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

[2012] EWCA Civ 1629, Court of Appeal, Lord Justice Longmore, Lord Justice Rimer, Lord Justice Tomlinson, 7 December 2012

Guarantee - Nature of guarantee - Shipbuilding contracts - Banks - Whether "see to it" guarantee or "on demand" guarantee - Whether a payment guarantee is a guarantee or a demand bond

The claimant sellers operated a shipyard in China. This dispute arose in connection with shipbuilding contracts concluded with prospective buyers K and T. One of the 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 wherefore was disputed by the parties. The sellers submitted that the 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. Emporiki contended that the payment guarantee was a guarantee properly so called and that they could have no liability to pay unless the second instalment was due. At first instance, the judge had decided that the document was a traditional guarantee and not an "on demand" bond.