C v D

A first-demand guarantee preserves the beneficiary’s immediate access to payment despite an underlying contractual dispute. Where the guarantee requires the beneficiary to state an opinion about breach, the opinion must be honestly held, but the guarantor is not entitled to litigate the underlying dispute before payment unless the guarantee provides for that. A tribunal may decide an issue on assumptions favourable to a party and leave other issues for determination between different parties where those issues no longer affect the outcome. A party that recognises a dispute concerning a guarantee and accepts the tribunal’s jurisdiction cannot later deny that jurisdiction. The tribunal may permit an amendment from declaratory relief to monetary relief where the amendment is logical, causes no prejudice and is considered fairly.

The claimants challenged a second partial award in a London-seated LCIA arbitration concerning guarantees connected with the sale of interests in Nigerian offshore oil blocks. The tribunal had ordered payment under an Adjustments Guarantee and a Deferred Payments Guarantee.

The challenges invoked sections 33, 67 and 68 of the Arbitration Act 1996. The claimants alleged serious procedural irregularity, including failure to address a bad-faith defence and improper use of assumptions, and challenged the tribunal’s jurisdiction and its permission for the defendant to amend a declaratory claim into a claim for payment.

1. Adjustments Guarantee. The application challenging the award under the Adjustments Guarantee failed. The tribunal had correctly assumed, in the claimants’ favour, that the Dispute Notice was valid and that the Final Adjustments Statement was erroneous. It then correctly decided that those assumptions did not make the demands invalid.
2. The guarantee required the defendant to state that, in its opinion, the relevant claimant had failed to comply with the sale agreement. That opinion had to be honestly held. The presence of an underlying dispute, or an allegedly erroneous statement of account, did not itself establish dishonesty or bad faith. The first-demand structure required payment first and later resolution of the underlying dispute. The tribunal was therefore entitled to conclude that the demands were valid.
3. The tribunal’s reference to a later letter was an additional point and was not essential to its conclusion. There was no failure to address the bad-faith defence at the time of the demands. Nor was there procedural unfairness in adopting the Interim Assumptions. A tribunal may find that its conclusion on particular issues means that other issues do not arise between particular parties, while leaving them for later determination between other parties.
4. Deferred Payments Guarantee. The tribunal had jurisdiction. Before the Request for Arbitration there was a dispute concerning the guarantee. The claimants’ Response identified the guarantee as within the dispute and expressly accepted that the tribunal should exercise jurisdiction over the second claimant. The second claimant had therefore submitted to the tribunal’s jurisdiction.
5. Under article 22.1(a) of the 1998 LCIA Rules, the tribunal was entitled to permit the defendant to amend its claim from declaratory relief to payment. The amendment reflected the relief sought by the original declarations, was logical, was considered with due process and caused no prejudice.
6. The applications under the Arbitration Act 1996 were dismissed.