Spliethoff's Bevrachtingskantoor BV v Bank of China Ltd

A bank instrument securing repayment of advance instalments may be a performance bond despite being called a guarantee and containing a provision deferring payment during an underlying dispute. Construction depends on the instrument as a whole and the parties’ objective intention.

Where a dispute has been resolved by arbitration, a later demand may be valid without a further monetary award if no new dispute exists. A party that fully defends foreign proceedings after unsuccessfully challenging jurisdiction may have submitted for the purposes of Civil Jurisdiction and Judgments Act 1982. A stay of enforcement requires special circumstances and is discretionary; foreign restraints on payment do not necessarily justify one.

Spliethoff's Bevrachtingskantoor BV paid advance instalments under two English-law shipbuilding contracts. Bank of China Ltd issued refund instruments securing repayment if the contracts were cancelled. After arbitral awards confirmed SBV’s cancellation rights and the sellers’ repayment obligations, SBV demanded payment from the bank.

The sellers separately obtained Chinese proceedings, judgments and orders restraining payment under the instruments. The bank relied on those matters to resist liability and sought a stay of enforcement. The principal issues were the character and construction of the instruments, the validity of the Hull 39 demand, recognition of the Chinese judgments and orders, the effect of alleged fraud, and whether enforcement should be stayed.

1. Nature of the Guarantees. The instruments were performance bonds, not surety guarantees. They were issued by a bank in an international transaction, secured cash repayment obligations, contained an undertaking to pay on demand, and imposed an irrevocable, unconditional and primary obligation. The proviso postponing payment during a qualifying arbitration affected timing, not the substance of the obligation.
2. Hull 39 demand. The arbitration had resolved the dispute concerning SBV’s entitlement to cancel and the sellers’ repayment obligation. Since the sellers raised no fresh dispute after cancellation, the proviso was not engaged when SBV demanded payment. No further monetary award was required. The demand was valid.
3. Recognition. Under sections 32 and 33 of the Civil Jurisdiction and Judgments Act 1982, SBV had submitted to the Chinese jurisdiction by fully defending the merits after its jurisdictional challenges failed. The Chinese judgments and XXK orders therefore fell to be recognised. The Electronics orders did not, because SBV had not submitted in those proceedings. Once there had been submission, public policy based on the contractual arbitration clauses and related anti-suit orders could not prevent recognition under section 32.
4. Fraud and surety defences. The instruments’ broad no-dispute and no-set-off provisions excluded reliance on the Chinese fraud findings even if the instruments had been true guarantees. The alleged breach concerning engine specifications was not a material variation within Holme v Brunskill. In any event, the relevant contractual obligation had not been embodied or incorporated into the instruments.
5. Stay. The court had power under CPR 83.7(4) to stay enforcement where special circumstances made enforcement inexpedient, but the circumstances did not justify a stay. The instruments were intended to protect SBV’s cashflow, Chinese illegality was not illegality at the place of performance, and the bank faced no sufficient demonstrated risk of criminal or civil sanctions or double payment.

Judgment was granted for SBV under both Guarantees and the application for a stay was dismissed.

Not an appeal. The judgment records prior arbitral proceedings and Chinese court proceedings but no appellate history for this English action.