Meritz Fire & Marine Insurance Co Ltd v Jan de Nul NV [2011] EWCA Civ 827

The Respondent buyers had entered in to three shipbuilding contracts (the “Contracts”) with a Korean shipyard (the “Yard”), and had made advance payments of the purchase price of the vessels. The Appellant insurance company had guaranteed the return of those payments in the event that the Contracts were terminated prematurely. The guarantees incorporated the ICC’s Uniform Rules for Demand Guarantees.

The Yard subsequently merged with another company, which transferred the shipbuilding business to a new company (the “Company”). The Yard had been dissolved, and under Korean law its rights and obligations under the Contracts had been transferred to the Company.

The Respondent served notice of default under and terminated the Contracts, and demanded repayment from the Company. When this was not received, the Respondent demanded repayment from the Appellant under the guarantees. The Appellant submitted that on the true construction of the guarantees, it had only guaranteed the Yard’s obligation to make repayment, and not anyone else’s. As such, once the Yard’s obligation disappeared, the guarantees no longer had any application. Further, the Appellant argued that once the builder of the vessels was the Company rather than the Yard, no demand in conformity with the Contracts could be made (as was required by the guarantees).  

The Court found in favour of the Respondent. In the circumstances, the guarantees were to be operated against documents without regard to the underlying contract. The Respondent was entitled to repayment, and in the absence of repayment by either the Yard or the Company, that repayment had to be made by the Appellant. The guarantees operated on the basis that no refund had occurred, not on the basis that the Yard had failed to make repayments when required.  

It was also held that the Respondent was able to make a demand in conformity with both the Contracts and the guarantees. Under the guarantees, the buyer’s demand was payable on receipt of its signed statement certifying that its demand was made in conformity with the contract, and that the Yard had failed to make the refund. The Respondent’s statement did exactly that. It was not relevant whether or not there was a true liability to refund under the contracts, nor whether the Yard had in fact failed to make the refund.  

Taking into account the nature of the particular guarantees in issue, where payment was to be made against documents (in this case, signed certificates), questions of whether the debtor was liable under the underlying contracts were irrelevant. In cases such as this if the documents were in order, then the guarantor had to pay.