Sabah Shipyard (Pakistan) Ltd v Pakistan (By the Managing Director, Private Power and Infrastructure Board)

On a summary judgment application, a defendant need only show a realistic prospect of establishing its defence. Documents submitted to demonstrate project finance may impliedly represent that the commitments are genuine and, so far as the maker knows and believes, capable of fulfilment. A party’s ability to investigate the truth does not ordinarily defeat a misrepresentation claim.

A general guarantee of a principal debtor’s contractual obligations does not, without very clear words, make the guarantor bound by an arbitration award to which it was not party. The creditor must prove the underlying liability independently, although evidence from the arbitration may remain admissible.

Sabah sought summary judgment against the Islamic Republic of Pakistan under a guarantee connected with a power project in Karachi. Sabah relied on an arbitral award determining that the Karachi Electricity Supply Corporation had breached the underlying power purchase agreement and was liable to repay sums drawn under a letter of credit.

Pakistan advanced two principal defences: that the guarantee had been induced by fraudulent misrepresentations concerning financial closing and that Pakistan was not bound by the arbitral award. The proceedings followed an earlier action, later stayed, and the commencement of a second action after Sabah ratified and authorised the proceedings. The central issue was whether either defence had no realistic prospect of success.

1. Application refused. Pakistan had realistic prospects of establishing both the misrepresentation defence and the defence that the guarantee did not bind it to the arbitral award. The court therefore declined to enter summary judgment or require payment into court as a condition of defending.
2. Documents submitted for financial closing could contain implied representations that the commitments were genuine and, so far as Sabah knew and believed, capable of fulfilment. The material concerning the alleged lenders, the project finance and subsequent conduct provided a realistic evidential basis for Pakistan’s case that those representations were false and fraudulent.
3. The fact that Pakistan might have undertaken its own due diligence did not defeat the defence. Nor did the fact that other matters may have induced Pakistan to acknowledge financial closing exclude the alleged representations as a possible operative cause of the guarantee. The court also found realistic prospects that Pakistan had not affirmed the guarantee with knowledge of the relevant facts and that delay did not make reliance on the defence unjust.
4. The earlier anti-suit proceedings did not create issue estoppel because they had not resulted in a final judgment. The entire agreement clause did not necessarily exclude liability for deceit, and the possibility of restitutionary or damages consequences meant that rescission could not be treated as bound to fail.
5. Applying In re Kitchin [1881] 17 Ch Div 668 and The “Vasso” [1979] 2 Lloyd’s Rep 412, the guarantee’s references to monetary damages and the balance due under the underlying agreements were insufficiently clear to make Pakistan liable to honour an award made against the principal debtor. The guarantee did not expressly provide that an award would bind the guarantor or constitute conclusive evidence. Sabah therefore had to prove the underlying claim against Pakistan independently, though evidence from the arbitration might be admissible under the ordinary English law of evidence.

This was a first-instance Commercial Court decision. The judgment records that an earlier anti-suit injunction was continued by the High Court and that the Court of Appeal dismissed Pakistan’s appeal on 14 November 2002. The first action was subsequently stayed, and the present application arose in the second action.