The case of Spliethoff's Bevrachtingskantoor BV v Bank of China Ltd (2015) concerned two refund guarantees for two hulls (38 and 39) built for Spliethoff's Bevrachtingskantoor BV (SBV), the Claimant. The refund guarantees were provided by the Bank of China (BOC). As the vessels were not delivered on time, SBV claimed the repayment of instalments from the shipyard. SBV claimed payment from BOC under the guarantees after obtaining arbitration awards to that effect.
In parallel, the shipyard brought proceedings against SBV, in China, claiming SBV had been fraudulent in assisting engine manufacturers to supply second hand engines to the vessel. The Chinese Court upheld the claim of fraud, and issued orders requiring SBV to provide a guarantee in the Chinese Court, and preventing any payment out under the BOC guarantees.
Consideration of the Guarantees
The guarantees were found to be on terms consistent with "on demand" guarantees, as considered in a number of recent cases1. This was despite the inclusion of a proviso to the effect that where arbitration was commenced, payment needed to be made only in accordance with the terms of any award obtained by SBV.
BOC's main arguments on the issue of the guarantees were that:
(a) the arbitration award in the hull 39 reference was not an award for the purposes of the guarantee which triggered an obligation on the part of BOC to pay under the hull 39 guarantee; and
(b) on the basis that the guarantees were true guarantees, or sureties, they were discharged by the findings of fraud against SBV in China
As to argument (a), the Court held that any demand by SBV was valid, regardless of any arbitration award ordering the instalments to be repaid. The demand was independent of any dispute between SBV and the shipyard, and the disputes served only to defer payment under the guarantee. They did not affect the validity of the demand itself. The Court therefore held that once the arbitration award ordered the instalments to be repaid, and the shipyard failed to repay those instalments, BOC was obliged to pay under the guarantee.
In light of the Court's decision that the guarantees were performance bonds, argument (b) fell away. However, the Judge did go on to consider the situation had the guarantees been sureties in light of the wording, which stated that "our obligations shall not be affected or prejudiced by any dispute between you as the Buyer and the Seller". The Court held that this would include any finding of fraud against SBV. In particular, the Judge held that the word "dispute" was sufficiently wide to cover a situation where a judgment had been handed down following a dispute. There was, therefore, no need for a matter still to be contentious in order to count as a dispute.
Orders Against BOC in China
The Court also considered the orders against BOC in China. The Court held that the orders against BOC, preventing any payment out under the guarantees, were still current, based on expert evidence. The Court then considered whether those orders should be recognised by the English Courts, despite being obtained in breach of the law and jurisdiction clause of the relevant contracts. The Court considered the fact that SBV had opposed jurisdiction of the Chinese Court to the full extent possible, but that when the Chinese Court ruled against it, and assumed jurisdiction, SBV took full part in defending the claims in China. The Court held that where a party takes full part in foreign proceedings; that party is held to have submitted to that jurisdiction, and loses its shield against recognition of the foreign judgment.
Despite the enforcement of the Chinese Court Orders, the Court declined to order a stay of enforcement of the guarantees. The Judge held that when considering an English law contract, such as the refund guarantees, English law regards illegality by the place of the performing party's domicile or place of business as irrelevant. The Judge, therefore, ordered judgment for SBV in the full amount of the guarantees claimed.
1 Such as Wuhan Guoyo Logistics Group Co Ltd v Emporiki Bank of Greece SA  EWCA civ 1629 and Meritz Fire and Marine Insurance Co Ltd v Jan Denul NV  2 Lloyd's Rep 379
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