Performance bonds: trust in good faith
In 2012, the Court of Appeal reversed the first-instance decision of the High Court in the case of Wuhan Guoyo Logistics Group Co Ltd and another v Emporiki Bank of Greece SA, where it had been held that a particular security document was a guarantee, rather than an on-demand bond. Now, in its second judgment in this case, the Court of Appeal has held that payments made in accordance with a bond will not be held on trust by the recipient beneficiary where the demand for payment was validly made, even if the demand was based on incorrect facts.
On 29 November 2006, the claimant entered into a shipbuilding contract with a buyer for the construction, sale and purchase of two carriers. Payment was to be made by instalments. The buyers were funded by a Greek bank, the defendant, and the payments were secured by a ‘payment guarantee’ issued by the defendant.
When the second instalment was not paid, the claimant demanded payment. The buyers refused to pay as they did not believe the instalment was due. The claimant then made a demand on the defendant under the payment guarantee, in good faith, for the unpaid instalment. When this was not forthcoming, the claimant issued proceedings. As well as pursing the claim in the courts, the parties also referred the matter to arbitration. Of particular significance was the dispute as to whether the second instalment had actually become due…
Click on the link below to read the rest of the Gateley briefing.
Sign in or Register to continue reading this article
It's quick, easy and free!
It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.Register now
Why register to The Lawyer
In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.
Identify the major players and business opportunities within a particular region through our series of free, special reports.
Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.
More relevant to you
To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.
News from The Lawyer
Briefings from Gateley Plc
Challenge to the very basis of the no-win no-fee costs regime.
A ‘white list’ of permitted management activities is one of the changes to ensure structure remains the market standard.
Analysis from The Lawyer
Gateley bigshots see personal wealth soar on flotation, but face penalties for early exit .
Gateley is to float on the London Stock Exchange, becoming the first UK firm to list itself as a public limited company. But why would a firm would look to float, and what it could mean for the industry?