UK: Rubicon Vantage International PTE Ltd V. Krisenergy Ltd [2019] EWHC 2012 (Comm)

SUMMARY

This case provides useful guidance on the application of rules of construction in relation to guarantees that display characteristics of both an "on-demand" guarantee and a "true guarantee," and where obligations are undertaken by a non-bank entity. In such cases, there is no requirement for a narrow construction of the guarantor's obligations.

CASE UPDATE

Background

The claimant, Rubicon Vantage International Pte Ltd (Rubicon), owns a floating storage and offloading facility called Rubicon Vantage (the Vessel), and by a bareboat charter dated October 13, 2014 (the Charter), chartered the Vessel to Kris Energy (Gulf of Thailand) Limited (Kegot), a wholly owned subsidiary of the defendant (Krisenergy).

By clause 22.2 of the Charter, Kegot was obliged to procure for Rubicon a "Charterer Guarantee," the terms of which were set out in Exhibit E to the Charter. Krisenergy provided a guarantee to Rubicon, which was not exactly in the terms of Exhibit E, on or about October 13, 2014 (the Guarantee).

By the terms of the Charter, Rubicon was required to organise various works on the Vessel before the charter term commenced.

Rubicon carried out the works, and later sent a series of invoices to Kegot in June 2015, four of which were the subject of the dispute.

In September 2018, Rubicon made a demand on Krisenergy under the Guarantee for the total sum outstanding under the four invoices. Krisenergy declined to pay. Rubicon commenced proceedings in November 2018.

Terms of the Guarantee

The main relevant provisions of the Guarantee provide:

"3. Any demand under this Guarantee shall be in writing and shall be accompanied by a sworn statement from the Chief Executive Officer or the Chief Financial Officer of the Contractor stating as follows:

(a) that the amount(s) demanded are properly claimed and due and payable in accordance with the terms of the Contract;
(b) the calculation of such sums together with any supporting documentation reasonably required to assess such demand; and
(c) that the Company was duly notified of the amount(s) demanded in accordance with the terms of the Contract.

4. In circumstances where the amount(s) demanded under this Guarantee are not in dispute between the Company and the Contractor, the Guarantor shall be obliged to pay the amount(s) demanded within forty-eight (48) hours from receipt of the demand.

5. In the event of dispute(s) between the Company and the Contractor as to the Company’s liability in respect of any amount(s) demanded under this Guarantee:

(a) the Guarantor shall be obliged to pay any amount(s) demanded up to a maximum amount of United States Dollars Three Million (US$3,000,000) on demand notwithstanding any dispute between the Company and the Contractor;
(b) the Guarantor shall be entitled to withhold and defer payment of the balance of the sum demanded in excess of United States Dollars Three Million (US$3,000,000); and
(c) the Guarantor shall be entitled to withhold and defer payment of any other disputed amounts claimed under this Guarantee,

until a final judgment or final non-appealable award is published or agreement is reached between Company and contractor as to the liability for the disputed amount(s)."

Issues

The main legal issues in this case concerned the proper interpretation of the terms of the Guarantee. These included:

  1. Whether the Guarantee was an on-demand guarantee only in relation to claims where liability had been admitted by Kegot
  2. A series of questions as to the proper construction of the Guarantee's provisions in terms of what constituted a proper demand
  3. A mixed question of fact and law as to whether or not, in light of the proper construction of the Guarantee, the demands that were in fact made were compliant

Decision

Issue 1: Whether the Guarantee was an on-demand guarantee only in relation to claims where liability had been admitted by Kegot

Nicholas Vineall QC, sitting as a deputy High Court judge, began by considering the characteristics of guarantees. A guarantee can usually be classified as one of two types:

  • a "true guarantee," where on a true construction, the guarantee merely imposes a secondary obligation on the guarantor to "see to it" that the principal obligor's obligations are met; and
  • an "on-demand bond" or performance bond, where the guarantee imposes an autonomous obligation on the guarantor to pay, irrespective of the actual liability of the primary obligor. These instruments are typically issued by banks, which are prepared to take on an obligation to pay against documents.

Reference was made to two Court of Appeal cases which set out presumptions which can be applied for classifying a guarantee, (i) Marubeni Hong Kong v. Mongolian Government [2005] EWCA Civ 395; and (ii) Wuhan Guoyu Logistics Group Co Lt v. Emporiki Bank of Greece SA [2012] EWCA Civ 1629.

The Guarantee in this case fell into both categories.

It was held that there was no logical reason why the fact that the party providing the guarantee was not a bank should assist in determining the obligation undertaken. The correct approach in determining the extent of the on-demand obligation in the guarantee in such cases is simply to consider the words the parties chose to use to record their agreement.

On that approach, in this case, provided that there was a valid demand complying with clause 3, the position for clauses 4 and 5 was as follows:

– By clause 4, if the amounts demanded were not in dispute between Rubicon and Kegot, then Krisenergy should have paid them within 48 hours of receipt of the demand. It was held the operative wording used, "where the amount(s) demanded are not in dispute," meant that the amounts demanded were not in dispute either as to liability, or as to the quantum.

– Clause 5 was held to be directed to what was left over from clause 4, and was engaged if and insofar as there was a dispute between the parties as to Kegot's liability to pay some part of the sum or sums demanded. The opening wording, "In the event of dispute(s)... as to [Kegot's] liability in respect of any amount(s) demanded under this Guarantee," refers to liability to pay some or all of the sum claimed – i.e., disputes could relate to either liability or quantum.

It was therefore held that the on-demand liability arose in relation to the first $3 million worth of claims, and it did not matter whether the dispute was as to liability or quantum.

Issue 2: Clause 3 requirements for a valid demand

The parties agreed that a demand under either or both of clauses 4 and 5 was invalid unless it was accompanied by a sworn statement satisfying limbs (a) and (c) of clause 3, but disagreed about what was required by limb (b).

The first question was whether the supporting documentation had to accompany the demand.

As the wording of clause 3 did not make good grammatical sense, the deputy judge had to apply Rainy Sky SA v. Kookmin Bank [2011] UKSC 50 "to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant," with the relevant person being one who has available all the background knowledge which would have been reasonably available to the parties.

He therefore reformulated clause 3 and held that the supporting documentation had to accompany the demand. This was necessary because when the Guarantor received a demand it had to decide within 48 hours whether to pay. It therefore had to be a position to decide whether this was a demand for amounts that were not in dispute (triggering clause 4), or for amounts that were in dispute (triggering clause 5), or a mixture of the two.

Issue 3: Was clause 3 complied with?

The second question related to exactly what those documents needed to be.
It was held that the documents were those which were reasonably required for Krisenergy to determine from Kegot whether (and to what extent) the claim was admitted or disputed by Kegot, and would presumably also have extended to documents sufficient to allow Krisenergy to form a provisional view as to whether or not the claims which gave rise to the demands were bona fide and not fraudulent claims, but nothing further than that. In particular, they did not need documents to enable them to assess the merits of the underlying claims.

The documents which Rubicon had provided were found to comply with those requirements.

Conclusion

The first demand was therefore a valid demand within the meaning of clause 3, and Krisenergy was obliged to pay the sum demanded ($1,827,901.44) within 48 hours.

As ever, the decision emphasises the need for clarity, and review of contractual wording to ensure it meets the parties' requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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