Korea Shipbuilding & Offshore Engineering Co, Ltd & Anor v Whale Corporation TMT Co Ltd

A guarantee requiring a written demand is engaged by a document giving a clear intimation that payment is required. The word “demand” is unnecessary, but notice merely recording the principal debtor’s default is insufficient. Contractual notice provisions are not incorporated into a guarantee unless the guarantee so provides. A debtor’s discharge in United States Chapter XI proceedings does not discharge an English-law guarantor where the applicable bankruptcy provision preserves the liability of other entities. A contractual reference to payment within 12 months after delivery may defer payment without extinguishing the underlying liability. Limitation runs from the relevant demand, missed instalment or other accrual event, subject to a valid acknowledgment of liability.

The claimants, South Korean shipbuilders, brought six structurally similar actions against TMT, affiliated buyer companies and corporate guarantors. The claims concerned deferred shipbuilding instalments, deferred CINO payments and liabilities under guarantees. The defendants raised defences based on release, invalid demands, limitation and compromise in United States Chapter XI proceedings.

The defendants were unrepresented at trial. The court proceeded in their absence under CPR 39.3. The central issues were the construction and effect of the amended shipbuilding agreements and guarantees, the validity and timing of demands, the effect of the Chapter XI proceedings, and limitation.

The court entered judgment on the claims, subject to the limitation findings and the calculation of the sums remaining due in one action.

1. Demands under guarantees. A demand requires a clear intimation that payment is required. The word “demand” need not be used, but a mere notice of the principal debtor’s default is insufficient. The email of 3 January 2012 was treated as notice only; the email of 20 January 2012 was a valid written demand. The guarantee’s requirement of a written demand was satisfied by email, and the shipbuilding contracts’ provisions requiring notices by letter or facsimile were not incorporated into the guarantee.
2. Chapter XI proceedings. The compromise or discharge of the buyers’ liabilities did not compromise claims against guarantors who were not parties to those proceedings. Section 524(e) of the United States Bankruptcy Code expressly preserved the liability of other entities. The court also applied the reasoning in Global Distressed Alpha Fund 1 v PT Bakrie Investindo [2011] EWHC 256 (Comm): even if United States law could affect a guarantor, it did not govern an English-law guarantee.
3. Construction of deferred CINO obligations. Terms requiring payment “until 12 months after delivery” deferred the payment date. They did not extinguish the liability after 12 months. An extinction construction lacked commercial purpose and conflicted with the provision preserving the liability as a senior obligation.
4. Corporate guarantees and limitation. The corporate guarantees in certain actions made the guarantors primary obligors and did not require a demand. Claims were time-barred where proceedings were issued more than six years after the relevant demand, missed instalment or accrued CINO liability. Acknowledgments of indebtedness extended limitation for the liabilities acknowledged under section 29(5) of the Limitation Act 1980, but did not extend an unacknowledged CINO amount.
5. Disposition. Judgment was given for the claimants for the sums identified in the judgment, with interest. Certain claims in action CL-2018-000427 were dismissed as time-barred. Counsel was directed to prepare an order and identify the precise sums remaining payable.