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confirmed by the parties as remaining applicable to all of GUPC’s obligations under the contract and therefore included GUPC’s obligations to repay the additional advanced payments made by ACP.
After the advance payments had fallen due, ACP notified GUPC that it was in breach of its obligations. Simultaneously, ACP sent demands to the Consortium for payment under the APGs. In English proceedings before the Commercial Court, ACP then sought summary judgment for repayment of the outstanding advanced payment sums, totalling US$288 million. In the meantime, the Consortium had commenced ICC arbitration proceedings claiming that repayment of the advanced payments was not due or payable under Panamanian law.
In support of its summary judgment application, ACP argued that the English law APGs were to be interpreted as on-demand bonds, requiring the Consortium to make repayment immediately upon demand and without being able to contest GUPC’s liability to make repayment of the advanced payments to ACP.
ACP stressed the importance of paragraph 2.1 the English law APGs which provided that each of the guarantors contracted jointly and severally “as primary obligor and not as surety”. ACP also relied on paragraph 4.2 of the APGs which provided that:
“Determinations of interest rate and amounts under this Guarantee shall be made by the Employer, which determinations shall be conclusive and binding hereunder in the absence of manifest error…”.
ACP submitted that these paragraphs indicated that the obligation of the Consortium was to pay on demand. Amongst other arguments, ACP placed particular reliance on the plural word “amounts” and argued that it was a reference both to the amount due under the guarantee and the amount of interest thereon.
The decision
The court rejected ACPs position and held that the English law APGs were ordinary guarantees requiring proof that the advanced payments were overdue as between ACP and GUPC. The court placed emphasis on the fact that the APGs were expressed to guarantee the repayment of the advanced payments “as and when due pursuant to the Contract”. Also significant was the fact that the guarantee required the Consortium, on demand, to perform the obligations which GUPC was in breach of “in the same manner that [GUPC] is required to perform such obligations according to the terms of the [underlying] Contract”.
While the court accepted ACP’s argument that the Consortium’s liability under the APGs was primary, not secondary (due to the “primary obligor” language), ACP was required to go a step further and show that the Consortium’ liability was triggered purely by a demand and was not contingent on proof of GUPC’s liability to ACP for repayment of the advanced payment. The court also dismissed ACP’s argument in relation to clause 4.2 (quoted above): the clause was intended to apply to interest only and the use of the plural word “amounts” was insufficient to change the whole nature of the instrument to an on-demand bond.
The court drew support for its conclusion from the “Marubeni presumption”, which is a rule of thumb against construing an instrument as an on-demand bond/guarantee when the party providing the instrument is not a financial institution.
Conclusions and implications
This decision highlights the importance of careful drafting when dealing with guarantees. Reliance on pro forma documents and the need for specialist language can sometimes result in guarantees which are a combination of different drafting, without any clear indication as to whether an ordinary “see to it” guarantee or an on-demand instrument was intended. Clarity in this regard is particularly important when dealing with non-financial institutions, given the presumption against on-demand instruments which apply in such circumstances.
BuildLaw | Dec 2017 26