Link between Refund Guarantees and Common Law


In an earlier post [October 21, 2008], - Seller had contracted to construct three bulk carriers for the Buyer but failed to deliver the same by its delivery date or within 150 days or by the drop-dead date as stipulated under the shipbuilding contracts. The Buyer recovered monies plus interest from the Refund Guarantor (which has issued refund guarantee to secure instalment payments on behalf of the Seller) in accordance with the provisions of the contracts and further claimed damages at common law.

On appeal from an Arbitration award, the questions before Commercial Court were: (i) Whether Article 10 is a contractual code which excludes all rights of termination in respect of the events that occurred here (“the first issue”); (ii) Whether the exclusion clause in Article 10 of the contract excludes any claim for damages in respect of what has occurred (“the second issue”) and (iii) Whether the termination of the contracts pursuant to and in reliance upon the contractual termination provisions (coupled with the claim in each case made upon [the bank] under the refund guarantee) precludes the buyer from subsequently claiming to have terminated at common law (“the third issue”). (Quoted)

The Commercial Court [2008] EWHC 944 (Comm) had held that Buyer, having affirmed the three contracts and recovered monies plus interest from the Refund Guarantor in accordance with the provisions of the contracts is precluded from claiming damages at common law. This has now been reversed by the Court of Appeal. [2009] EWCA Civ 75

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