England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT

		Royal Courts of Justice
		13th November 1997

LORD JUSTICE HOBHOUSE: These applications involve an exercise of discretion on our part. The applications which are before us are made by a bank called Jugobanka which has its head office in Belgrade. It was formerly a Yugoslav bank in the sense that it did business in the whole of the Yugoslav Republic. Since the breakup of Yugoslavia in 1991, it has essentially become a Serbian bank, and it ceased to be able to do business in the other former parts of Yugoslavia, in particular in Croatia.

On 25th July 1996, on the trial of the action, Tuckey J gave judgment against Jugobanka in the sum of US $24,254,550, a substantial sum. The judgment he gave was in favour of the plaintiffs in the action who are now called Ali Shipping Corporation of 80, Broad Street, Monrovia. They are, as the address implies, probably a one ship company. They are managed effectively from London and, in particular, by a gentleman called Mr. Sherriff, to whom I will have to refer later.

The action arose out of a guarantee which the bank had given to Ali in connection with a shipbuilding contract which Ali had with a yard in Trogir, which is near Split, in what is now Croatia. The shipbuilding contract was dated 29th April 1988, and it had an addendum No. 1 which was dated 30th March 1990. The shipbuilding contract was governed by English law with a London arbitration clause. Many of its terms fall into the familiar pattern. It provided for instalments of the price to be paid at various stages of the construction of the vessel; for example, the laying of the keel and the time of launch. The total sum involved after the addendum was something in excess of US $21 million.

By clause 5 of the shipbuilding contract the payments of the instalments was to be made in US dollars in New York to the Irving Trust to the account of Jugobanka New York Agency, for credit of Jugobanka for the account of the yard. Clause 11B of the shipbuilding contract covered the possibility of rescission of the contract by Ali and the need for the repayment of instalments that had earlier been paid. Other matters were dealt with in that clause but it is not necessary for me to refer to them. One of the provisions of that clause was that the repayment of the instalments was to be guaranteed by the bank and a form of guarantee was scheduled to the shipbuilding contract.

The right of Ali to rescind the contract could arise through two routes. One was delayed performance under clause 12.4 of the shipbuilding contract. That required certain formalities to be followed before that right could arise. The second route was the default of the yard under clause 16. That provided that the buyer should be entitled, but not bound, to declare the builder in default in any of the following circumstances. The first is insolvency. The second is that if

"the Builder without justification stops or delays the progress of construction of the vessel to such extent as will prevent the Builder from delivering the vessel within such time-limits as provided in this contract or if the Builder (without the written consent of the Buyers) assigns, sub-lets .... and such default continues for a period of thirty (30) days from notice of the same having been given by the Builder to the Buyer.

If the Builder shall be declared in default as above provided the provisions of clause X1B shall apply."

A guarantee document took into account the addendum to which I have referred, and, accordingly, it was dated 11th April 1990. It is in the form of a letter sent by Jugobanka to Ali. It refers to the shipbuilding contract and to the payment of the instalments. It says:

"According to the Shipbuilding Contract Clause V and Addendum No.1, Article 1 para 2 of 30th March, 1990, you are to make four (4) cash payments in advance of delivery of the Vessel in instalments as follows."

Then it sets out the four payments in US dollars and the stage at which they have to be paid. It continues:

"Under certain circumstances described in the Shipbuilding Contract, the Builder may become obliged to refund to you the aforesaid advance payments which you have made to the Builder and to pay interest thereon...."

It also says that:

"In consideration of your making the aforesaid advance payments to the Builder, we the undersigned, hereby irrevocably, on the terms and conditions specified hereinafter, guarantee the payment by the Builder to you, or your assignee, as and when the payment becomes due and payable of so much or all of the total sum of US$ 15.330.000 and interest thereon (calculated as aforesaid) as may become payable in accordance with the provisions of the Shipbuilding Contract.

In the event that the Builder fails punctually to pay any of the amounts covered by the Letter of Guarantee, you will submit to us a written request for payment hereunder, including a brief description of the circumstances which have entitled you to a refund of any or all of the aforesaid advance payments and a statement that a written demand for refund has been made upon the Builder and that the refund has not been made in full within thirty (30) days following the making of such demand. If the Builder shall have made a partial payment, your request must state the amount paid and the balance remaining due. Within fourteen (14) days after the receipt of such a request, we, the undersigned, will pay to you the whole amount due from the Builder, including the interest...."

Further on, it says:

"This Letter of Guarantee shall be freely assignable by you to any party (and by such assignee to any other party) to whom an assignment shall be made of the Shipbuilding Contract. It becomes effective immediately and shall continue in effect, notwithstanding any amendment or additions to the terms of the Shipbuilding Contract by the parties thereto, until the first to occur"

of certain events which are not presently material. The letter expressly provides that the guarantee shall be governed by English law and be subject to the exclusive jurisdiction of the English High Court of Justice in London. That document was signed by an officer of the Jugobanka at Split and was on their writing paper.

The sequence of events, out of which the present litigation arose, are recited in the judgment of the judge and can be shortly summarised. The four payments referred to in the letter were made on 16th May 1988, 21st May 1990, 27th December 1990 and 26th July 1991. The fourth payment was at the request of the yard paid to the account in Germany of another shipyard called Mercur-Mainz. It was thus paid into an account which was not that provided for in clause V of the shipbuilding contract, but it was paid to somebody on behalf of the yard and at the request of the yard.

In 1991 matters had got to the stage where the Republic of Yugoslavia was breaking up and there were hostilities and other war-like activities taking place. In July 1991 Croatia declared itself independent of the previous Yugoslavian Republic. Fighting was continuing to take place between the previous constituents of the Yugoslav Republic.

By 1992 the yard was behind schedule and was running into financial difficulties. There were attempts, to which I will have to refer again later, to re-negotiate the contract as between the yard and Ali. However, matters by July had got to the stage that the yard wrote, in a communication dated 27th July 1997, addressed to Mr. Sherriff:

"Please be advised that all works to the vessel ... have been ceased as from Thursday 16th July 1992. The works shall be resumed when the agreement be reached as to financing of the vessel."

The essence of it was that the yard were demanding more money from Ali for the completion of the vessel. Ali were not prepared to provide that money, and after further exchanges, on 28th August Mr. Sherriff, in a communication to the yard which was copied to the bank's offices in Split and in Belgrade, stated that the yard were in default, that they had remained in default on being given notice for 30 days, and they were promptly held in default of the shipbuilding contract.

On 17th September, after a further period had elapsed, Mr. Sherriff faxed to the bank in Belgrade, saying:

"As previously advised, [the builders] have defaulted under the Shipbuilding Contract which has obliged them to return to our principals the USD 15,330,000 together with interest. By our previous messages to you, we have confirmed that [the builders] are unable to pay the amounts due.

Accordingly, we hereby again demand payment under the Refund Guarantee."

That demand was not responded to. The payment of the money was resisted and the writ in the action was issued on 9th October 1992 in the Commercial Court. The claim made was a claim under the guarantee.

I must digress to say that a point was taken about the adequacy of the demand of the bank. The question was whether the 17th September demand of 1992, read in conjunction with what had previously been exchanged between the parties, sufficed as a contractual demand under the guarantee. In order to meet that point, a further demand was duly made, and a second writ was issued in 1996. That was then consolidated with the 1992 action. This point has, however, become academic, since Tuckey J held that the 1992 demand was valid and contractual, and, accordingly, the claim made in the 1992 writ was not premature and there was no need for the issue of the second writ. Therefore, in this judgment I will not distinguish between the two writs.

The case of Ali was a simple one as pleaded. It said that events which triggered clause 16 had occurred. Those in turn had triggered clause 11.B, thus giving rise to the rights under the guarantee. There was an alternative case which, at a later stage, was introduced into the action, that there was a claim which could be routed through clause 12.4 and clause 11B and the guarantee. Nothing now turns on that, the judge having upheld the claim routed through clause 16.

However, there was another point which was raised by the plaintiffs, that it was a demand guarantee without any pre-conditions at all, analogous to a product guarantee which merely required a demand to be made of the guarantor, and the guarantor then had to pay up without any consideration of the contractual rights as between the principal debtor and the creditor. The judge did not accept that argument, and it is understandable why he did not, but I add that I assume and accept, for the purpose of the proceedings in this court, that it was not a guarantee of that character. It was a guarantee which created a liability which was dependant upon the liability of a primary debtor, and it was material for the judge to consider whether or not there was a liability under the shipbuilding contract. That was the basis upon which the judge proceeded.

The bank had initially denied that clause 16 applied to the facts of the case. They were asked for particulars of their denial. They failed to give them or to state whether they were making any positive case or were simply putting the plaintiffs to proof. Further and better particulars were ordered and then ordered in a peremptory form. The upshot of that was that the defendant bank elected to abandon the denial. They did this at the time that the matter was before Langley J on a summons in June 1996. The bank was then represented by leading counsel, Mr. Brindle, instructed by solicitors, Messrs Wilde Sapte. Indeed, that team had the conduct of the action on behalf of the defendants down to that stage. The judge recorded and stated in his judgment:

"The defendants do not now deny that the plaintiffs were entitled to rescind the contract."

That was slightly ambiguous: was it merely an indication that they were not advancing a positive case or were they making a concession? Having considered the judgment and having looked at the other correspondence that was exchanged, it appears that it was an express abandonment of that point. Be that as it may, at the trial before the judge the matter was covered by evidence and the letters were put in from which I have quoted.

It must also be borne in mind that that abandonment of that part of the previous case of the bank took place against the background that discovery had been given by Ali of communications with the yard at the material times in 1991 and 1992. There were other questions of discovery, to which I will revert, but it was an informed abandonment based upon access to the relevant communications that were contemporaneous to the relevant events.

The action came on for trial in the following month, in July 1996, before Tuckey J. A problem had by then arisen. The defendant bank were in real financial difficulties. Sanctions were being exercised against Serbia and Serbia based entities. They affected the position of the bank and its access to its funds abroad. However, there may by then have already been Mareva injunctions granted against it, and it had lost its assets in various parts of the former Yugoslavia. There was a genuine difficulty. It appears that the bank were not in a position, on the situation as a whole, to put their London solicitors in sufficient funds to enable them to instruct counsel to represent them at the trial. The solicitors applied to come off the record, and did so.

What was to happen about the trial that was shortly to take place? An adjournment was applied for by a gentleman whose name is Mr. Trgovcevic who was an authorised representative of the bank, apparently with some legal experience. That gentleman, for obvious reasons, has been referred to as Mr. T, and I will do the same. Clarke J considered the justice of the situation and decided that the trial must go ahead but, wholly exceptionally, he gave leave for Mr. Trgovcevic to represent the bank at the trial. That is what occurred. Apparently skeleton arguments had previously been drafted by counsel who were then acting for the bank. They were used at the trial. We have seen both those skeletons and the corresponding skeleton argument on behalf of the plaintiffs. Mr. Sherriff and a Dr. Kacic gave evidence. Mr. Trgovcevic conducted the questioning of the witnesses as material. He presented the documentary material to the judge and advanced such oral arguments as were necessary to supplement the written argument which had already been drafted. We have seen a full transcript of the proceedings before Tuckey J, and we understand why Tuckey J paid compliment to Mr. Trgovcevic for his competence in presenting the case of the bank. It is clear that he conducted their case competently, that the relevant points were properly presented to the judge, and that the relevant points were properly raised with the witnesses who were asked appropriate questions. In particular, Mr. Sherriff was cross-examined in a way which calls for no comment, either from the judge or myself. The points therefore were fully deployed. The judge was referred to the relevant authorities, and he had effective arguments addressed to him.

The judge, as I have previously said, was not persuaded that this was a demand guarantee. He dealt with the evidence which showed that Ali were entitled to rely upon clause 16 and that there was a proper demand made on the bank in September 1992. Accordingly, he came to the conclusion that the case came within clause 11B, that the defences raised by the bank to the claim under the guarantee had to be considered, and that the defences raised were those which had been deployed in the skeleton argument prepared by Mr. Grenfell.

The first argument was that the guarantee contract had been frustrated and, therefore, the bank had been discharged. This must have been an argument that they had been discharged by September 1992 when the cause of action had accrued. It is to be noted that this was not an allegation or argument that the building contract had been frustrated. It was an argument that the guarantee contract had been frustrated, although the building contract had not. It is undoubtedly correct, as the judge recognised, that the bank had difficulties. There had been war-like activities in the former parts of Yugoslavia. The Republic had broken up. Croatia had become independent. The bank had lost its branches in Croatia and had lost an effective relationship with the principal debtor yard. This was the nub of the case which was being presented and, if the applications are successful, would be presented in this court, that the breakdown or loss of the relationship between the bank and the yard frustrated the contract of guarantee.

However, it must be borne in mind that the only obligation of the bank remaining under the guarantee was a contingent obligation to pay sums of money to Ali. No case of impossibility is raised in that respect. It was a contract which was essentially of the nature of a risk contract to protect Ali against the risk that the yard would not fulfil their contractual obligations.

The situation is similar to that which was dealt with in the case of Fitzgeorge [1905] 1 KB 462, where, unsurprisingly, the insolvency and dissolution of the principal debtor was not pleaded as discharging the guarantor from his liability to the creditor. There remained the obligation of the guarantor to perform the contract of guarantee.

The judge considered all these arguments. He went through the facts. He said at page 17:

"In practical terms, therefore, I accept that what has happened has resulted in the bank being unable to pursue its right to reimbursement against the builder."

He continued:

"With those findings, was the guarantee frustrated? I have dealt with the facts in some detail but I think the answer to the question I have just posed is quite a short one. It was not.

The purpose of a guarantee of this kind is to ensure that the person who makes advance payments will be able to recover them from some more solvent party if, as in this case, the buyer defaults or even if it disappears. This latter proposition I think is elementary. Perhaps for this reason it has not been decided by the English courts except in Re Fitzgeorge (1905) 1 KB 462 where it was held that the fact that the debtor company had gone into liquidation did not affect the guarantor's liability."

He concluded in his judgment that this could not amount to a restriction of the contract.

It seems to me that this was an inevitable conclusion. There was no viable argument that the contract of guarantee was frustrated or that there is a prospect of persuading any court to take a different view.

The second line of defence involved an allegation of bad faith on the part of Ali. It was in effect an allegation that Ali had conspired with the yard to injure the bank. As I have previously said, from March 1992 onwards Ali were trying to negotiate a commercial solution to the problems of the yard to enable the vessel to be completed and delivered. Additional money had to be injected from somewhere, probably from the German shipbuilder, to whom I have already referred, Mercur-Mainz. Ali were in the position that they had made the advance payments and had not got the ship. They either wanted the ship completed and delivered or they wanted the payments back. The property in the uncompleted hull or the uncompleted ship was still in the yard, and it was appreciated, and the yard were well aware, that the bank had some sort of chattel mortgage over the uncompleted hull to secure the obligations of the yard to the bank.

In May 1992, in circumstances which are not in evidence and are speculative, a document came into existence, signed by an officer of Jugobanka, Split, consenting to the deletion of the mortgage. That document was not used by anybody at that stage but, obviously, it had a relevance to the negotiations that were then taking place.

By December 1992 the Split bank had been dissolved under Croatian law. In August 1993, long after negotiations between the yard and Ali had broken down, the mortgage was in fact removed pursuant to an order of a Croatian court using the consent to which I have referred. The argument of the bank is that the removal of the mortgage was due to some fraudulent scheme to injure the bank to which Ali was a party. There is no suggestion that Ali in any way benefitted from such an action. It is accepted that the negotiations which had been taking place had fallen through.

The judge who, of course, had the evidence of Mr. Sherriff, had the opportunity to see him in the witness-box and being cross-examined on the documents, and had submissions advanced on the contemporaneous documents, said this:

"[He] invites me to infer that the plaintiffs put the builder up to discharging the mortgage or were party to the discharge of the mortgage in circumstances where the bank in Belgrade were to be kept ignorant of what was being done.

This is a serious allegation to make. Mr. Sherriff was cross-examined about it. He denied it emphatically. He made it clear in his evidence that it was his understanding and intention that if the plaintiffs were to get title to the vessel, which would involve the discharge of the bank's mortgage on the vessel, that could only be done and would only be done with the consent and therefore the knowledge of the bank in Belgrade.

Mr. Sherriff gave his evidence very fairly. He conceded points where he had to. I accept that he is telling the truth about this. I reject the allegation of bad faith made through him against the plaintiffs. That finding is supported by the fact that from a memo which Mr. Sherriff prepared in December 1993 it is clear that at that time the mortgage had been discharged. If he or the plaintiffs had been a party to some skulduggery involved in getting this mortgage discharged he would have only been too well aware, I think, of what had happened and would not have written this document.

I therefore reject this contention on the facts."

The third defence which was raised related to the fourth payment that had been made on 26th July 1991. The facts were not in dispute. I have already referred to them. It involved the payment of the relevant sum to an account of Mercur-Mainz at a bank in Germany on the instructions of the yard, not in New York or to a Jugobanka account. The short point of the construction of the guarantee was whether that payment, in that way, discharged the liability of the bank under the guarantee, either pro tanto or wholly. The judge equally shortly said that it did not. It is not a term of the guarantee that the payments are to be made in New York to a Jugobanka account. There had admittedly been a variation of the shipbuilding contract but this was expressly permitted by the guarantee. Therefore, having considered fully and rejected the defences raised, the judge gave judgment for the plaintiffs.

Mr. Trgovcevic, and those for whom he was acting, decided to appeal. The time would have expired, and did expire, on 3rd September 1996, but Mr. Trgovcevic did not move at once. It was not until 29th August that he asked for an extension of time from Ali's solicitors which extension of time request was, unsurprisingly, refused. On 2nd September he asked the clerk of the Commercial Court if he could represent the bank on the appeal. He did not get an affirmative answer. The clerk of the Commercial Court was not the relevant person to deal with the matter. He then approached the relevant person at the Court of Appeal. On 3rd September (the last day) Mr. Trgovcevic signed and served what purported to be a notice of appeal on behalf of the bank. It made no reference to any representation of the bank by solicitors, as is required. Ali's solicitors immediately objected and said that the notice was not a valid notice and was not acceptable. On 10th September the Deputy Registrar of the Court of Appeal confirmed that this was the position and that Mr. Trgovcevic could not act on behalf of the bank in proceedings before the Court of Appeal.

On 20th September Mr. Trgovcevic instructed London solicitors, Messrs Constant & Constant, but still the matter was not put right. No summons was issued to put the matter right until 1st November 1996. The original purported notice of appeal relied upon the same points on which the bank had been unsuccessful below, namely the frustration argument, the fraud point and the fourth payment point. This notice of appeal, which has been drafted by Mr. Trgovcevic, shows that he fully understood what the material issues were.

The original summons issued in November 1996 only asked for an extension of time. However, since then the summons has been amended in February 1997, and indeed more recently than that. But in February 1997 it was amended to make further applications; firstly, to ask for leave to amend the purported notice of appeal, and to add the clause 16 issue; in other words, to raise an argument that Ali were not entitled to rely upon clause 16. It apparently raises questions of force majeure for the justification for the refusal of the yard to proceed. Therefore, it also raised the issue whether Ali were entitled to cancel the contract under that clause. Secondly, in support of that argument, they ask for an order for further discovery against Ali and, thirdly, they ask for leave to amend the original notice of appeal to broaden the fraud allegation into one of negligence. It seems, although the matter is somewhat elusive, that they are suggesting that there was a breach of a common law duty of care.

The question for us is whether we should accede to these applications. It is a question of discretion, as I have previously said, which of course must be exercised in the circumstances of this particular case. Miss Birch has appeared before us, instructed by Messrs Constant & Constant, on behalf of the bank. She has placed before us very full written arguments. We have heard her develop them fully in her oral argument. We are indebted to her for the assistance that she has given us.

It is convenient, first, to take the point raised by the amended summons. In doing so, I should give a bit more of the background of the case. There was an arbitration clause in the building contract. In due course, Ali made a claim in the arbitration against the yard. Arbitration does not proceed as rapidly as the cases in court. It will be appreciated that there was, at the outset, initially an overlap or a potential overlap between the points that had been raised under clause 16 and, if relevant, clause 12.4 as between the litigation and the arbitration. The bank tried to get the arbitration documents from Ali as part of the discovery which they obtained from Ali in the action. They applied to the court for an order that Ali should give such discovery. That came before Langley J on the occasion of June 1996, to which I have already referred. Langley J refused to make an order for discovery of those documents. That was not appealed. It must be borne in mind that that was also the occasion on which the concession was made by Mr. Brindle on behalf of the bank about the withdrawal of the clause 16 denial. It seems that what was then being sought were the pleadings in the arbitration and any documents issued by the arbitrators and the discovery given by the yard in the arbitration. Those questions would have arisen if an order had otherwise been made. Whether or not it was proper to require documents to be produced which had been obtained on discovery in an arbitration would have had to be considered. But that further point did not arise because the judge was not prepared to order discovery in principle.

Further, it must be borne in mind that the bank already had the contemporaneous documents as part of Ali's discovery which included Ali's correspondence and communications with the yard. The application for discovery failed on that occasion and the trial proceeded, both on the basis of the concession and on that state of the discovery.

The arbitration has since been completed. An award has been made in favour of Ali but the reasons have not been published, beyond being published to the parties, and, further, the award has been the subject of proceedings in other courts, but has not been disturbed. No question of double recovery arises. The renewed application for discovery is simply an attempt by the bank to get sight of the arbitration documents so that they can see if the documents might provide them with some argument which would help them to resurrect the clause 16 issue. It is entirely a speculative exercise on behalf of the bank and is directed to raising a point which has previously been abandoned and after the trial has proceeded on that basis. In my judgment, this application cannot be countenanced. The trial must be treated as final. It proceeded on a defined basis which had been adopted consciously by the bank. The question of whether or not they were making a positive case on clause 16 has been resolved and has been expressly covered by a concession made in front of a judge, confirmed in correspondence and then acknowledged, and the trial subsequently took place. The discovery which they are now seeking is discovery which they previously unsuccessfully sought to get. They did not challenge that previous decision. The situation has not changed materially. The fact is that the outcome of the arbitration is that Ali have succeeded, not that they have failed. The exercise is, in my judgment, a speculative one. There is no basis for displacing the strong prima facie evidence that clause 16 applies.

In my judgment, both on the merits and on principle, the primary applications made in the amended summons must be rejected. I will come back to the negligence point later.

Therefore, the question which we have to consider is whether or not we should extend time or treat the defects in the original notice of appeal as one which can be and has been remedied. There is no doubt that the bank were faced from the outset with an obvious problem. They left the addressing of that problem to the last moment. It was not a mere formality. It was the important point of the representation of the bank and the compliance with the requirement that corporate entities be represented by a litigation agent. Furthermore, once they had been told specifically that they needed to remedy the situation, they delayed until 1st November. They give an explanation of what happened but they have not provided any excuse.

Ali frankly acknowledge that they did not suffer any detriment as a result of that delay. However, it must be borne in mind that if the appeal is to proceed, then there will undoubtedly be a substantial lapse of time before the appeal can be brought to a conclusion. In the event, where, in difficult circumstances, Ali are attempting to effect a recovery in respect of the rights which it has been held at the trial they are entitled to, that is a serious matter for Ali and cannot be wholly disregarded.

The court should exercise its discretion in favour of the bank unless there is clearly no merit in the proposed appeal, and it would be a waste of time to exercise a discretion to allow the appeal to proceed. The threshold which the bank would have to pass is a low one but it is one which has to be addressed.

For the reasons that I have previously stated, in my judgment, the frustration ground of appeal is clearly hopeless. It was a point that was never going to succeed at the trial and there is no basis for treating it as a viable ground of appeal.

Turning to the fraud allegation, coupled with the allegation of negligence, in my judgment, the negligence point adds nothing to the previous allegation. The foundation of the alleged duty of care has not been made out on any arguable basis. We have been referred to authorities which deal with the situation where the creditor has misused the security which he, the creditor, holds. That of course is a situation where the guarantor has equitable rights in relation to such securities, and if the creditor misuses such security, then the guarantor is entitled to have the creditor's disregard of its obligations remedied. But that is not the present case.

The relevant security was the security which the bank had over a chattel of the debtor. It was for the bank to protect its interests in respect of that security. If there is to be any success in this point, it must be based upon an allegation of fraud or at least of bad faith.

Speaking for myself, I see very considerable difficulties, even in that event, in view of the timing of the relevant matters upon which the bank relies or would seek to rely on on an appeal. But the fundamental point is that it depends upon a finding of bad faith. The judge saw Mr. Sherriff in the witness-box. He was fully and competently cross-examined by Mr. Trgovcevic. The relevant documents were presented to Mr. Sherriff and were also the subject of submissions before the judge. The judge was not prepared to find any bad faith on the part of Mr. Sherriff. It would require a very strong case to be made out in an appellate court before that finding of the judge could be set aside.

However, Miss Birch has submitted that the judge was wrong. She says that his assessment on the findings of fact cannot stand with the contemporaneous documents. She has taken us through those documents. In my judgment, they go no way towards supporting her case. The picture that emerges is a picture of negotiations which were being conducted, as far as I can see, in a perfectly proper fashion, between the yard and Ali. It was a complex situation which, if it was to be brought to fruition, would require the co-operation of the bank. The document upon which she relies in particular as supporting her case is a document dated 16th April 1993, in manuscript, of Mr. Sherriff recording conversations that he had had with the yard or with her own lawyer in Croatia. It refers to various negotiations that had taken place. It asked the question:

"Will the release of the Jugobanka mortgage prejudice a claim made under the refund guarantee"

and

"Dusic will make an arrangement with Moson whereby Jugobanka can agree to release the mortgage. Moson will do this through the Croatian courts with the consent of Jugobanka)."

And lower down:

"M Mainz have no interest to proceed if they are not involved. Moson will not be able to perform the release of the mortgage if M Mainz do not do this for them."

That document, far from supporting a conclusion or inference of collusion in defrauding the bank, pre-supposes that various parties will have to agree to the proposal and, possibly, that additional money would have to be injected by the Germans into the yard and, further, that Jugobanka will have to agree to the release of the mortgage. Nothing that preceded that document supports the conclusion that there was a conspiracy to defraud the bank, and, indeed, I do not see that document as supporting such a conclusion either.

The document to which the judge referred, and which I have shortly quoted, is the document of 2nd December 1992 which still contemplated that there might be some rescue package for the transaction. It was to be treated as a novation agreement to reinstate the shipbuilding contract, in other words, it recognised that the shipbuilding contract had already come to an end, and the problem of the title and interest of the parties in the uncompleted ship, and, in particular, the interests of Jugobanka, Belgrade, were addressed. It says that, if this is necessary, Jugobanka, Belgrade, will have to waive any rights, title and interest that they may have in the vessel:

"This is necessary so that any lien granted under the existing mortgage, or otherwise, is finally extinguished. Accordingly, any negotiations will, of necessity, be subject to obtaining the necessary approval from Jugobanka and also subject to the Board Approval of Ali Shipping Corporation. Until such time as these subjects are lifted, all negotiations must be considered as being without prejudice to the rights of Ali Shipping Corporation under the Shipbuilding Contract."

Both the terms in which that document are expressed and the date of it completely counter the conclusion which Miss Birch puts to the court. I will not refer to the other documents because, in my judgment, they do not advance the criticisms which are being sought to be made of the decision of the judge on this point.

The judge's conclusion was, in my judgment, clearly the inevitable one unless he was persuaded by Mr. Sherriff's performance in the witness-box that Mr. Sherriff was a dishonest witness. The judge was not so persuaded. Accordingly, there is no viable ground of appeal on that point.

The last point is the short point of construction relating to the fourth payment. It has been fully deployed in the skeleton argument and in oral argument by Miss Birch. It is a short point. Little more can be said about it. At the outset, I was somewhat troubled by this point but, having heard the arguments and having fully considered them, I have formed a clear conclusion that the judge was right. It cannot be said that there was any breach of the guarantee of contract. The way it would have to be put is as some failure of the consideration which was essential to the accrual of the obligation of Jugobanka under the letter of guarantee. The letter of guarantee does say what is the consideration upon which it is based:

"It is in consideration of your making the aforesaid advance payment to the Builder."

That is the same expression as has been used earlier in the documents. The payments were made to the builder. That is to the yard. The relevant consideration did not fail. The document expressly contemplated and permitted variations of the shipbuilding contract. Therefore, this, in my judgment, is a short point. It is not capable of more full deployment than has already taken place. In my judgment, there is no realistic prospect that the answer that would be given to it would be different to that at which I have arrived. That, too, is a ground of appeal which, if allowed to proceed, would fail.

Coming back to the question whether we should, in the exercise of our discretion, extend the time and accede to the applications, in my judgment, we should not do so. Nothing is to be gained by allowing any of these grounds to be argued further on the hearing of an appeal. The bank requires an exercise of this court's discretion in its favour if the appeal is to be allowed to proceed. In my judgment, that discretion should not be exercised in their favour. I would refuse all the applications that they have brought.

LORD JUSTICE BROOKE: I agree that the court should not grant the relief sought in the defendant's amended summons for the reasons given by my Lord with which I agree. So far as the original summons is concerned, this is a case in which the basis on which the court should exercise its discretion to extend time for applying for leave to appeal depends crucially on the court's assessment of the chances of the appeal succeeding if the time for appealing is extended. I agree with my Lord, on the basis of settled authority, that the court should in this case exercise its discretion in favour of the defendant unless it is satisfied that there is no merit in the proposed appeal and a waste of time and, indeed, an injustice to the plaintiff if we allowed the appeal to continue. I, for my part, have considered Miss Birch's submissions on the three issues in this case with care and anxiety.

So far as her submissions on the issue of frustration is concerned, I agree with my Lord that the appeal is hopeless. So far as the second issue is concerned, there was a very clear finding of fact by the judge in relation to the honesty of Mr. Sherriff, a witness whom he had the opportunity of observing in the witness-box, and I agree with my Lord that the documents relied on by Miss Birch cannot possibly shift the efficacy of that finding, and that that ground of appeal is also hopeless.

In relation to the third issue, this is a short point of construction. I can see that it could be said that it was properly arguable, but I have come to a very clear view on the point of construction which accords with that of my Lord, and I can see no merit at all in allowing this appeal to go forward on that point of construction if a three judge division of this court, on an interlocutory application, reaches a clear view on its merits. For these reasons, I agree that these applications should be refused.

LORD JUSTICE WALLER: I agree for the reasons given by my Lords that it would not be right to allow the bank to proceed with any appeal.