SEA EMERALD SA V PROMINVESTBANK

[2008] EWHC 1979 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Andrew Smith, 11 August 2008

Guarantee – Repayment guarantee issued by bank to purchaser of vessel – Agency – Whether bank had authorised or ratified guarantee – Scope of guarantee – Whether guarantee discharged by variation of underlying contract

The defendant bank provided a guarantee to the claimant buyer in respect of the obligations of a shipyard under a shipbuilding contract dated 9 December 1993. The contract was for the provision of a refrigerated cargo vessel. The guarantee, which was signed by S on behalf of the bank, was a refund guarantee under which the bank guaranteed the repayment to the buyer of any sum owed by the builder under the contract. Disputes between the buyer and the yard arose, and in November 2006 the buyer obtained an arbitration award requiring the repayment of US$17,258,750.6. The shipyard was insolvent and did not pay, and the present action was by the buyer against the bank for the enforcement of the guarantee. The bank argued by way of defence that: S had not been authorised to give the guarantee; even if the guarantee was valid, it had been discharged by reason of a variation in the underlying agreement; and the claimant’s claim for the most part fell outside the scope of the guarantee. The Court held that S had no authority to enter into the guarantee and that the claim would be dismissed: there was no actual authority under the bank’s articles (governed by Ukraine law); there was no specific conferring of authority by the bank; the bank had not ratified the guarantee because it had not been shown that senior officers of the bank were aware of its terms and were content to accept them; and there was no ostensible authority in that it was not usual for persons in S’s position to have authority to issue guarantees and there was no holding out by the bank. If that was wrong, the buyer’s claim under the guarantee would, on the proper construction of the guarantee, have been limited to US$1.3 million. Further, if the buyer’s arguments on construction were correct, the guarantee had been discharged by variations agreed in the shipbuilding contract.