In Sabah Shipyard (Pakistan) Ltd (A company incorporated in Pakistan) v PAKISTAN (by the Managing Director, Private Power & Infrastructure Board) – Lawtel 19.11.07 the Claimant had established a standby letter of credit in favour of a company, and the Defendant issued a guarantee in favour of the Claimant. The company drew on the letter of credit, which the Claimant claimed was a breach of contract by the company and the Claimant obtained an arbitration award for repayment of the amount drawn down. The Claimant then brought proceedings seeking payment under the guarantee. The issues concerned fraudulent misrepresentation and whether the Defendant was bound by the arbitration award.
The Commercial Court found on the facts that the Defendant had a realistic defence that it had been induced to enter the guarantee by fraudulent misrepresentation. It also held that it was arguable that the Defendant was, in any event, not bound by the findings in the award and that it was incumbent on the Claimant to establish its case against the Defendant independently of the award. The fact that the wording of the guarantee extended to monetary damages arising out of a failure by the company to perform its contractual obligations did not amount to the very clear words required to make a surety liable to honour an award made against the principal. It was arguable that the Defendant was entitled to have the case proved against it and the Claimant could not rest its case on the company's failure to honour the award to establish liability on the Defendant.