SHANGHAI SHIPYARD CO LTD V REIGNWOOD INTERNATIONAL INVESTMENT (GROUP) CO LTD

[2020] EWHC 803 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Robin Knowles CBE, 3 April 2020

Contracts – Guarantees – Whether demand or see-to-it guarantee

The claimant shipbuilder and the defendant guarantor were parties to a contract entitled Irrevocable Payment Guarantee dated 17 November 2011. The guarantee was governed by English law. It secured a final payment of US$170 million by the buyer under a shipbuilding contract dated 21 September 2011 in respect of a drillship, Hull No S6030. The defendant was originally the buyer under the contract but was replaced as buyer by the Part 20 defendant by a novation agreement dated 30 November 2012. The new buyer was an indirect subsidiary of the defendant guarantor. It did not take delivery of the vessel under the contract, asserting that the vessel was not deliverable. The builder claimed the final instalment from the buyer and then on 23 May 2017 made a demand on the guarantor under the guarantee. An arbitration was commenced under the shipbuilding contract on 13 June 2019. Two preliminary issues arose, which may be summarised as follows. On a true construction of the guarantee, was it a demand guarantee or a see-to-it guarantee? Was the guarantor entitled to refuse payment under clause 4 pending and subject to the outcome of the arbitration between the builder and the buyer in respect of a dispute as to the buyer’s liability to pay and the builder’s entitlement to claim that final instalment: (i) only if the arbitration had been commenced between those parties as at the date the demand was made; or (ii) regardless of when such arbitration had been or might be commenced? If successful on the preliminary issues, the guarantor sought a stay of the court proceedings, pending the resolution of the arbitration.