England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice Langley)

		Royal Courts of Justice Strand London WC2 Thursday, 25th January 2001

1. LORD JUSTICE MANCE: By order made on 19th December and dated 20th December 2000 I ordered, inter alia, that the application for security for the costs of the defendants' appeal or application for permission to appeal from an order of Langley J be granted and that the defendants do, on or before 31st January 2001, furnish security for the claimant's costs of the appeal or application for permission to appeal in the sum of £57,500 by money payment into court. During the argument I was invited to include as an alternative means of provision of security a guarantee. I said:

"I think that the background to this matter indicates that, if I make what in the Commercial Court would be quite a usual order, namely an order allowing the provision of security by reference to a bank guarantee, in the context of this case that would almost certainly lead to problems. I am not going to exclude all possibility of any further application, but I think that the order should simply be that the money be paid into court. If there were to be any variation, there would have to be a concrete application with an actual bank prepared to sign on the dot and the variation would have to be either acceptable to the claimants or accepted by the court well in advance of the final date for provision of security which is 31st January 2001, as I am going to order. I say that not as part of my order, but as a matter of common sense."

2. I said a little later:

"The order will be simply that the security be put up in cash, so that there is no room for any doubt or argument about what happens. Any other course could only be by way of prior variation of that order. I am not encouraging or contemplating an application for variation, unless, as I have said, on some basis which involved a bank of the highest quality absolutely prepared to sign up in the relevant amount straightaway on acceptable terms."

3. There has now been an application putting forward a form of guarantee, although it is also described as a bond, made, it is said, on 19th January 2001 by a bank which is undoubtedly of the highest quality, Deutsche Bank AG at its London branch. The defendants wrote to the claimants on 10th January asking them to agree in principle to a bank guarantee and asking them to assist in relation to the terms. That was rejected. The present application is made, this guarantee now having been produced.
4. The defendants resist any variation on three broad grounds. First, they say that in principle I was against the provision of a bank guarantee. I was certainly against any variation or alternative formulation which allowed a bank guarantee before its form was seen. That does not mean to say that I excluded absolutely the possibility that an acceptable form of guarantee could be put up, and it is quite clear from the passages which I have read that I did not. However, it seems to me difficult to separate the question whether the present guarantee is in order from the question whether there should be any variation; in other words, I remain of the view that one should not make a variation in advance of seeing a satisfactory form of wording.
5. The second point made by the defendants is that, even if there could be a satisfactory form of wording, there will always be the risk of steps taken, particularly abroad, by defendants in respect of whose conduct the court has commented on a number of occasions extremely adversely. I am reminded in this context of the collusive proceedings, as I understand them to have been found now by the Court of Appeal affirming Moore-Bick J, taken in Nigeria in conjunction with a Chief Ofotokun in order to frustrate an order of Langley J, that the first defendant send a letter to Expro Gulf directing it to make all payments due under a services procurement agreement to his account with National Westminster Bank in London. However, it is right to say that any bond or guarantee from Deutsche Bank AG, the London branch, would stand on a different footing to the obligation which Langley J ordered should be undertaken. Deutsche Bank AG are here at their London branch. Mr. Berry for the defendants accepts that, as a matter of law, any injunction granted abroad in respect of the guarantee would be entirely irrelevant to Deutsche Bank London's liability here. As to the possibility that some injunction might be granted here to prevent Deutsche Bank AG paying under the guarantee, that would no doubt only be granted if there were some very good and, on the face of it, extraordinary reason for interfering with the bank's undertaking. However, Mr. Berry is on stronger ground when he submits that, as a matter of fact, if Deutsche Bank was subjected to some procedure abroad, particularly in Nigeria, relating to the guarantee, then that could give it an incentive to fight every point here, so that commercially it might take a somewhat less forthcoming attitude than it might otherwise do. However, again, that seems to be a point which is interlinked with the terms of the guarantee and whether they are sufficiently watertight to offer effectively identical protection to a payment into court or almost identical protection.
6. I turn to the third main objection which is that the terms do not achieve that. A number of points are made and I have to say that a number of them are valid points. The first is that this is a somewhat unfamiliar form of document, describing itself both as a bond and more frequently as a guarantee, and certainly referring to the bank as surety. If (and I am told that there may be House of Lords' authority in a case called Trafalgar House, though I have not been referred to that and I do not rely on it) but if, as seems to me generally a possibility, this may be construed by an English court as a guarantee, then it certainly contains none of the forms of protective clause which modern commercial guarantees would be expected to. In particular, it is well known that the English law of guarantee is quite strict when it comes to matters discharging the liability of a guarantor, whether by giving time or by taking security or failing to enforce other security, or whatever. There is nothing by way of any protective condition in this area. There is not even a provision which might go to assist in that regard, that the Deutsche Bank are to be regarded as liable as a principal and not as surety. On the contrary, the wording appears to refer to them simply as surety and to indicate that this is simply a guarantee subject to general legal principles. For that reason alone I would regard it as unsatisfactory. That really impinges on the 1st, 5th and 6th points made in Stephenson Harwood's itself letter of 24th January 2001, although it goes wider than them, as Mr Berry acknowledged.
7. Then Mr. Berry points out the somewhat old fashioned flavour of this document and that it appears in clause 1 to be null and void before it starts, so to speak. That is a slight oddity, although not the greatest concern. It would be better drafted in some different way. Perhaps allied with that point is that in clause 2A there is a provision that, if there is no award of costs in favour of the beneficiaries, then the obligation shall be null and void and of no effect. Again, that does not directly address the stage at which there is no award of costs. Suppose the defendants were to avoid an award of costs at first instance. Then, on the face of it, the obligation would be null and void. Would it revive if an order for costs was made against them on an appeal? That is again not the most fundamental of points but it does indicate that, in a case where every point might be argued, the wording is not wholly satisfactory. More fundamentally, it was pointed out by Mr Berry that this is not under seal and no consideration is stated. Again, that is a technical point which the court might be able to overcome if Deutsche Bank AG were ever bold enough to raise the point. But it is wrong that there should be even the possibility of argument.
8. More seriously (and this is a substantial objection like the first one that I dealt with) this is a document which is capped at £57,500, whereas if a payment in was made, interest would accrue on the moneys in court. Effectively, this gives the defendants less security than my order at present does. Then it does not cover an interim payment, whereas an interim payment, if ordered, could be met out of moneys in court. It provides in paragraph 3(b) for a written demand on the defendants/appellants. That, on the face of it, can only mean on Chief Idisi, and Lonestar Nigeria Limited Nigeria and/or Lonestar Overseas Limited. I think only two of those are appellants, the Chief and one of the Lonestar companies. That provision in clause 3B is unsatisfactory because it means that a demand would have to be served on the defendants/appellants whose conduct has proved that they will, if possible, avoid any such service or make it extremely onerous. Clearly, no document could be satisfactory unless it was capable of being operated entirely within this jurisdiction. One needs something which authorises service on someone here and caters for the possibility, not in any way imaginative since the defendants have changed solicitors on a number of occasions, of change of solicitors. It is pointed out as a further point that the final provisions of clause 3, referring to a demand being accompanied by a valid certificate or order of the court stating the amount of costs recoverable by the beneficiaries from the defendants/appellants in respect of the appeal, does not cater for the possibility of costs being agreed rather than being ordered as to quantum by the court. Mr. Berry did not stress the objection made in Stephenson Harwood's letter, to the effect that there should have been provision that any demand under the bond should be made by delivering such demand to the bank at its registered or principal office in England. It would seem to me that that is the inevitable implication of a document issued by Deutsche Bank AG's London office. Finally, it is said that the jurisdiction clause is unsatisfactory because it should be an exclusive jurisdiction clause. I would agree with that point too.
9. For all these reasons, it seems to me that this is not a document which I can regard as an acceptable document and in those circumstances this application for a variation fails. It is not the function of the court to attempt to draft a document which the court might be more inclined to think of as acceptable. I have given my reasons for rejecting it and I do.
Order: Application refused; respondents to have half their costs and the remaining costs to be costs in the appeal.