WS Tankship II BV v The Kwangju Bank Ltd and Another
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BLAIR,Mr Justice Blair |
| Judgment Date | 25 November 2011 |
| Neutral Citation | [2011] EWHC 3103 (Comm) |
| Docket Number | Claim No: 2010 Folio 331 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 25 November 2011 |
[2011] EWHC 3103 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Blair
Claim No: 2010 Folio 331
Claim No: 2010 Folio 756
Claim No: 2010 Folio 1520
Mr Stephen Hofmeyr QC and Mr Sean O'Sullivan (instructed by Stephenson Harwood) for the Claimant
Mr Henry Byam-Cook (instructed by Elborne Mitchell LLP) for the First Defendant
Mr Stephen Cogley QC (instructed by DLA Piper UK LLP) for the Second Defendant
These are claims by beneficiaries under what are called refund or advance payment guarantees. The claimants are companies which form part of a Dutch shipping group, and the defendants are the Korean bank and guarantee company which issued the guarantees. The case arises out of contracts for the building of bitumen tankers which the claimants ordered from a yard in Korea (in all orders were placed for eight such vessels). During construction, the claimants paid various advance payments to the builders, and took a number of guarantees issued by the defendants payable in the event that they became entitled to a refund. The contracts were eventually terminated by the claimants, leading to claims for a refund. Payment has been made by the defendants in part only. A considerable number of defences have been advanced, including a contention that the guarantees were restricted to particular advance payments only, whereas the claimants maintain that the guarantees covered all advance payments. The nature of the guarantees is itself in dispute, it being asserted by the defendant (or at least the first defendant) that they are contracts of suretyship, whilst the claimants assert that they are instruments payable on demand. The defendants' counterclaim for the return of the payments they have already made, on the basis (among others) that the payments were made under a mistake of fact or law.
The parties
The claimants in the three actions before the court are three “WS Tankship” companies, each of which was the buyer of a ship pursuant to a newbuilding contract with the builder. Each is a separate subsidiary of the Dutch shipping company, Vroon Group B.V. (I shall refer to them compendiously as “Vroon”). Each of these Tankship companies would, had things gone to plan, have been single purpose ship-owning companies of each of the ships purchased under the contracts.
The first defendant, The Kwangju Bank Ltd (“Kwangju Bank”), is a regional bank operating in South West Korea, and is part of a nationwide banking group, namely the Woori Bank group. Kwangju Bank is concerned only with the first set of proceedings. The second defendant, Seoul Guarantee Insurance Company (“SGIC”), is a company whose business consists (so far as relevant) in the issuance of guarantees, the evidence being that until 2004 this was limited to the domestic context. SGIC is a defendant in all three sets of proceedings.
As well as the parties, I must describe the shipbuilders, who have played a significant part in the trial of the action. At the material time, GEO Marine Engineering & Shipbuilding Co. Ltd. (“GEO”) operated a small shipyard based at Masan in South Korea. As a company, it was a newcomer to the business of shipbuilding.
The trial
There are three sets of proceedings corresponding to the three shipbuilding contracts in respect of which the disputed guarantees were issued (it has been ordered that the actions be heard together). They concern guarantees in respect of (1) the hull identified as GMS-103 against both defendants, (2) the hull identified as GMS-104 against Seoul Guarantee Insurance Company only, and (3) the hull identified as GMS-105 against Seoul Guarantee Insurance Company only.
Most of the relevant evidence came from witnesses of fact. For the claimants, oral evidence was given by Mr Herman Marks, who is the director of Vroon with overall responsibility for the projects. Vroon's other witnesses were Mr Sturle Erichsen of Associated Shipbroking Monaco, who was Vroon's broker for the projects, Ms Alexandra Kranenkamp, an administrator in Vroon's Newbuildings Department, and Mr Nicolaas Spiljard, Vroon's Newbuildings Manager. Reliance was also placed on the witness statement of Ms Lieke Pasquier-Melse, a lawyer from Vroon's legal department, who for practical reasons was unable to give evidence in person. All these witnesses (except for Mr Erichsen) are based in the Netherlands.
Oral evidence was also called by the defendants. Both defendants relied on evidence from the shipbuilders, in the form of Mr Bong Jung Lee, who was the representative director of GEO, and effectively its senior officer, and Mr Yong Mok Ha, the assistant manager who at the relevant time was involved in handling the issue of refund guarantees. Kwangju Bank called Mr Han-Beom Ryu who was the manager of its Baekundong branch during the period at issue. SGIC called Mr Hee Moon Lee who was assistant manager of its Masan branch, Mr Pil Ku Noh who was section chief of the branch until June 2008, and Mr Myeong Jun Doh who was manager of the branch from June 2008. None of these witnesses speaks English with any degree of fluency (I mention this only because the contractual documentation and the guarantees were all in the English language, and an issue at trial has been the extent to which the documentation was fully understood by the defendants at the time).
There is a comparatively small amount of contemporaneous documentary evidence with which to compare the oral evidence. In fact, comparatively little documentary evidence has featured in the trial, though this is due in good part to the focused efforts of the parties to produce and work with a core bundle of trial documents, for which I am grateful.
Vroon's case has been straightforward. It submits that its claim is made on first demand refund guarantees, upon which payment must be made in full according to the terms of the guarantees in question, and without regard to the underlying contractual issues between shipbuilder and buyer. Upon termination of the shipbuilding contracts, a number of instalments were paid by the defendants under the guarantees. But a number were not. Vroon claims:
In the GMS-103 action, the sum of US$3,142,000 (plus interest), being the amount of the 4 th instalment paid under that contract;
In the GMS-104 action, the sum of US$3,142,000 (plus interest), being the amount of the 4 th instalment paid under that contract (against SGIC only); and
In the GMS-105 action, the sum of US$3,112,000 (plus interest), being the amount of the 3 rd instalment paid under that contract (against SGIC only).
As will be seen, a feature of this case is that there was a series of refund guarantees issued in respect of each of the relevant shipbuilding contracts. In this regard, in its opening submissions, Vroon has submitted (and I quote) that as “a matter of logic, C's primary case in each action is that the full amount can be recovered pursuant to the RG which was granted first and that it is not necessary for it to rely upon subsequent RGs. In any event, it is accepted that it cannot recover more than the amount of the instalments paid (plus interest). Each guarantee provides that it will become null and void upon receipt by C of the sum guaranteed, so there is no scope for double recovery”.
The defendants have raised a substantial number of defences, and it is necessary to outline these before consideration of the facts. I have adopted the order in which they are set out in the first defendant Kwangju Bank's submissions, and note that it takes a number of points which SGIC does not argue (or does not actively argue). In summary:
Kwangju Bank argues that the refund guarantee applicable in its case imposed secondary, not primary, liability, in other words that it was a true guarantee rather than an instrument payable on first demand. (Strictly speaking this is a premise upon which various defences are adumbrated rather than a defence in itself.) SGIC's guarantees were in the same terms. It however does not dispute the primary nature of the instruments, but it does adopt the position of Kwangju Bank should I find in favour of the bank on the issue.
On that basis, Kwangju Bank argues that it is not liable on its guarantee because the buyers' termination of the shipbuilding contract in relation to GMS 103 (upon which the return of the advance payments was premised) was premature. This point is taken by Kwangju Bank only (and only arises if it is held that the refund guarantee imposes secondary, not primary, liability).
Both defendants argue that they are discharged from liability on the basis that the buyers and GEO varied the shipbuilding contract in relation to GMS 103 with regard to the timing of the second instalment due under that contract.
Both defendants argue that they are discharged from liability on the basis that the buyers failed to disclose various loans made to GEO by the buyers over the course of the contractual relationship between them.
Kwangju Bank argues that its refund guarantee in relation to GMS-103 is unenforceable because it was not signed within the meaning of the Statute of Frauds (this only arises if it is held that the refund guarantee imposes secondary, not primary, liability, and the point is taken only by Kwangju Bank).
In the event...
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