Wahda Bank v Arab Bank Plc
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE STAUGHTON,LORD JUSTICE HENRY,LORD JUSTICE PILL |
| Judgment Date | 07 November 1996 |
| Judgment citation (vLex) | [1995] EWCA Civ J1107-4 |
| Docket Number | QBCMI 94/0095/B |
| Court | Court of Appeal (Civil Division) |
| Date | 07 November 1996 |
[1995] EWCA Civ J1107-4
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(COMMERCIAL COURT)
Before: Lord Justice Staughton Lord Justice Henry and Lord Justice Pill
QBCMI 94/0095/B
MR A McGREGOR QC and MR P MARSHALL (Instructed by Gardner Weller, Westminster, London SW1E 6DX) appeared on behalf of the Plaintiff.
MR J JARVIS QC and MR W BLAIR QC and MR D POPE (Instructed by Clifford Chance, London EC1A 4JJ) appeared on behalf of the Defendant.
.
Once again we are asked to determine the applicable law ( lex causae) for a suit before the English courts. The problem arises from the dealings between four parties as long ago as 1978 and 1979.
Murray Clayton Limited ("the sellers") made three contracts for the sale of air defence equipment, as it is described, to the Libyan Armed Services Directorate of Military Procurement ("the buyers"). Perhaps "defence" is something of a euphemism and includes attack, as with our own Ministry of Defence (Contract A).
As is not uncommon in this branch of international trade, each of the contracts provided that the sellers should arrange for a performance guarantee to be issued by the Wahda Bank, the present Plaintiffs. Furthermore, one of the contracts provided that Wahda Bank should issue an advance payment guarantee. The theoretical difference between those different forms of guarantee is that the performance guarantee guarantees performance, and the advance payment guarantee guarantees repayment of an advance payment if it is not earned. However, very often the actual instrument does not meet that description.
Wahda Bank issued performance guarantees and an advance payment guarantee to the buyers (Contract B). The sums involved were enormous, although no doubt the price involved in Contract A was very much larger. The guarantees were for amounts varying from £988K to $3,883K. Arab Bank Plc gave counter-guarantees to Wahda Bank (Contract C).
In the case of the three performance guarantees these were in first demand form. In other words they provided that Arab Bank would pay on Wahda Bank's first demand. The operative word is "demand" and not first: there is no need for Wahda Bank to prove that their demand is justified under English law, whether by breach of Contract A or liability under Contract B or for any other reason; the mere presentation of a demand operates to create liability on the part of a first demand guarantor. It is like a letter of credit: the bank pays against the document and not upon proof of the underlying facts which it asserts. Of course, there is the exception of established fraud in English law. We do not yet know whether that is relied upon.
As I have said, Contract C (the counter-guarantees) were, for the most part, in first demand form. So were all the contracts described as Contract B (the performance guarantees). Therefore they were not really guarantees at all, but performance bonds. The fourth example of Contract C, the counter-guarantee of the advance payment guarantee, was not in demand form, but no one says, so far as I can detect, that that is going to lead to any different result, at any rate at the present stage.
We come to Contract D, by which the sellers undertook to reimburse Arab Bank, who had given the counter-guarantees at the sellers' request in order to persuade Wahda Bank to issue the guarantees. The obligations in Contract D between the sellers and Arab Bank were, in terms, expressed to be subject to English Law. On the other hand, it is agreed that the obligations in Contract B between Wahda Bank and the buyers are governed by Libyan law. Therefore one or other of the banks has contracted to perform under a system of law which is different from that under which it is owed performance by another. The question is, which is the unfortunate bank which has done that? This is now a live and important question. Demands were made under all four guarantees and on all four counter-guarantees, but nothing has yet been paid.
Wahda Bank say that the counter-guarantees (Contract C) are governed by English law and under English Law all they need do is prove a demand on Arab Bank. Once they have shown that they have a right to be paid. Arab Bank say that Contract C (the counter-guarantees) are governed by Libyan law. That, it is said, requires the beneficiary of a performance bond to show not only that he has demanded payment but also that he is entitled to the money. Therefore the buyers would have to prove to Wahda Bank that there had been some defective performance in the supply of the air defence equipment, and Wahda Bank would have to prove the same in claiming against Arab Bank.
Clarke J decided that Libyan law applied to Contract C (the counter-guarantees). Of course it was already agreed that it applied to Contract B, the guarantees themselves. Wahda Bank appealed against the decision of Clarke J. It was, I think, at one time thought that the Rome Convention on the law applicable to contractual obligations was relevant, but that is not said to be the case now, as I understand it.
We must turn to the familiar principles of the common law. Was there an express choice of the proper law of the contract, or an inferred choice or, if not, what was the system of law with which it had its closest and most real connection? There is also another point to follow about sanctions legislation.
I must say that I was at first surprised that this point should be taken between two banks. I had always supposed that if one bank instructed another to issue a performance bond or to confirm a letter of credit then the first bank would reimburse the second bank for anything that had been done under their mandate. Otherwise people might not be prepared to issue performance bonds or to confirm letters of credit in return for a trivial sum by way of commission. We were actually shown the figure for the commission of Wahda Bank for issuing a performance bond in one of these cases. The amount of the bond was USD9,708,138 and the commission was USD161,000, which does not seem very much.
I must refer to some of the documents just to outline the problem a little more fully. First of all there was the request by Arab Bank to Wahda Bank which was, in one case, as follows:
"RE OUR L/ G 10426/78 FOR USDLRS9,708,133.25
ON OUR RESPONSIBILITY AND ON BEHALF OF MURRAY CLAYTON LTD, QUEENS HOUSE, HOLLY ROAD, TWICKENHAM, MIDDLESEX, ENGLAND. PLEASE ISSUE TO THE DIRECTORATE OF MILITARY PROCUREMENT, TRIPOLI LIBYA YOUR ADVANCE PAYMENT BOND IN THE SUM OF USDLRS9,708,138.25 PRECISELY AS UNDER."
There is then quoted the language of the proposed performance bond. This one, in particular, was "….. as a guarantee for the advance payment". It was said that it would be payable "….. upon first demand"
….. NOTWITHSTANDING ANY CONTESTATIONS BY THE SUPPLIER OR BY OURSELVES AND/OR BY ANY OTHER PARTY OF WHATEVER CAPACITY AND DESPITE ANY OBJECTION THEREFORE."
There then was the actual bond which the Wahda Bank issued (Contract B), which was in those very...
To continue reading
Request your trial
-
British Arab Commercial Bank Plc v Bank of Communications
...be governed by the same law as the guarantee: see e.g. Turkiye Is Bankasi A.S. v Bank of China [1993] 1 Ll Rep 132, Phillips J; Wahda Bank v Arab Bank plc [1996] 1 Ll Rep 470 (CA), Staughton LJ (with whom Henry and Pill LJJ agreed). The reasoning flowed from the more general proposition tha......
-
Samcrete Egypt Engineers and Contractors SAE v Land Rover Exports Ltd
...of an express choice of law the parasitic contract will be governed by the same law as the principal contract: see for instance Wahda Bank v Arab Bank PLC [1996] 1 Lloyds Rep 470 and Broken Hill PTY Co Limited v Xenakis [1982] 2 Lloyds Rep 304. 21 In relation to the implied choice said ther......
-
Hawaiki Submarine Cable Lp v Tonga Cable Ltd & Or
...and Compagnie D’Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC 572 (HL) at 603. Wahda Bank v Arab Bank Plc [1996] 1 Lloyd’s Rep 470 At 472. We must turn to the familiar principles of the common law. Was there an express choice of the proper law of the contract, or an......
-
Wahda Bank v Arab Bank Plc [QBD (Comm)]
...undertook to indemnify Wahda against all consequences arising from the issue of the performance bonds. Clarke J and the Court of Appeal ([1996] CLC 408) had held that the proper law of the counter-guarantees was Libyan law. On the first two bonds (in connection with the first supply contrac......