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

Comments

Post a Comment

Popular posts from this blog

Letter of Intent

Updated 12 April 2022 A letter of intent (LOI), also called term sheet, expression or indication of interest in the commercial sectors is an informal offer or recap of the parties’ position on how they would proceed on a business proposal or venture. In the shipbuilding and offshore industry, where discussions on technical, commercial and legal matters leading up to a formal contract are complex and lengthy, letters of intent (LOIs) will often be used as prelude to the formation of a formal contract. Thus, LOIs will be used:   ·        Where the scope of work has been identified, but there are still outstanding items like selection of main engine suppliers, financing, guarantees, and board approvals that need to be finalised.   ·        At other times, LOI may be signed on condition that the parties will enter into a shipbuilding contract after the buyer’s bid for a shipbuilding project is successful, or where the parties intend to bid for a project jointly. (The intent of such
Read more

Shipbuilding Guarantees: Anti-Discharge Provisions and the Purview Doctrine

Image
  In shipbuilding contracts there will inevitably be variations to the specification, plans, drawings, delivery date, and the contract price.   Whether such variations can discharge the guarantor’s obligation under related payment or refund guarantees will depend on whether such guarantees are a traditional or a demand guarantee. With regard to traditional guarantee, it was held in Holme v Brunskill   [1] , that any material variation of the underlying contract without the surety’s consent will discharge the surety from liability under the guarantee, except where it is self-evident that the alteration is insubstantial or beneficial to the surety. This is also because the liability of the debtor and surety under a traditional guarantee are co-extensive. In contrast, the rule will not apply to a demand guarantee, which is payable without proof or condition, independent of the underlying contract and can simply be activated by a demand made on the bank. To circumvent the rule in Holme v
Read more

Letter of intent revisit

A letter of intent (LOI), also called a term sheet, expression, or indication of interest in the commercial sectors is an informal offer or recap of the parties’ position on how they would proceed on a business proposal or venture. In the shipbuilding and offshore industry, where discussions on technical, commercial, and legal matters leading up to a formal contract are complex and lengthy, letters of intent (LOIs) will often be used as the prelude to the formation of a formal contract. Thus, LOIs will be used:   ·         Where the scope of work has been identified, but there are still outstanding items like the selection of main engine suppliers, financing, guarantees, and board approvals that need to be finalized.   ·         At other times, LOI may be signed on condition that the parties will enter into a shipbuilding contract after the buyer’s bid for a shipbuilding project is successful, or where the parties intend to bid for a project jointly. (The intent of such LOIs is to secu
Read more