The Court of Appeal rejects a guarantor's attempts to deny its liability under Advance Payment Guarantees following the novation of shipbuilding contracts under Korean law. Meritz Fire & Marine Insurance Co. Ltd v Jan de Nul N.V. & Anr (2011)
Jan de Nul N.V. and another company were buyers of dredgers from Korean shipyard HWS under three shipbuilding contracts.
The appellant insurers, Meritz, had agreed with the shipyard to provide "Advance Payment Guarantees" (APGs) to the buyers for the advance payments in the event of premature termination of the building contracts. The guarantees incorporated the ICC's Uniform Rules for Demand Guarantees. The question that faced the Court of Appeal was whether Meritz were liable to pay in the unusual circumstances that arose in this case.
The shipbuilding contracts were transferred first to a company named Buyoung, then to a newly formed company, Asia Heavy. HWS was dissolved and, under Korean law, the rights and obligations under the shipbuilding contracts were transferred to Buyoung and/or Asia Heavy.
At a later date, and in accordance with the terms of the contracts, the buyers terminated the agreements and demanded that Asia Heavy repay the instalments already paid under the contracts. When the latter failed to do so, the buyers turned to Meritz for repayment under the APGs in accordance with the termination clause of the building contracts (Clause 17).
Meritz objected and the Court of Appeal considered Meritz's submission that they had assumed the risk of HWS' default and not that of their successors who they would not have previously assessed. However, as Meritz had not taken the opportunity, available under Korean law, of objecting to the transfer within the subsequent six months, the argument did not succeed.
The Court of Appeal also rejected Meritz's argument that the buyers had been unable to make a demand in conformity with Clause 17 of the contract, as required by paragraph 4 of the APG, as the shipyard was no longer HWS but Asia Heavy.
The Court of Appeal agreed with the buyers that, on the true construction of the APGs, these were designed to operate on the basis that the builder had failed to make the refund when it was obliged to do so. The appeal was dismissed.
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