Bank Provided A Guarantee, Not A Performance Bond

Wuhan Guoyu Logistics Group Co Limited & Others v Emporiki Bank of Greece SA [2012] EWHC1715 (Comm)

Wuhan is a Chinese shipbuilder which entered a shipbuilding contract with two Greek companies. The contract price was payable in five instalments, with the second instalment being due when the first steel for the ship had been cut "approved by the Buyer's representatives". Emporiki provided finance for the ship, including a document described as guarantee stating that the customer would pay the second instalment. In April 2009, Wuhan claimed that the first steel had been cut (although no representative of the customer was present as required) and issued an invoice. It was not paid and there was a dispute as to whether the steel cutting had in fact taken place. Wuhan made a demand under the payment guarantee, claiming that the document was in the nature of a demand or performance bond and that payment was therefore due on written demand. Emporiki claimed that the document was a true guarantee and therefore it was not liable to make payment until it was determined whether the second instalment was due.

The High Court, Christopher Clarke J, found in favour of Emporiki. The core obligation was that of a pure guarantee, namely Emporiki guaranteed the due and punctual payment of the second instalment. That was not a guarantee of what was not due.

The fact that circumstances were set out following which the bank should pay (e.g. the requirement that the steel be cut) supported the Judge's conclusion. It was also relevant that the word "guarantee" was used throughout the document. Emporiki was not simply agreeing to pay on demand the second...