Guarantees in Shipbuilding Contract


Guarantees are essential ancillary documents in shipbuilding contract. Two recent cases highlight the importance of careful attention to its legal technicalities and enforceability.

In Sea Emerald SA v. Prominvestbank Joint Stockpoint Commercial Industrial and Investment Bank (a), the bank issued a refund guarantee for payments made to a shipyard under a shipbuilding contract. It was held that the signatory (who was the Head of the Bank’s Regional Branch) had no authority to issue the guarantee.

In CIMC Raffles Offshore (Singapore) Limited and Yantai CIMC Raffles Offshore Limited v Schahin Holding SA (b) the shipyard applied for summary judgment on a guarantee was given by a holding company for the sums due on delivery of two drilling rigs to their buyers.  The Court of Appeal discussed the doctrine in Holme v. Brunskill [1877] 3 QBD 495 and the doctrine in Trade Indemnity Company Limited v. Workington Harbour and Dock Board [1937] AC 1. It also examined the following questions:

What is the purview doctrine?, Do the anti-avoidance provisions of the guarantee, including the provisions for the guarantor’s liability as a primary obligor, exclude the purview doctrine?, If they do not, are the post-guarantee amendments sufficiently fundamental to lie outside the guarantee’s purview?, Can these questions be answered sufficiently confidently, in the absence of reviewing the matrix of the guarantee, to admit of summary disposal?

The Court of Appeal (by a majority decision), allow the guarantor’s appeal and dismiss the builder’s cross-appeal.

Significantly, Sir Bernard Rix noted (at paragraph 65 line 14), that “Prudence would in any event have dictated that the guarantor should have been asked for a new guarantee or for a formal indication of consent”

References:

(a)    [2008] EWHC 1979 (Comm), [2008] 1 Lloyd’s Law Rep Plus 96.

(b)    [2013] EWCA Civ 644

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