Meritz Fire and Marine Insurance Co Limited –v- Jan de Nul NV (2010) EWHC 3362 (Comm)

Mertiz (the “Guarantor”), an insurance company, had issued advance payment guarantees to Jan de Nul (the “Buyer”) guaranteeing the repayment of payments made by the Buyer under 3 shipbuilding contracts with a Korean shipbuilding company (the “Builder”). The Builder merged with another company which transferred the shipbuilding part of the business to a new company (the “New Builder”). The New Builder got into financial difficulties and the Buyer terminated the contract seeking a refund of the payments made to date. The New Builder then went bankrupt and couldn’t repay.

The Buyer tried to make a claim under the payment guarantees from the Guarantor.

The Guarantor argued the following:-

  1. the guarantees were contracts of suretyship, not performance bonds;
  2. it had no liability because there had been material variations in the shipbuilding contracts and changes in the corporate identity of the shipbuilder;
  3. and as a result of the corporate changes, the Buyer was unable to make a contractual demand which triggered liability under the guarantee.

The court held as follows:

  1. The guarantees were performance bonds, as they met three out of the four criteria, being:-
  1. the underlying contracts were made between parties in different jurisdictions,
  2. the guarantees did not contain clauses excluding defences available to a surety in a classic guarantee where the surety’s liability would be secondary, and
  3. the undertaking was to pay on demand.

Despite the fact the instrument had not been created by a Bank (the fourth criterion) the court held that as the Guarantor was providing financial instruments for a fee and the guarantees referred to and followed the Uniform Rules for Demand Guarantees of the International Chamber of Commerce, the facts pointed to primary liability rather than secondary liability.

  1. Even if there was only secondary liability, the Guarantor had not been discharged from liability because the corporate identity of the Builder had changed or because of material changes in the shipbuilding contract.
  1. The Buyer was able to make a contractual demand after the dissolution of the Builder, which triggered liability under the guarantees because the shipbuilding contracts contained provision that payment would be made under the guarantees in the case of dissolution. It didn’t make any difference that the Builder was dissolved as part of a re-organisation, whereby a new company took its place.