The plaintiffs had entered into contracts of sale with Egyptian buyers. Each contract provided that the plaintiffs would establish a guarantee confirmed by a bank in favour of the buyers. The guarantees were widely expressed, and secured payment on the buyers’ demand. They were established with Egyptian banks and confirmed by the defendant English bank. The buyers demanded payment under the guarantees. The plaintiffs maintained that there was no justification for the demand for payment, and sought declarations to that effect and injunctions against the defendants from making payment under the guarantees. Interlocutory injunctions were granted ex parte but then discharged on the application of the defendant bank. Kerr J said: ‘If [the threatened payment] is in accordance with the contract, then the plaintiffs have no cause of action against the bank and, as it seems to me, no possible basis for an injunction against it. Alternatively, if the threatened payment is in breach of contract . . then the plaintiffs would have good claims for damages against the bank. In that event the injunctions would be inappropriate, because they interfere with the bank’s obligations to the Egyptian banks, because they might cause greater damage to the bank than the plaintiffs could pay on their undertaking as to damages, and because the plaintiffs would then have an adequate remedy in damages. The balance of convenience would in that event be hopelessly weighted against the plaintiffs.’
He added: ‘Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; those are risks which the merchants take . . The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by courts. Otherwise, trust in international commerce could be irreparably damaged.’
Judges:
Kerr J
Citations:
[1978] 1 QB 146
Cited by:
Approved – 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 . .
Lists of cited by and citing cases may be incomplete.
Banking
Updated: 04 May 2022; Ref: scu.461945
