Bollore Furniture Ltd and Another v. Banque Nationale De Paris
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CACV000157/1982 Headnote Banking - construction of guarantee - where a performance bond was expressed to be valid until a certain date, on that date all obligations under it ceased so that a bank could not rely on certain letters of indemnity and authority (even though drawn in very :vide terms) as against their co-surety on meeting a demand on the bond made after it has ceased to be binding.
BETWEEN
____________ Coram: Hon. Leonard, V.-P., Cons and Fuad, JJ. A. Date of hearing: 20 and 21 January 1983 Date of Judgment: 3 February 1983 ____________ JUDGMENT ____________ Fuad, J. A.: 1. The controversy which still divides the parties to this appeal lies within a narrow compass; the matter arose in this way. On the 28th July 1980, Boll ore Furniture Company ("the Company"), represented by one of their directors, Mr. Bollore, entered into a contract with His Highness the Prince Faysal Ben Turkey Abdallah El-Seoud of Saudi Arabia ("the Prince") to carry out the interior decoration of his palace in Riyadh. As one might expect the work to be done was elaborate, luxurious and costly, and the contract price was US$1. 5m. By a clause in the agreement (we have an English translation of the Arabic), the Company undertook that on receipt of the first instalment of US$500, 000 it would -
2. In accordance with this undertaking, on the 8th August 1980, the Company and their bankers, Banque Nationale de Paris ("the Bank") entered into what might conveniently be called a performance bond" whose proper construction the originating summons was primarily about. The contractor employed for constructing the building itself delayed the work for which they were responsible and so the interior decoration was also delayed. As a result of all this, with the consent of all the parties, the bond was replaced by further bonds, the latest being one executed on the 2nd March 1982. It is identical in almost all respects to the earlier bonds save (a) that by this time, due to the satisfactory progress of the work, the amount for which the Company and the Bank bound themselves was reduced to US$200, 000 and (b) the bond was expressed to be valid until the 31st March 1982. It is only necessary to read out the following part of the bond -
3. In acknowledging the Prince's instructions to reduce the value of the bond, by its telex of the 1st March 1982, the Bank said "Please be reminded that the subject matter bond will expire on the 31st March 1982'. 4. On the 30th March, the Prince said this by telex - ".. We have no objection for the prolongation of above contract until 30 June 1982 therefore the validity of the bond should be extended to 30/6/1982." As a result of a request for confirmation made by the Bank, on the 31st March, the Prince sent the following telex message "we confirm... that we request you extend the subject bond up to 30 June 1982". By a telex of the 1st April, the Bank told the Prince that their clients were willing to extend the bond up to the 30th June, but that since the extension had been requested by him, he should pay the commission due (US$4, 125). When the commission was received, the bond would be extended. On the 1st April the Prince replied that it was "normal" to ask for the extension since he was the beneficiary of the bond and that the drawer should pay the commission. Confirmation was sought that the bond's validity had been extended to 30th June 1982. The Bank then telexed that they would take instructions from the Company. Eventually on the 12th April, in a telex, the Prince stated "Please be advised that unless this bond is extended as requested by April 15, 1982 we are calling this bond for the amount of US$200, 000 and request you to pay this amount (to a named account held by the Prince)". On the following day, the Bank told the Prince by telex "According to the terms and conditions set forth in our subject performance bond since no claim was received by us on or before its expiry date, our obligations and liabilities thereunder were fully discharged on 31 March 1982. For further information please contact (the Company) direct." The Prince confirmed his call under the bond by a telex to the Bank dated 26 May 1982. 5. It must be assumed that the Bank later had cold feet because they paid out the US$200, 000 demanded by the Prince. Subsequent correspondence which passed between the solicitors for the parties reveals that the Bank deducted that sum from a "blocked deposit account maintained in accordance with the terms of the agreement therefor dated the 25th August 1981". The deposit was in Mr. Bollore's own name and had last been renewed on the 17th May 1982 and became due on the 17th August. 6. As part of the background it is necessary to refer to two further documents. The first was a letter of indemnity dated the 4th March 1982 signed by the Company and addressed to the Bank. It is headed "Our performance bond of BNP Ref. No. SEC/82=004 to (the Prince) for US$300, 000 (expiring 31/3/82) and reads -
7. The second, dated the 25th August 1981 was signed by Mrs. Bollore on behalf of her husband and, unlike the first, did not relate specifically to the performance bond. In consideration for the Bank continuing to grant facilities to the Company up to the extent of HK$2, 722, 624, Mrs. Bollore agreed, inter alia -
8. Finally, although these details were not made known to the trial Judge, by consent, during the hearing of the appeal we were informed that between the dates appearing in the column I below, the Bank and the Company entered into bonds in favour of the Prince with dates of expiry" shown in column II, to the amounts indicated in column III -
9. The originating summons with which this appeal is concerned was taken out by the Company (1st Plaintiff) and Mr. Bollore (2nd Plaintiff) against the Bank (Defendant) on the 26 May 1982. It was supported by an affidavit sworn by Mr. Bollore (with accompanying exhibits) and it is in this that the facts set out above are largely to be found. The following declarations were sought by both the Plaintiffs -
Mr. Bollore (2nd Plaintiff) asked for the following relief -
10. The matter came on for hearing before a judge of the High Court on the 1st November, 1982. He dismissed the summons in its entirety and "handed down" his reasons on the 6th November. From his decision the Company and Mr. Bollore now appeal to this Court. After reviewing the facts and the arguments, the Judge remarked that if the obligation to pay the Prince under the performance bond terminated on the 31st March 1982, as had been urged upon him by Counsel for the Plaintiffs, this would appear to be repugnant to the basic purpose of the obligation undertaken. Such a construction might not leave sufficient time for the making of a demand, and "would defeat the purpose and spirit of the bond which sought to guarantee, under penalty of payment of a sum, due observance and performance throughout the entire period." "In addition", he thought, "the invited construction would entail some disregard to the rules of syntax". He summarised the contents of the bond and noting that the decoration contract envisaged delayed completion for more causes than one, said "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 subcondition." He distinguished Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. & Another [1978] Q.B. 159 on the ground that here there was no stipulation for a demand to be made before the lapse of the coverage period. Nor was a demand a "pre-requisite of liability", for that attached upon default. The Bank was absolved from enquiring whether there had been timeous or due performance under the contract. His judgment concluded thus -
11. The grounds of appeal are as simple as the point is short. The appellants say that the Judge erred in law in holding that the Prince's demand for payment was not subject to any time limit and that the defendant's liability did not come to an end on the 31st March 1982 in that on the true construction of the bond ("the Bond") a demand had to be made on or before that date, otherwise the defendant's liability under the Bond ceased. 12. It is possible, I think, to clear one matter out of the way quite quickly for it is covered by ample recent authority. On the principle that the courts are reluctant to interfere with the machinery of irrevocable obligations assumed by banks, where a confirmed performance guarantee is involved, just as in the case of a confirmed letter of credit, a bank is not concerned with any contractual disputes that may have arisen between the primary parties (if I may so call them for convenience) nor with the question whether a default giving rise to the obligation has in fact occurred; and the bank may meet a demand under the guarantee with impunity unless it has notice of clear fraud - Edward Owen Engineering Ltd. v. Barclays Bank [1978] Q.B. 159, approving Harbottle v. National Westminster Bank Ltd. [1978] Q.B. 147, and see Howe Richardson Scale Co. Ltd. v Polimex-Cekop and National Westminster Bank Ltd. [1978] 1 L1. R. 161. 13. But here the Bond itself made no mention of a demand so that the demand itself would become "the event" upon which payment under it would become due. However, the contract documents read together (that is to say the Bond and the letters of the 25th Aug. 1981 and the 4th March 1982) have the same effect. Assuming that the words "but shall otherwise be and remain in full force and is valid until the 31st day of March, 1982" with which the Bond concludes have the meaning urged upon us by the Bank, it was not concerned with (and therefore did not need to enquire) whether the Contractor had duly performed and observed all the terms etc. of the contract or whether any damages had been sustained by the Prince by reason of default by the Contractor or whether any such damages had been satisfied or discharged. So much was readily conceded by Mr Faulkner for the appellants. 14. On looking at the Bond we are asked to construe, it seems to me that it is in the form of what is usually known as a double or conditional bond in that it comprises, in two parts, the obligation and then the condition. As is quite common, it also contains explanatory recitals. If there had been no letters of indemnity or authority, and if a claim to the Bank had been made by the Prince upon the Bond, the Bank would have had two options. If it maintained that the Bond's conditions had been fulfilled (and therefore the obligation had lapsed) it could have refused payment and defended any subsequent action institutes' by the Prince. Or the Bank could have paid up and claimed appropriate contribution from the Company, its co-surety. In this case the letters of the 25th August 1981 and the 4th March 1982, if properly relied upon, of course make all the difference 15. Mr. Faulkner's basic submission to us was one that did not find favour with the trial Judge and it was that the Bond envisaged three sets of circumstances in which obligations under it would terminate: in summary - (i) if the contractor duly performed all the terns of the decoration contract, (ii) if a default occurred and somebody paid damages up to the amount of the Bond or (iii) by effluxion of time (the date being the 31st march 1982) . He argued that since that date had passed when the Bank paid the Prince, and the obligations under the Bond had wholly ceased, the Bank had no right to do what they did. Mr. Faulkner referred us to a case on Mr. Keane's list of authorities. [Mr keane represented the Bank before us but did not appear in the proceedings before the trial Judge.] The case was Westminster Bank v. Sassoon (The Times, 8 June 1926 at first instance) and (The Times, 27 November 1926 in the Court of Appeal). Mr. Keane recognised that everything turned on the words used in the guarantee discussed in that case but submitted that it was a helpful example. The reports are very brief and the following facts are culled from both of them. Mrs. Sassoon's late husband had a friend with an, account at the bank He needed money and mentioned Mrs. Sassoon as one willing to guarantee his account. The bank made enquiries and were satisfied about Mrs. Sassoon's financial standing. They agreed to take her signature alone as a guarantee of £1,700 advanced to the friend. Mrs. Sassoon signed a form of guarantee on the 3rd July 1924 but stated that she would only guarantee the account for one year and would only hold herself liable for the same period; and so the words "this guarantee will expire on June 30, 1925 were added. The Bank did not give notice to Mrs. Sassoon until October 1925. It had been contended both at first instance and before the Court of Appeal that the guarantee vas for a limited period only and that Mrs. Sassoon was not liable in respect of any claims made under it after the 30th June 1925. The report of the judgment of Bankes L. J. (with which the other Judges agreed) is very short and only a few words more than that of the trial Judge -
16. About this case, Mr. Faulkner says first (of course) that everything depended upon the terms of the guarantee, and secondly that Mrs. Sassoon's real complaint was that she had heard nothing by the 30th June 1925 and so she was free from the obligation. Here the Bond made it clear that the obligation itself would lapse on the 31st March 1982. In the absence of information about the precise form of the guarantee, in my view the case is of no assistance at all. I would only permit myself to surmise whether the decisions would have been the same had there been no provision (revealed only in the judgment of Bankes L.J.) that the guarantee might be terminated by either party on giving three months' notice On the face of it is seems to me that this was probably why Mrs. Sassoon did not succeed.. The editorial note to the case in (1926) 5 Legal Decisions Affecting Bankers 19, is of interest -
17. Mr. Faulkner also drew our attention to certain passages in BENJAMIN ON SALE OF GOODS (2nd Ed.) and adopted as part of his argument what is said in para. 2281. Here, he said, there was a date of expiry and the Bond had ceased to be effective. I think it is useful to read out that paragraph -
18. On behalf of the Bank, Mr. Keane submitted that it was essential to note that this was not a "first demand" but a "default" Bond, and so liability under it arose only on a default. So far as the Bank was concerned, liability did not depend on a demand but on a state of default, and this would have to be determined by a court in the event of a dispute. There was no provision for enforcement within a particular period and no requirement that a demand be made in time or at all. The word at the end of the Bond relied upon by the appellants related to the accrual of liability and the coverage period". In his submission, what I have called "the contract documents", had to be read with the decoration contract and it was clear from them all that the intention of the parties was that liability under the Bond would extend until there had been satisfactory completion. Mr. Keane suggested that to construe the documents in the way contended for by the appellants would be to make commercial nonsense of them, and that the trial Judge was right in his decision. In common with other undertakings of this kind, when one guaranteed something for a particular period, one was liable for defaults occurring during that period unless there was some provision to the contrary - and here there was none. He contended that the position here was covered by the statement of the law with which para. 298 of vol. 20 of HALSBURY'S LAWS OF ENGLAND (4th Edition) begins -
putting his earlier submission another way, Mr. Keane argued that if the amount secured by the Bond could be demanded without default it would mean that the contractor performing the contract could be penalised in the sum of US$500, 000 at any time before completion. Equally it would follow that if he did not completely perform the contract, the Bond would, if it expired on the 31st March, be rendered utterly useless. The only way to make sense of the words used was the interpretation put upon them by the trial Judge. 19. In the alternative, Mr. Keane urged upon us the proposition that if the Bond was indeed to be construed in the way Mr. Faulkner had suggested, then the letter of authority of the 25th August 1981 and the letter of indemnity of the 4th March 1982; entitled the Bank to act as it did. The matter is put this way in the Respondent's Notice: that upon the proper construction of the letter of indemnity the Company undertook to indemnify the Bank against al liabilities, losses, costs and expenses incurred directly or indirectly by the Bank as a result of it having joined in the Bond and whether arising before or after the 31st of March 1982; and so the Bank was entitled to retain and/or utilise the monies deposited by Mr. Bollore pursuant to the letter of authority for the purpose of enforcing the indemnity 20. I will say at once that I am quite unable to accept this proposition. Assuming for the moment that the appellants' obligations under the Bond had indeed ceased on the 31st March 1982, as I understand the letter of indemnity of the 4th March 1982, it does not stand alone but is firmly tied to the performance bond which expired on the 31st March 1982 (see the heading and the reference in the body of the letter to "the said Performance Bond") and it indemnifies the Bank against all liabilities etc. incurred "as a result of our having joined in such Bond". Moreover it entitles the Bank to make payment to the Prince "as such surety". As regards the letter of authority of the 25 August 1981, the Bank is free to make payment "as such guarantor". Although each document is drafted in very wide terms, these terms are not so wide, it seems to me, that they would cover payments made oil a date after the Bank ceased to be bound by its obligations as "surety" and "guarantor" respectively. Mr. Keane's contention ignores the necessary causal connection. Neither instrument gave the Bank carte blanche to make payments at the expense of either of the Company or of Mr, Bollore. 21. I now return to the Bond. Mr. Keane was undoubtedly right in saying that in interpreting it, the concept of what he called "the matrix of circumstances" is applicable. It must be construed to reflect what may fairly be inferred to have been the parties real intention as expressed in the Bond - merely technical rules are not to be applied. Lord Wilberforce re-stated the principle in this way in Prenn v. Simmonds [1971] 1 W.L.R. 1381, at p.1383 -
22. The learned Judge, as has been seen, was considerably influenced by the fact that the construction urged upon him by Mr. Faulkner would "defeat the purpose and spirit" of the Bond, citing the difficulties which would supervene if breaches were committed clogs to the expiry date. To this notion I would add in the scales the position where a default was only discovered after that date. All this is true, but it hardly needs to be stated that if clear and unequivocal language is used, capable of only one fair meaning, then the parties are bound by what they in fact agreed, whatever might have been their intention and however harsh the results might be to one or the other. I think that in the context of practical utility Mr. Faulkner was justified in commenting that even on the appellants' case, there was nothing to prevent the Prince employing the device of the timely "extend or pay" demand revealed by the evidence in Harbottle v. National Westminster Bank Ltd. [1978] Q.B. 147.(see the judgment of Kerr J. at p.150). 23. There are of course, in common use, a wide variety of performance bonds. A bond might simply provide for the obliger to pay a sum of money on demand or on a certain date; a bond guarantee the fulfilment of contractual obligations, without more; a bond might be conditioned to remain in force until a further bond is executed; or it may be revocable on due notice. It all depends on the words used and if, of course, a bond is well, drawn, no problems of interpretation will arise. Here we have a bond which includes the somewhat unusual feature which gave rise to the controversy. 24. The Judge concluded that 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". It is not apparent whether this contention was put fomuand in argument to him. Certainly on appeal Mr. Keane mentioned it although perhaps with no great conviction. It seems to me that on the material before us, a quite different reason for an expiry date could have been inferred, one which in my respectful opinion is far more likely. This reason is to be found in paras. 5 and 6 of Mr. Bollore's affidavit He explained that the company's obligations under the contract concerned only the interior decoration. The contractors responsible for the construction work had delayed in completing the building and the Company's work was thus consequentially delayed (the delays and the reasons for them are recounted in the Consultant's report annexed to the affidavit). "As a result of the delays", says Mr. Bollore, "the bond was, with the consent of all the parties, replaced by further bonds with later expiry dates". I have earlier set out the details of the five bonds. The second bond was for the same sum as the first (US$500, 000) but with an expiry date some five months later (31.11.81).The third bond, which replaced it during its currency, but which was stated to expire on the same date (31.11.81), reduced the sum involved to US$300, 000. This was replaced by a fourth bond to the same amount but which would expire on the 31st March 1982. The final bond (the one with which we are concerned) was issued during the currency of the fourth and, as we know, would expire on the same date (31.3.82) but the amount of the obligation was reduced to U$200,000. It is therefore, to my mind, not unreasonable to infer that all this was designed to keen the progress of the Company's work under review and to reduce the value of the bond to reflect the position at any given time. I have mentioned a form of bond which provides for a reduced portion of the contract price following a previous bond and part execution of the works, and as I recall, such undertakings are not uncommon. It must I think, be borne in mind, as the following shows, that under the decoration contract the Prince could withhold quite substantial sums until he was satisfied that the work was properly completed -
25. Mr. Keane has also prayed in aid the analogy of an insurance policy. He quite rightly says that in the absence of a prescribed time limit the fact that a loss covered by the policy is not discovered until it has expired does not preclude recovery if the event in fact occurred during its currency. But it must again be remarked that everything depends on the wording employed . While a court would be very slow indeed to adopt a construction that would defeat a claim in such circumstances, if the relevant provisions of a policy expressly cover the matter then the question of interpretation does not arise and effect must be given to what it says. But I am bound to say that I do not consider the "insurance cover" analogy to be apt. 26. With the utmost respect to the trial Judge, and to Mr. Keane's able and forceful submissions, in my judgment the words at the end of the Condition - [the Bond] is valid until the 31st day of March 1982" - mean only one thing, and mean what they say. I have no hesitation in accepting Mr. Faulkner's contention that they have the effect of ending (on that date) once and for all every obligation under the Bond. The Bond was of limited duration. It is in my view of no consequence that there is no requirement that a demand must be made before it expired. If it has ceased to be valid, then no claims under it can be sustained. It seems to me that it would be to do violence to the words used to say, in effect, that they mean: "[the Bond] is valid until the 31st day of March 1982 but notwithstanding its determination, obligations under it shall continue to subsist until the completion of the decoration contract". It is true that the Bond would have been more use to the Prince if the words occurring after "but shall otherwise be and remain in full force" had been omitted, but this is not what was agreed. 27. I would therefore allow the appeal.
Leonard, V-P.: 28. I have had the advantage of reading in draft the judgment of Fuad J. A. in which the facts are meticulously and accurately set out. I unhesitatingly agree with his conclusion that at the time the Bank acceded to the demand of the Prince it was under no obligation to do so and with his reasons for arriving at this conclusion. 29. The Bank originally recognized the absence of liability as is shown by the telex of the 13th April 1982 set out in Fuad J. A.'s judgment. For some reason undisclosed the Bank had second thoughts and paid out the U.S.$200, 000 demanded by the Prince presumably in the belief that, whether or not the Prince's demand was well-founded, the Bank was entitled to recompense itself from the blocked account maintained in Mr. Bollore's name. It claimed to be entitled to do so "in accordance with the terms of the agreement therefor dated the 25th August 1981." Whether the Bank's belief and claim was justified is the matter which causes me concern. The trial judge did not deal with this point which is the subject matter of the respondent's notice. The relevant ground set out in the respondent's notice is in the following terms:
30. I turn to the agreement of the 25th August 1981. The consideration moving from the Bank to Mr. Bollore under this agreement is expressed to be the Bank's "agreeing to grant and/or continue facilities to Messrs. Bollore Furniture Ltd. .. at my request" and it provides for the creation of the deposit in question "as security for the due performance of all obligations of the said Messrs. Bollore Furniture Ltd." Mr. Bollore agrees that "the deposit shall not be released" to him "so long as there remains any actual or contingent liability of Messrs. Bollore Furniture Ltd. to" the Bank and that the Bank "may have resort to such deposit .. in respect of the said obligations without further reference to" Mr. Bollore. The final paragraph of this agreement reads:
31. I consider that in the construction of this agreement stress may legitimately to be given to the following factors:
32. Two questions arise from this, firstly was the bond a "guarantee" in the sense in which the word is used here? Secondly was the payment made to the Prince a payment made "as such guarantor" or in the character or capacity of such guarantor. As to the first, I have no doubt but that the word "guarantee" is not to be interpreted here strictu sensu as meaning an undertaking to answer for the debt default or miscarriage of another. Points (f) and (g) above are sufficient to convince me of that in view of the notoriously loose use of the word "guarantee" commercially. The word guarantee is sufficiently wide to include the bond. As to the second, the question to be determined is whether the fact that the bond did not legally oblige the Bank to make payment to the Prince is sufficient to enable Mr. Bollore to say that the payment was not made "as such guarantor". 33. The argument in Mr. Bollore's favour might run as follows although I did not understand Mr. Faulkner to put it quite like this :-
The factors I have mentioned appear to me to negative any such argument. 34. The Prince's case was that liability under the bond continued notwithstanding the expiry date mentioned. That question, as the judgment of the Court below and the argument before us illustrate, was not one capable of easy or immediate resolution. The intent of the contract was that the bank should not be obliged to resort to litigation with the Prince. It might pay on demand and look to Mr. Bollore's deposit without reference to Mr. Bollore. The Prince stated "we are calling this bond and request, you to pay this amount". This demand was made to the Bank as a party assuming joint and several liability with the Bollore Furniture Company under the bond. The Prince regarded the bank as liable under a "bank guarantee" to use the expression used in the original contract and therefor claimed against the bank "as such guarantor". I am satisfied that the capacity in which the Bank acted did not change between the time of demand and the time of the payment and that it would be wrong to regard the unexplained volte face of the Bank as sinister. 35. The letter of indemnity dated 4th March 1982 does not change my view. Mr. Bollore's contract preceded it. Mr. Bollore's liability arose independently of it and would have existed even if it had not been sent. The company has, perhaps, a less weak case than has Mr. Bollore because of the fact that the bond in question is specified in the letter of indemnity and the bond is expressed to be "expiring 31st March 1982". Nevertheless I find it impossible to say that the Bank was not entitled to rely on the indemnity there given. The wideness of the words used prevents me. The indemnity is against not only liabilities but against losses, costs and expenses which the bank may incur directly or indirectly and "whether arising before or after the above mentioned date" (i.e. 25th February 1982). This phrase can only mean "whenever arising". The bank is entitled to make payment to the Prince on demand (not be it noted "on demand made before 31st March 1982"). The rest of this letter is in substantially the same form as is the contract signed by Mr. Bollore. 36. For these reasons I would dismiss this appeal.
Cons, J. A.: 37. In selecting one or other of the opposing constructions placed before us, Mr. Keane, for the Bank, asks us to take into account as "the matriy of facts in which the bond was set"(1) the terms of the main contract made between the Prince and the Company, and of the two indemnities given to the Bank respectively by the Company and Mr. Bollore. It is perhaps not strictly accurate to call the latter an indemnity, but I do so for convenience. 38. That we should consider the main contract seems to me to go almost without saying. It was the very "genesis" of the bond and indicates its "aim". But that we should consider also the terms of the two indemnities is in my view not permissible. The indemnities do not form part of the matrix of facts. They had not even been executed when the original bond was given, although no doubt they were in contemplation. At best they contain no more than an indication of the subjective intentions of the Bank, the Company and Mr. Bollore. 39. Payment for the work was to be in stages. These are set out in Clause 9 of the main contract:
The final three sub-clauses have already been set out by my Lord Fuad, J.A. 40. Clause 11 is of the utmost importance. It is the one that provides for the bond to be given:
41. Clause 13 is the only other clause that deals with financial aspects. It provides for a penalty of U.S. Dollars 1,000 per day if the company should "stop the work or delay it without any reason". 42. Clause 12 fixes the period of the contract:
43. Mr. Keane relies on this clause as establishing a link between the date of completion and the length of the bond, particularly as the bond was "extended" more than once to meet delayed completion dates, which is a factor properly within the matrix as we are concerned with the last of the series of bonds. 44. It is of course obviously more than mere coincidence that the two dates were kept in parallel. But that does not to my mind necessarily so link Clauses 11 and 12 together as to require us to give to the bond the construction which Mr. Keane supports. It seems to me rather, when I look at the three other clauses that I have mentioned, that what was contemplated by the contract was a simple guarantee of its financial implications. It would be equally natural to keep that alive to the end of the contract itself. 45. The contract calls for no security other than that of a bank guarantee. Yet when the initial and subsequent bonds were drawn up they were executed by the Company as well as the Bank, each binding itself jointly and severally. We do not know why this was so and it seems to give the Prince no advantage over and above his natural rights against the Company in case of breach of contract, save perhaps that he could sue on it in Hong Kong. (The contract provides for any litigation to be in Saudi Arabia.) I do not think this variation helps in any way. 46. My Lord Fuad J. A. has already set out the condition attached to the obligation of the bond. It goes well beyond the purely financial implications of the contract to include the performance of all its terms or damages in lieu. It is in fact in the common form usually found in bonds relating to building contracts, save and except for the vital words "and is valid until the 31st day of March, 1982拻. 47. Some argument was addressed to us on the tenses used in the condition, "shall duly, perform. and observe all the terms etc." as opposed to "shall have duly performed", and "the surety shall satisfy and discharge the damages sustained by the employer" rather than "shall have satisfied and discharged". Similarly "this obligation shall be null and void" rather than "shall become null and void". For myself I am unable to draw anything from these distinctions. The words used seem appropriate to either construction. 48. Mr. Keane sought to contrast what he referred to as "first demand" bonds, underwhich liability does not arise until a demand is made, and "default" bonds, where liability arises from the default itself and the guarantor can, if he so wishes, pay even without demand. Thus any question of within what time the demand must be made cannot arise. The present bond is said to fall within the latter class, because no provision for demand is expressed within it. It is perhaps unrealistic to think that the bank would in fact make payment without a prior demand of some kind, but in any event I am reluctant to accept such categorization as an aid to interpretation. It is likely to distract attention from the particular words used in the particular document. 49. Likewise I do not think anything is to be gained from a comparison or analogy with guarantees that are commonly given to cover the advancement of monies, of which National Westminster Bank v. Sassoon(2) is a good example, or with policies of insurance. There is ample authority that the contingent liability initially assumed in transactions of those kinds will, if it should become established at the end of or during the period of risk specified, continue thereafter whether actually claimed within that period or not. There is no need for us to confirm that. What we have to do in the present case is to decide whether the words used on the 2nd of March last year, and in particular the words "and is valid until 31st day of March 1982", considered with reference to the circumstances I have already set out, impose upon the bank that kind of liability. 50. To my mind they do not. Taken in their natural meaning they limit the obligation of the bond to a specified date. This interpretation may not give the Prince the fuller protection that some might have advised him to require. But it is by no means without commercial value. In particular the initial bond protected the preliminary advance of US$500, 000, at a time, it may be noted, when the Prince would have been particularly vulnerable to financial default. As the contract progressed that vulnerability would naturally decrease, and it is not surprising that changes were subsequently made in the amount of the bonds. I find nothing in the circumstances in which they were made to warrant giving some other meaning to the words used. Rather the reverse. In their natural meaning they seem to me to achieve more nearly what was intended by the main contract. 51. I turn then to the two indemnities. Although not identical, each is drafted in very wide terms. However, with some diffidence, and with great respect to the contrary view expressed by my Lord the Vice-President, I am for my part not persuaded that the terms are so wide that they cover the particular circumstances in which the Bank made payment. The documents could have of course have been so drafted, and apparently documents of that kind are not uncommon: see R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. and Others(3). The signatory is then, as Kerr J. pointed out, content (or perhaps forced) to rely on the probity and reputation of the third party. His only recourse against the bank would be in the case of "established or obvious fraud to the knowledge of the bank"(4). No suggestion is made here that the circumstances in which the claim was made and paid fall within that category. What Mr. Faulkner contends is merely that by that stage the bond was dead. There was nothing left on which the bank could be asked or made to pay. It was no longer "entitled as such guarantor". 52. I agree. The bank ceased to be a guarantor as from the 31st march. It was not entitled to hold Mr. Bollore liable for any payment that it might make thereafter. No doubt it could be said that the payment was a "loss, cost or expense incurred indirectly by the bank as a result of its having joined in the bond", the words used in the company's Letter of Indemnity. But in my view that usage of words would be too loose. Once the bond had expired it could be no longer a "causa causans" of the payment. It was only a "causa sine qua non". 53. For these reasons I would allow the appeal.
(1) Prenn v. Simmonds (1971) 1 W.L.R. 1381 at 1383 (2) Times Newspaper, 8 June & 27 December 1926 (3) (1978) 1 Q.B. 146 (4) per Lord Denning M. R. in Edward Owen Engineering Ltd.. v. Barclays Bank International Ltd. and Another (1978) 1 Q.B. 159 at 169 Representation: Raymond Faulkner (David Y. Y. Fung & Co.) for both Appellants. Desmond Keane, Q. C., with Andrew Li (Johnson, Stokes & Master) for Respondent. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||