UK: What Can Happen When Notices Do Not Track Required

Sea-Cargo Skips AS v State Bank of India [2013] EWHC 177 (Comm)

SBI issued two refund guarantees (i.e. performance bonds) to SCS guaranteeing advance payments under a ship building contract. SBI had an irrevocable and unconditional obligation to pay the buyer if the buyer made a written demand with a statement that:

"the vessel or the construction thereof is delayed with more than 270 days as set out in contract article IV 1 (E) which entitles the buyer to cancel the contract and receive repayment of the advance payments" and that the buyer had duly cancelled the contract.

In due course the buyer served a notice on the bank referring to delay in delivery (where the right to terminate was contained in article IV 1 (C):

"We confirm that the vessel has not been delivered by the delivery date of 30 June 2011 or within 270 days of the same, that is by 26 March 2012 and that the buyer had accordingly exercised their right to cancel the Contract."

The question was whether it conformed with the prescribed form. The bank argued that the demand was not in the required form because it referred to delays in delivery whilst the required form related to delays in construction.

The High Court looked at the wording of the guarantee and the demand. It held that although the demand did not have to repeat the precise words of the refund guarantee, it either did not contain the necessary statements showing entitlement to cancel or was ambiguous. In either case it was not compliant. The bank was not a party to the ship building contract and was unable to tell, just by looking at the demand, that the buyer was entitled to cancel the contract.

Comment

This case goes to show that when drafting a notice it is always best to follow exactly the language set out in the contract. If that language is not to be used, then the demand must be absolutely clear and comply with all the requirements in the contract clause.

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