WUHAN GUOYU LOGISTICS GROUP CO LTD AND ANOTHER V EMPORIKI BANK OF GREECE SA

[2012] EWHC 1715 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Christopher Clarke, 22 June 2012

Guarantee - Demand bond - Shipbuilding contracts - Banks - Whether a payment guarantee is a guarantee or a demand bond

Wuhan and Yangzhou (seller) jointly operated a shipyard in China and concluded shipbuilding contracts with Kantara and Tamassos (buyer). One of the shipbuilding contracts provided that for the second instalment to be paid, receipt by the buyer of a refund guarantee issued by the seller's bank and a certificate of cutting of the first plate of the vessel in the seller's workshop would be required. The buyer's bank (Emporiki) financed the buyer for the purchase of the vessel and issued a payment guarantee in respect of the second instalment which was not paid by the buyer. The shipbuilding contract had come to an end, the cause of which was disputed by the parties. The seller submitted that payment guarantee was in the nature of a performance bond and accordingly payment was due upon a written demand, regardless of whether the payment guaranteed by the bond was actually due by the buyer to the seller. In turn, Emporiki contended that payment guarantee was a guarantee properly so called and that they could have no liability to pay unless the second instalment was due.