.
Alpha has complained that sixty-three G1206 cargo locomotives supplied to them by VL suffer from various defects in their engines and gearboxes. Fifty-two of the locomotives were supplied under CONs issued pursuant to the MPA. The remaining eleven were supplied under the German Agreements and the 2001 Agreement.
A formal notice of dispute under clause 21 of the MPA was given by Alpha on 12 September 2008. This was followed by a pre-action protocol letter of claim dated 29 January 2010, which also related solely to the locomotives supplied pursuant to the MPA. It claimed losses in excess of €14 million. On the same date, Alpha sent a letter of demand to VAG under the 2009 Guarantee claiming losses in excess of €17 million in respect of all sixty-three locomotives. This, as I have mentioned, was replaced by a revised demand dated 22 February 2010 in the sum of €17,267,354, which again related to all sixty-three locomotives. The bulk of that sum is made up of what Alpha estimates to be costs of repair.
Alpha accepts that it has not yet expended any money on repair, or incurred a liability to pay anything approaching the amount demanded. It also admits that if it is paid the €17 million and expends it, it cannot afford to pay the money back to VAG. Alpha says that it has purchased six new engines for its fleet at a cost of €1.8 million because the bulk of the fleet is undergoing maintenance or repair, and that it has compensated customers in the total sum of €687,554 for poor performance of the locomotives or for their withdrawal from service for longer than anticipated. Those two figures total €2,487,544.
VAG does not accept that Alpha would be successful in recovering either of these heads of damage from VL or VAG even if it were to succeed in proving liability. Proceedings in respect of the fifty-two locomotives supplied pursuant to the MPA have been issued against VL by LCUKL and other members of the Alpha Group in the Technology and Construction Court. Both liability and quantum are in dispute. There will be detailed technical issues (involving expert evidence) on both sides. There has been an order for service of the particulars of claim in those proceedings by 6 August 2010.
The law
Before coming to the 2009 Guarantee I set out my understanding of the relevant law, starting with some general observations. In the summary that follows I have drawn from the section headed “In general” in chapter 44 (on...
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