A letter was written by the Mongolian Ministry of Finance guaranteeing payment for textile plant and machinery to be supplied to a Mongolian company. A letter from the justice minister confirmed the authority of the finance minister to sign the letter. The quality of the machinery came to be disputed, and the deal was refinanced. The supplier sought payment saying the letter created a performance bond. The court had decided that as a guarantee, the letter imposed only secondary liability, and was not a bond.
Held: The appeal failed. As a guarantee only, secondary not primary responsibility would fall on the defendant, and it would be discharged by the variation. The words were not clear enough to constitute a performance bond. Cases which discussed these issues within a banking context may not be directly applicable outside that context. Had the contractor expected a performance bond he would have insisted on rather clearer words. The presumption against the creation of a performance bond without clear wording applied.
Judges:
Waller,CarnwathLJJ, Sir Martin Nourse
Citations:
[2005] EWCA Civ 395, Times 20-Apr-2005, [2005] 1 WLR 2497
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Holme v Brunskill CA 1877
The plaintiff had let his farm in Cumberland to a tenant farmer, along with a flock of sheep. When let, the farm extended to 234 acres and there were 700 sheep. The surety guaranteed the tenant’s obligation to re-deliver the flock of sheep in good . .
Appeal from – Marubeni Hong Kong and South China Ltd v Mongolian Government ComC 12-Mar-2004
The court dismissed a claim for money owed by the Mongolian government based upon a letter of guarantee issued by the ministry of finance.
Held: The English court would not seek to adjudicate upon the cabinet meetings of friendly powers. . .
Cited – Gold Coast Ltd v Caja De Ahorros Del Mediterraneo and others CA 6-Dec-2001
The banks appealed findings as to their liability to pay out under on-demand guarantees they had given in respect of stage payments for the construction of a ship. It was claimed that the delivery times had not been met, and the builder was in . .
Cited – Esal Commodities v Oriental Credit Ltd CA 1985
The parties disputed whether a letter was a performance bond or a guarantee. The words of the instrument were: ‘We undertake to pay the said amount on your written demand in the event that the supplier fails to execute the contract in perfect . .
Cited – Siporex Trade SA v Banque Indosuez 1986
An instrument was issued by a bank under an obligation in an international trade agreement to provide a performance bond. The instrument was described in correspondence between the parties and the bank as a performance bond.
Held: ‘There is in . .
Cited – IE Contractors v Lloyd’s Bank CA 1990
Documents were issued by a bank and described as ‘performance bonds’ for damages up to specified amounts. The difficulty arose from the unusual form and language of the documents. The wording of the operative clause: ‘We undertake to pay you, . .
Cited – Lep Air Services v Rolloswin Investments Ltd; Moschi v LEP Air Services HL 1973
The obligation of a guarantor under a contract ‘is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something.’ When a repudiatory breach is accepted by the injured . .
Cited – Intraco Limited v Notis Shipping Corporation CA 1981
‘Demand bonds’ are a specialised form of irrevocable instrument, developed by the banking world for its commercial customers. They have been accepted by the courts as the equivalent of irrevocable letters of credit, and have been described as part . .
Cited – Edward Owen Engineering Ltd v Barclays Bank International Ltd CA 1978
Performance guarantees are effectively obligations to pay on demand within the terms of the guarantee, irrespective of the rights and wrongs of any dispute between beneficiary and principal under the terms of their separate contract, subject only to . .
Cited by:
Cited – Van Der Merwe and Another v IIG Capital Llc ChD 13-Nov-2007
The parties had entered into a debt factoring agreement, under which repayment was sought of some $30m, and the claimants were said to have guaranteed the loan by the factor to their company. The court was asked whether the guarantors had the same . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 29 June 2022; Ref: scu.224254