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

[2013] EWCA Civ 1679, Court of Appeal (Civil Division), Lord Justice Longmore, Lord Justice Rimer and Lord Justice Tomlinson, 19 December 2013

Contract - Shipbuilding ??A?A? On-demand performance guarantee - Demand made in good faith - Arbitration award holding that payment not in fact due- Payment subsequently made by bank - Whether monies held on trust by seller for bank or for buyer - If held on trust for buyer whether buyer would in turn hold monies in trust for bank

By an on-demand performance guarantee, the applicant bank had guaranteed due and punctual payment by the buyer of the second instalment of the price of a vessel under a building contract. The seller's demand for payment by, firstly, the buyer, and secondly, in default, the bank was made in good faith. However by the time payment was made by the bank to the sellers pursuant to the guarantee, it had been conclusively determined by a final arbitration award that the second instalment had not in fact fallen due. Is the money paid over by the bank pursuant to its obligation under the guarantee held by the seller on trust for the bank, alternatively on trust for the buyer who would in turn hold the money on trust for the bank? The Court of Appeal had previously decided (at [2012] EWCA Civ 1629) that the guarantee was an on-demand guarantee in the nature of a performance bond, as opposed to a traditional guarantee.