Greenland Bank Ltd v American Express Bank Ltd

In deciding whether a bank could retain cash collateral pending foreign proceedings concerning a demand performance bond, the court had to assess whether there was a realistic prospect of a valid claim under the bond. The question was not whether the foreign court was likely to reverse its existing judgment. The English court assessed the contractual construction issue by applying English principles, subject to any proved difference in the foreign law or practice. A real prospect could arise from the possibility that further evidence would be admitted, that an existing finding would stand, or that the bond would be rectified. The bond’s first renewal provisions gave the bank a break option, while its later renewal wording was capable of supporting continuing annual renewals.

Greenland Bank Limited, later placed in liquidation, sought repayment from American Express Bank Limited of a US$1.5 million deposit provided as cash collateral for a performance bond issued in favour of Bangladesh Power Development Board. The bond was governed by Bangladesh law and was the subject of proceedings in Bangladesh. A Bangladeshi District Court had ordered that the bond be extended and that a new bond be issued, but an appeal was pending.

The issue before the High Court was whether there remained a reasonable or realistic prospect that a claim could be made against Amex under the bond, such that Amex had a contingent liability and could retain the deposit under the counter-indemnity or contractual set-off provisions.

1. Applicable question. The court accepted that the relevant question was whether there was currently a realistic prospect that a claim could be made good against Amex under the bond. It was unnecessary to decide whether the Bangladeshi District Court’s judgment was likely to be reversed on appeal. The Bangladeshi appellate courts could reconsider factual and legal issues and admit further evidence.
2. Method of assessment. The court approached the issue as an English court would approach contractual construction and the burden of proof, except where expert evidence established a different rule of Bangladeshi law or practice. The social and economic importance of the electricity project could form part of the factual matrix and could legitimately affect the likelihood of appellate intervention, without changing the applicable English approach.
3. Construction of the bond. The first two sentences of the final paragraph were construed as giving Amex a break option after the initial period. Bangladesh Power had to request renewal at least one month before expiry, after which Amex retained an absolute discretion whether to agree. The later wording, providing for successive annual renewals until 10 June 2013, was capable of supporting Amex’s construction that further renewals did not necessarily require the same request and consent mechanism.
4. Application. The bond was badly drafted and internally inconsistent. There was a sufficient possibility that the Bangladeshi appeal would be determined on the existing finding that Amex had agreed to an extension, because further evidence might not be admitted. There was also a reasonably arguable possibility of rectification removing the requirement for Amex’s agreement. Those possibilities created a real prospect that the bond had not lapsed.
5. Amex therefore had a contingent liability capable of supporting retention of the deposit under the contractual arrangements relied upon. The court acceded to Amex’s case. The judgment records no separate formal order beyond that conclusion.

The judgment was at first instance. It records that proceedings concerning the performance bond were pending on appeal in Bangladesh from a District Court judgment delivered on 5 May 2004. The outcome of that foreign appeal was not determined in these proceedings.