Bollore Furniture Ltd and Another v. Banque Nationale De Paris
Read the full judgment text of HCMP 946/1982 on BabelCite. This High Court CFI judgment was delivered on 1 November 1982.
1. At the conclusion of these proceedings, plaintiffs' originating summons was dismissed with costs to the defendant bank. The contestants were told that I would record my reasons in writing, which I now do.
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HCMP000946/1982 Bank's obligation to pay US$200,000 under a Performance Bond - no time limit laid doom for the beneficiary to lodge a claim - Held: claim lodged after expiration of the period for which the Performance Bond was given was valid. Order : Plaintiffs' originating Summons be dismissed with costs to the defendant. Date of Hearing : 1st November, 1982. Date of Order : 1st November, 1982. Date of Handing down of Judgment : 6th November, 1982. IN THE HIGH COURT OF JUSTICE
BETWEEN
________ Coram: Hon. LIU, J. Date of Hearing: 1 November 1982 Date of Order: 1 November 1982 Date of Handing down of Judgment: 6 November 1982 ___________ JUDGMENT ____________ 1. At the conclusion of these proceedings, plaintiffs' originating summons was dismissed with costs to the defendant bank. The contestants were told that I would record my reasons in writing, which I now do. 2. By a Contract dated the 28th July 1980, Prince Faisal engaged the 1st plaintiff company as a contractor for the decoration of his palace in Maazer, in the city of Riyadh, Saudi Arabia for a lump sum of US$1,500,000.00. Upon the signing of this Decoration Contract, the Prince was to release US$500,000 to the 1st plaintiff company. It was arranged that a Performance Bond to the same extent of US$500,000 was to be executed jointly and severally by the 1st plaintiff company and a bank. It would not be impertinent here to mention the provision in the said Decoration Contract for completion within a year from the date thereof and its Clause 13 for possible delayed completion for various causes. 3. On the 8th August 1980, a Performance Bond was accordingly executed by the 1st plaintiff company and Banque Nationale de Paris in the sum of US$500,000 covering a period of risks up to the 28th July 1981, being a year from the date of the said Decoration Contract. As work progressed, the quantum of the Performance Bond was reduced, first to US$300,000 and finally to US$200,000, and the period of coverage was also from time to time extended, by mutual consent, finally to the 31st March 1982. The other terms of the Performance Bond remained unchanged. 4. Having bound themselves jointly and severally to pay the Prince US$200,000 with reference to the said Decoration Contract, the Performance Bond executed by the 1st plaintiff company and Banque Nationale de Paris contained the following condition :-
5. Thus, the 1st plaintiff company and Banque Nationale de Paris assumed an obligation to pay the Prince US$200,000, and their obligation would cease if the 1st plaintiff company as contractor duly fulfilled all the provisions of the said Decoration Contract or if the damages sustained by the Prince were wholly satisfied; such obligation was to be shouldered for the period ending 31st March 1982. This tail portion of the Condition was hotly debated. It was not the case, so argued counsel for the plaintiffs, that this obligation in the form of a guarantee would, unless earlier terminated, confer on the beneficiary a period of protection but that the very validity of the bond itself together with all accrued or acquired rights would, in the absence of a prior demand, cease to have any effect as at the 31st March 1982. 6. Coming to the end of the aforesaid period expiring on the 31st March 1982, there seemed to be some consensus for a further extension of the completion date to the 30th June 1982 on condition that coverage of the Performance Bond be likewise extended to the same date. There was disgreement as to the responsibility for paying the bank commission for the proposed extension. Only well into April 1982, the Prince gave his ultimatum that unless the coverage of the Performance Bond was so extended by mid April, he would call for payment by Banque Nationale de Paris under the Performance Bond dated 2nd March 1982, the coverage period of which had expired since the 31st March 1982. 7. The 2nd plaintiff is the director of the 1st plaintiff company. Both the 1st plaintiff company and the 2nd plaintiff had given their respective letters of indemnity to Banque Nationale de Paris. As far as the 2nd plaintiff is concerned, his letter of indemnity is dated the 25th August 1981. Both letters of indemnity were in similar terms. By virtue of these letters of indemnity, Banque Nationale de Paris was entitled "to make payment to" the Prince "on demand without being responsible to check or confirm that the amount demanded was in fact a debt or obligation of (the 1st plaintiff company) legally due and payable to (the Prince)". The letters of indemnity could only become operative upon a demand being made in accordance with the terms of the Performance Bond. When, then, must a demand be made? 8. Banque Nationale de Paris was at one time under the impression that it was no longer bound to meet any liability after the 31st March 1982. Subsequently, BanqueNationale de Paris relented and paid out to the Prince US$200,000 under the said Performance Bond and deducted the same from the 2nd plaintiff's blocked account with the bank. 9. By their originating summons both plaintiffs seek divers relief consequential upon the contended premise that no obligation had arisen under the said Performance Bond which expired, without any demand made on the bank, on the 31st March 1982. 10. Counsel for the plaintiffs placed great emphasis on paragraph 2281 of Benjamin's Sale of Goods, 2nd edition, particularly on the sentence:
11. Counsel for the bank, however, maintained that as there was no time limit imposed on the making of a demand or a claim, a demand to pay on account of an accrued liability could only be defeated by lathes or limitation. 12. Counsel for the plaintiffs implored the court to construe the above-cited Condition in the said Performance Bond dated 2nd March 1982 as having in effect subjected the bank's obligation to pay US$200,000 to three sub-conditions. In other words, counsel submitted, such obligation to pay would cease upon compliance with or fulfilment of sub-condition (1) that is, if there was no breach or sub-condition (2) that is, if damages sustained were wholly paid up or in any case upon the expiration by effluxion of the specified time ending 31st March 1982. The advocated sub-condition (3) would seem to be repugnant to the basic obligation undertaken in favour of the Prince. If, indeed, the obligation to pay the Prince under the Performance Bond would terminate upon the expiration of the specified period, breaches committed close to the expiry date might leave no or no sufficient time for lodging a demand. The proposed introduction of this sub-condition (3) would defeat the purpose and spirit of the Performance Bond, which sought to guarantee, under penalty of payment of a sum, due observance and performance throughout the entire period. In addition, the invited construction would entail some disregard of the rules of syntax. 13. The bond originally executed for US$500,000 was for the purpose of standing surety for any unauthorised departure by the 1st plaintiff company as contractor from the provisions of the said Decoration Contract during the stipulated one-year completion period. In conjunction with the 1st plaintiff company, the bank guaranteed the performance of all the provisions of the said Decoration Contract, including the stipulation for completion within a year. As the said Decoration Contract envisaged delayed completion beyond the original year for more causes than one, it was business-like of the bank to limit its undertaking so as to be able to charge further commission for the service of providing extended risk coverage. The specified date was plainly not inserted as an unrelated free-standing sub-condition. 14. Under the terms of the Performance Bond, an absolute obligation to pay the Prince would arise not after a demand but from default during the coverage period. There was no stipulation for a demand or claim to be submitted by the Prince under the Performance Bond before the lapse of the coverage period. The Performance Bond here did not provide, as did the terms of the guarantee bond in Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. & Another, (1) that "the sum will be paid on your demand, which must reach us within the period of validity of the letter of guarantee". 15. It can be seen from the above-cited Condition of the Performance Bond that the lodging of a demand or a claim was never made a pre-requisite of liability. Liability would attach upon a default. A claim or demand was, as Mr. Ching contended, a means to enforce a liability so accrued. The bank was expressly spared from enquiring as to whether there had been timeous or due performance of the 1st plaintiff's obligation as a contractor under the said Decoration Contract. The Prince called for payment under the Performance Bond, and the exercise of his right as a beneficiary was not open to challenge. The demand made after the expiration of the coverage period cannot, in my view, relieve the bank from its bounden duty to pay. 16. Proper construction of the terms of the Performance Bond binds me to hold that the bank's liability in respect of breaches within the coverage period did not come to an end as at 31st March 1982 and that the Prince's demand for payment was not subject to any time limit. It would be futile to accede to part of the declarations sought on facts not disputed. In the circumstances, the plaintiffs' originating summons must be dismissed with costs to the defendant.
(1) (1978) 1 Q.B. 159 at 167B Representation: Mr. Faulkner instructed by Messrs. David Y.Y. Fung & Co. for the Plaintiffs Mr. Charles Ching, Q.C. with Mr. William Stone instructed by Messrs. J.S.M. for the Defendant |