England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		05/05/2006

MR JUSTICE CHRISTOPHER CLARKE:

1. I have before me an application for summary judgement in a claim under a guarantee. The claimant is ST Microelectronics NV ("STM"), which is a manufacturer and supplier of semiconductors. Its subsidiary company is ST Microelectronics Ltd ("ST"). The defendant is Condor Insurance Ltd ("Condor"), a company registered in Nevis in the West Indies. The debts guaranteed were those of Eurodis Electron plc ("EE") and its subsidiary and associate companies. One of its principal subsidiaries was Eurodis Distribution Services BV ("EDIS") which operated the Eurodis group's warehouse and logistics centre in Haaksbergen. It had been purchasing semiconductors both for itself and other group companies from ST and STM for over 10 years. Save where a distinction between one group company and another is relevant I shall refer to the Eurodis companies simply as "Eurodis". In 2005 STM was Eurodis' largest supplier in Europe.
2. STM and EE had an annually renewed Franchised Distributorship Agreement, which provided for the purchase of products by EE as Distributor. The semiconductors the subject of this action were purchased from ST by EDIS on behalf of EE and other Eurodis companies.
3. In 2003 Eurodis had cash flow difficulties. In May 2003 it missed a payment to STM. Thereafter a series of guarantees of payment were given by Condor. The first guarantee was a guarantee of a weekly repayment plan which was to operate between 11^th July and 26^th September 2003. The second was a guarantee of up to € 5 million in respect of amounts due between 30^th December 2003 and 28th May 2004. In October 2003 ST had agreed to extend its credit terms to 55 days from the end of the month of the invoice and the guarantee was in respect of sales on such terms. The third guarantee was for up to €12 million in respect of amounts due between 25^th June 2004 and 26^th January 2005; and the fourth, which is the guarantee sued on herein ("the guarantee"), was for up to € 12 million in respect of amounts due between 26^th January 2005 and 26^th September 2005.
4. The guarantee, which is not well drafted, is in respect of "all sums due to [ST] and [STM] under the terms of the Contract of Sales … and subject to the limit of this guarantee" and for a period of eight months from 26^th January 2005 to 26^th September 2005. The "Contract of Sales" is defined in a schedule thus:

"Under the terms of this schedule lasting from 26^th January 2005 to 26^th September 2005 [STM], the Trade Creditor agrees with [EE], the Trade Debtor, to payment terms of 55 days end of month with monthly payments.

"Ship and Debit" credit notes handed from ST to Eurodis associated with billings of a certain month can be used to compensate, part or in total, payment of invoices raised in the same month".

5. The guarantee is expressed to be "in consideration of the advancement of credit referred to in the agreement forming part of and attached to the Guarantee", i.e. the Contract of Sales, and in consideration of a guarantee fee.
6. The guarantee was signed by representatives of STM, ST, EE, and Condor. Its effect appears to me to be as follows. Under the "Contract of Sales" contained in the Schedule ST and STM agreed with EE the credit terms that were to apply in respect of sales by ST or STM to EE and its associated and subsidiary companies. The period of credit was to be "55 days end of month", meaning that payment was to be made within 55 days of the end of the relevant month. I call these terms "55 day terms". The Contract of Sales was, thus, a form of umbrella agreement, providing for the credit that was to be afforded under individual sales by ST and STM to Eurodis purchasers. Condor was to guarantee the payment to STM and ST of goods sold on 55 day terms.
7. Since the guarantee was a guarantee of sums due to ST and STM on 55 day terms, and was for a period of eight months commencing on 26^th January 2005 and expiring on 26^th September 2005, the guarantee must be of sums falling due within that period pursuant to the 55 day terms. In effect, therefore, the guarantee applied in respect of sales up to the end of July. Under the 55 day terms payment for these goods would be due no later than 26^th September.
8. But the same period is specified in the schedule as the period in respect of which ST and STM ("the Trade Creditor") agree the 55 day terms with EE. It is not wholly clear, nor is it necessary to decide, whether these terms are to apply to all sales during that period, or to all sales which, under the 55 day terms, are due to be paid for during that period. I incline to the view that it is the latter since, in that event, the periods specified refer to the same thing in the body of the guarantee and the schedule, namely the period in which debts become due.
9. STM claims from Condor payment under the guarantee in respect of goods invoiced during April (€2,317,195.18), May (€2,569,638.43) and June (€1,312,010.94). Condor contends that it has been released from any liability because there has been a material variation in the terms of the debt guaranteed, or at least there is a realistic basis for saying that that is so. In order to consider the validity of this plea it is necessary to look with some care at the sequence of events in 2005. The evidence in this respect largely derives from the contemporary documents and the witness statements filed by STM. Eurodis is not a party to these proceedings.
10. In March 2005 Philips Semiconductor, Eurodis' second largest supplier, announced that they were withdrawing their franchise from Eurodis. This was likely to cause financial difficulties for Eurodis. ST became concerned about Eurodis' financial position and its ability to service its customers. The guarantee was due to expire on 26^th September 2005 and so would, under the 55 day terms, only cover invoices up to 31^st July 2005. Mr Jean-Marc Frot, who had recently been appointed ST's financial director, had the task of agreeing a new guarantee to provide continuity of cover after the expiry of the current one. He was concerned to increase the limit of exposure from € 12m to € 15m, and he became concerned about the ability of ST to recover under the existing guarantee. At 1230 on 5^th May 2005 Mr Frot e-mailed to a contact at Cambridge Risk Advisers ("CRA"), who were Condor's agents, making inquiries about Condor's financial standing and as to the extent to which ST could be assured of settlement given that Condor was incorporated in the West Indies. He copied the e-mail to Mr Bill Alexander, the Chief Financial Officer of EE. Four minutes later Mr Alexander e-mailed to Mr Trot that Condor had indicated that a € 15 m bond would be "ok".
11. By an e-mail of 26^th May 2005 Mr Alexander gave to Mr Frot information about Condor, designed to reassure STM of its worth, and also suggested an alternative insurer – United Insurance Co Ltd ("United") – which had an A- rating. His e-mail says this:

"I need to raise a concern that came out of two separate phone conversations yesterday. In the second, you told me that if we cannot provide you with adequate cover in the next few days then you will put us on cash with order. This is completely unacceptable and not in the spirit of the agreement we signed when we renewed the latest Condor Bond four months ago. It also does not give us time to try to put something else into place that meets your new requirements, which to be honest seem to be changing.

I have therefore regretfully decided to withhold payment due today of € 3.8m until we can reach an agreement of what exactly you require and be given a realistic amount of time to find alternative insurance cover. This payment would reduce our balance to approx € 8 m and if you were than (sic) to insist on cash with order would naturally reduce our cash facilities by the cash payment and would concern us further regarding future reductions as well as we prepay the rest of the debt.

We want to work with you to find a solution to your original concerns about Condor but we have to be given a realistic amount of time to undertake this work and have to do so in the knowledge that our trading terms will not be changed while we undertake this work.

I believe we should talk immediately".

12. Prior to this e-mail STM had, according to Mr Graham Althorpe of ST, indicated that they would have to move to cash with order for further supplies unless there was to be additional cover above the existing € 12 million limit of the guarantee, which was close to being breached. The threat by Eurodis to withhold payment of € 3.8 million led to "strong words" between Mr Frot and Mr Alexander, not least because of the further € 8m outstanding and because further shipments were due in days.
13. The immediate problem was resolved the same day. Eurodis paid STM the € 3.8m on 26^th May and STM did not then insist on cash with orders.

The meeting on 27^th May

14. A meeting took place the next day, 27^th May, at Eurodis' HQ in Reigate, attended by Messrs Althorpe and Frot, for ST, and Messrs Alexander and van der Wijk for Eurodis. Mr van der Wijk was the Group Marketing Director of EE. According to Mr Frot's e-mail of the same day, it was accepted that the guarantee needed to be increased to € 15 million; that it was not possible to confirm the effectiveness of the existing bond; and that Eurodis would pursue its investigations with CRA and look for alternative guarantees. Eurodis suggested that United could be a valid alternative insurer if there was adequate reinsurance. ST was open to accept other guarantees from Eurodis such as a retention of title ("ROT") clause. The parties agreed to spend the next two weeks trying "to complete an agreed warranty" i.e. a new guarantee.
15. On 6^th June Mr Alexander e-mailed Mr Frot with details of the discussion he had had with CRA over possible trade credit insurers, and with a proposed ROT clause.
16. By June STM had learnt that Eurodis was in negotiations to sell its business to Rutronik Elektronische Bauelemente GmbH ("Rutronik"), a move which STM supported. STM had also learnt from discussions with Eurodis staff that Eurodis had factored some of its debt and that its banks were limiting its cash flow. This reduced the volume of orders that Eurodis could place with ST and thus its ability to service its customer base. During this month Mr Althorpe discussed with Mr Alexander and Mr van der Wijk restricting deliveries to those which were immediately required by end customers so as to enable Eurodis to invoice quickly and obtain cash by factoring. In order to do this it would be necessary to remove Eurodis from ST's automatic system under which goods would be released for delivery to customers on pre-arranged delivery dates, at which point invoices would be issued.

Friday 10^th June

17. At 12.22 pm 10^th June Mr Frot e-mailed as follows:

"Two weeks after our meeting, it is with regret that we note that very little progress has been made in restoring confidence in Eurodis receivables.

The deadline expires today and we are very disappointed in finding that you have not come forward either with a new concrete proposal for the bond or with any evidence that could provide comfort in the current warranty in place".

and then, after referring to the dubious efficacy of a retention of title clause in relation to a current inventory, added:

"We view this matter very seriously and we urge you to give attention to this issue.

We need a positive outcome by no later than close of business today".

18. At 13.22 on the same day Mr Alexander e-mailed Mr Frot to the effect that agreement had been reached with United to replace Condor, and that Eurodis' board had agreed to provide ROT on all stock acquired from STM. The intention appears to have been that United would give a bond that would cover the existing debt outstanding.

Friday 17^th June

19. On Friday 17^th June Mr Frot and Mr Althorpe of ST met Mr Alexander and Mr Swayne of Eurodis. By this time ST was aware that Eurodis was struggling to pay its suppliers. According to Mr Althorpe:

"Bill Alexander proposed that EDIS would, in an attempt to increase [STM]'s confidence in its ability to fulfil its financial commitments, make an early payment of € 1.5 million to [STM] on 29^th June 2005 in respect of the sums due for payment (in respect of the April invoice) on 25^th June (€ 3.8 million)".

In his third witness statement Mr Althorpe explains that STM, which had raised concerns about Eurodis' financial position, was asking whether EDIS would really be in a position to make the € 3.8 million payment due on 25^th June, in response to which Mr Alexander made his proposal. Mr Alexander was told that this would "probably be acceptable to provide the comfort we were seeking". He refutes the suggestion that early repayment was either a requirement or a demand of STM or that STM had suggested ceasing trading with Eurodis, or imposing some other sanction, if no early payment was made.

20. On 17^th June Mr Alexander e-mailed to Mr Althorpe as follows:

"As agreed at today's meeting with Steve Swayne we can confirm the following:

1. We will make an early payment of € 1m on Monday 20^th June.

2. We will pay the balance due on 25^th June. This will be agreed between EDIS and yourselves and is currently awaiting the revised phantom allowance.

3. The next payment after that will be made on 25^th July as usual.

4. We will make a further payment of € 2m on the 25^th July from our new banking facilities in Italy. If it is available earlier then we will make earlier payments.

5. You will continue to ship to Eurodis sufficient products to allow us to satisfy customers' orders, on time and all turns business.

6. The Condor bond will remain in place but you will consider the United insurance bond as alternative security for your outstanding debt, depending on the wording.

This agreement is intended to assist STM and their advisors with increasing your confidence levels in Eurodis. This is still draft and subject to our Board approval and if agreed will address the concerns that you have had over the past weeks."

21. In an e-mail of 6^th July 2005 from Mr van der Wijk of Eurodis the payment on 20^th June is described as having been made "to accommodate STM's request". In an e-mail of 8^th July Mr Althorpe described how:

"when we were unable to gain satisfactory facts to enable ST to feel the Condor or alternative bonds or warranties were credible we discussed ways to reduce the exposure.

At mid June the estimated payables required on the 25 June were Euros 3.8m. A part payment of Euro 1.5m was made to reduce exposure on the 20 June".

22. On Monday 20^th June Mr Althorpe e-mailed to Mr Alexander at 9.11 as follows:

"We will advise shortly if the Euro 1.5m is acceptable, but for clarification.

The payment due for 25 June is Euros 3,807,139.07, which was confirmed by EDIS last week as correct. Any improvement in Phantom Allowance will be reflected in July payment, and would I suspect increase your payables in July not decrease as your stock level end Q1 to end Q2 will have reduced."

23. At 1523 Mr Althorpe e-mailed to Mr Alexander:

"To confirm our conversation at 1400 June 20, ST is willing to accept the proposal with the exception that for normalised ongoing support to be continued, a mutually agreed bond or range of warranty for the exposure is in place to meet fully point 5.

Please release payment of the Euro 1.5 m such that it reaches ST today 20 June. Once cleared controlled deliveries currently being reviewed by Eurodis & ST staff will commence."

The reference to "controlled deliveries" was to the proposed system of

restricting deliveries to those immediately required by end customers. The reference to "normalised ongoing support" was a reference to the regular (automated) trading. The reason why, according to Mr Althorpe, he referred to the need for a mutually agreed bond if there was to be normalised ongoing support was that the guarantee would only cover goods supplied up to the end of July.

24. On 20^th June EDIS paid STM € 1.5 million.

Friday 24^th June

25. At 1739 on Friday 24^th June Mr van der Wijk of Eurodis sent Mr Frot a text of a draft "which could serve as the new contract of sales and that would be acceptable to Condor". That provided as follows:

"Contract of Sales

Under the terms of this schedule lasting from 24^th June 2005 December, ST Microlelectronics NV, the Trade Creditor agrees with Eurodis Electron plc

• to continue to trade under open account an allow an outstanding balance that will not exceed 9 million Euro (€9M).

• to accept the following trading terms for the period through August 31^st 2005.

"1. Eurodis pays only the amount by which the outstanding invoices exceed €9M

2. ST will release and ship only those products as indicated by Eurodis

3. In case the invoices for such products would cause the total receivable to exceed €9M Eurodis will submit cash or use the equivalent amount of the ship and debit credit notes issued in the month at the time of Call-off in order to bring the balance at the agreed level.

• On August 31^st 2005 Eurodis' payment terms of 55 days end of month will resume."

In effect for the period from 24^th June to 31^st December 2005 there was to be a maximum balance of € 9 m within which limit STM would release and ship goods and above which Eurodis would pay cash. The normal terms would resume on 31^st August.

The Bank acts

26. Also on Friday 24^th June Mr van der Wijk telephoned Mr Althorpe to tell him that Eurodis' bankers would not be releasing any money to cover outstanding invoices due to any suppliers and would be stopping all payments due, with the result that the remaining money due to be paid in respect of the outstanding April invoices i.e. about € 2.3 million was not going to be paid. He also said that Eurodis' bankers would only continue to support future trading on a "cash with order" basis. It was clear to Mr Althrope that Eurodis would not be able to pay for the goods supplied on credit in April, May and June, let alone any goods supplied on credit thereafter.
27. Mr van der Wijk also indicated that unless Eurodis' suppliers were prepared to make future supplies on a cash with order basis Eurodis would be forced to cease trading, and that trading of its shares would have to cease as of 07.30 on Monday 27^th June.
28. After further discussion that evening Mr Althorpe e-mailed to Mr Alexander at 2028 as follows:

"Following discussions with Albert van der Wijk on Friday 24 June 2005, reference your Bank stopping the payment due today, and your broker DKW requiring ST along with other suppliers to make a statement of their position under these circumstances, otherwise they would be forced to cease trading of Eurodis share (sic) as of 0730 Monday 27 June 2005. Please find a statement from ST.

ST wishes to see Eurodis continue to trade, however ST needs to see that the exposure is secured and or reduced.

Whilst these discussions are taking place, ST will support Eurodis by cash with orders.

ST reserves the right if circumstances change, or securing and or reducing the exposure to a reasonable level is not forthcoming to reconsider its position".

29. The € 2.3 million due on 25^th June was not paid then or thereafter.

July 2005

30. During the next fortnight a number of events occurred. Firstly Edis' bankers did not release enough cash to allow EDIS to place sufficient orders to meet the demands of its customers. Mr Althorpe attended a meeting with them on 5^th July to request that they release more cash. The meeting was disappointing in that, as Mr der Wijk put it in his e-mail of 6^th July, "they were not willing to release any further funds than those required for daily pre-payment to ST". Secondly, the negotiations between Eurodis and Rutronik collapsed. Thirdly, on 15^th July 2005 EE was placed into administration in England. Fourthly, on 26^th July 2005 EDIS was placed into administration in England and, on 25^th August 2005, into liquidation in the Netherlands.
31. On 6^th July 2005 Eurodis sent an e-mail to ST claiming that Eurodis had more than fulfilled its original payment obligations in that it had made an advance payment on 20^th June, had a credit note of €1.324 million, had remitted €598k in cash and had agreed a stock return of €900k, and had therefore overpaid by €515k.

The authorities

32. The researches of Counsel have, perhaps unsurprisingly, not discovered examples of cases in which a premature payment of part of the principal debt has discharged the surety.
33. In Bacon v Chesney [1816] 1 Stark 192 a guarantee was given in respect of goods that, according to the agreement between the creditor and the guarantor, were to be supplied on 18 months credit. The guarantor relied on an invoice signed by the creditor which gave only 12 months credit. But it then appeared that the invoice had not been delivered until after the commencement of the action. Lord Ellenborough said:

"The claim as against a surety is strictissimi juris, and it is incumbent on the plaintiff to shew that the terms of the guarantee have been strictly complied with. If I engage to guarantee, provided eighteen month' credit be given, the party is not at liberty to give twelve only, and after the expiration of six more to call upon me. If this invoice had been delivered at the same time with the goods, or if it had been delivered under a Judge's order, the plaintiff would have been bound by it, but under present circumstances I think he is at liberty to shew that it is a mistake."

34. In Bonsor v Cox [1841] 10 LJ Ch 395 Richard Cox accepted 2 bills for £ 500 each drawn by Davies at 3 months. John Cox accepted another bill for £ 750 drawn by Davies, for the latter's accommodation. Richard Cox needed money to meet the two bills of £ 500 and to enable Davies to provide for the bill of £ 750. So he signed two promissory notes, one for £ 999 10s and one for £ 759 in favour of Cox and Morrell, bankers in Oxford. These notes were expressed to be "for value received by draft at three months date". John Cox joined in signing these notes as a surety. Lord Langdale, M.R. held that:

"those advances [i.e. the advances upon the promissory notes] were not made by drafts upon a three months' credit, but directly in cash, within that time, and in such a way as to give them, upon each advance, an immediate demand against the principal debtor. I conceive the intention to have been, that the principal debtor should have the means of obtaining money, without being liable to any proceedings to compel repayment till the expiration of three months, and that by the mode of advance which was adopted, the principal debtor became, on each advance, immediately liable to a proceeding for the recovery of money paid to his use.

The right of the creditor against the principal debtor was thus materially different from that which was intended by the surety; and I think it was not a sufficient answer to say, that no demand was made upon the surety within the three months foe which credit was given".

35. In Holme v Brunskill [1878] 3 Q.B. 495 the guarantor gave a bond to secure the redelivery to the plaintiff at the end of a tenancy of a flock of sheep in good order and condition. During the currency of the tenancy the plaintiff agreed with the principal debtor that the debtor should surrender a small field to the plaintiff against a reduction in rent of £10. The variation was held to vitiate the guarantee. Cotton L.J. said:

"The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where is without inquiry evidence that the alteration is insubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court will not, in an action against the surety, go into an inquiry as to the effect of the alteration … but will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that is he has not so consented he will be discharged".

36. The basic principle underlying these cases - which is one of strict application - is that a guarantor will only be liable in respect of the obligation that he guaranteed. Thus if X guarantees a debt agreed to be payable within a specified time he is not liable in at least two cases:

(a) if the creditor advances money or supplies goods on terms that the money is repayable or the price payable immediately; or

(b) if the creditor and his debtor agree a variation of the contract whereby the debtor is bound to pay earlier, unless such an agreement is, on the facts, obviously incapable of prejudicing the surety.

In both cases the transaction between the debtor and creditor which the guarantor is called upon to underwrite is not the one contemplated by the guarantee: in the first case because the transaction with the debtor was never of that character; in the second because the debtor and his creditor have agreed a variation.

37. But a debtor who is entitled to 55 days credit is not bound to wait until all 55 days have elapsed. He can, if he chooses, pay before then. The guarantor is not released because he does so, even if the early payment is made at the creditor's request. Such a payment is not inconsistent with the contract guaranteed and involves no variation of it.
38. If, however, the debtor has undertaken a binding obligation to pay early the contract will have been varied. The debtor is no longer free to choose whether to pay at the expiry of the credit period. He is bound to pay before. The contractual obligations into which he has entered are not the same as those that the guarantor guaranteed.
39. STM contends that the payment of € 1.5 million was entirely voluntary and did not cease to be so even if it was requested by STM or agreed to by IT. Eurodis was entitled to propose to make a payment of € 1.5 million and ST was entitled to accept it. That payment was one which Eurodis was neither obliged nor compelled to make. It could have insisted on sticking to the credit terms.
40. Condor contends that it has a realistic prospect of showing that there was a variation of the principal contract whereby Eurodis agreed not only to pay € 1.5 million in respect of the April invoices early, but also to make a further payment of € 2 million on 25^th July in addition to the amount due on that date. It cannot be said that premature payment carried no risk of prejudice to the guarantor. So the guarantor was discharged.
41. This submission calls for an examination of what was agreed between 17^th and 20^th June 2005 and whether that agreement had contractual force.

What was agreed?

42. The sequence of e-mails on June 17^th and June 20^th, and the conversations recorded therein, appear to record an agreement for the provision by Eurodis of two sets of advance payments, one on 20^th June, the other on 25^th July, in return for which ST would continue to ship goods and consider the replacement of Condor by United in respect of the outstanding debt. What the e-mails do not make clear is (a) what, if anything, STM was saying would, or might, be the position, if no advance payment was offered; and (b) what exactly STM undertook to do.
43. As to (a), STM had threatened in May to supply only against cash with order, in the absence of further security. But that threat had been seen off by Mr Alexander's threat to withhold € 3.8 million. On Mr Althorpe's evidence, the threat related to supplies which took the balance above € 12 million. € 3.8 million was paid and cash with order was not required. Miss Ife points to the fact that in the 1222 e-mail of 10^th June 2005 Mr Frot insisted on a positive outcome by no later than close of business. But that e-mail does not indicate what was to happen if there was no positive outcome, although point 5 of the e-mail of 17^th June coupled with the statement in the e-mail of June 20^th at 3.23 ("Once [payment is] cleared, controlled deliveries … will commence") is capable of supporting an inference that STM had either put a stop to deliveries or indicated that it would or might do so.
44. As to (b), the undertaking of STM as stated at point 5 in the e-mail of 17^th June was to continue to ship sufficient products to satisfy customer orders. Mr Phillips suggested that STM did not accept item 5 as appears from the terms of the e-mail of 20^th June. That e-mail seems, however, to indicate that STM was undertaking, if payment was received, to commence controlled deliveries; but requiring a new bond if it was to revert to standard deliveries (although it is unclear whether that refers to a bond to replace or succeed the existing Condor bound). The e-mail records a conversation which took place at 1400, after which the € 1.5 million was paid. What exactly was said in that or any subsequent conversation before payment is not clear.
45. If the substance of the agreement was that, once payment was made, STM would commence deliveries of some sort, the question arises as to whether that undertaking by STM, or anything else, constituted sufficient consideration for Eurodis' agreement to make two advance payments, given that STM was party to the "Contract of Sales" which provided for 55 day terms.
46. As to that there is authority of somewhat uncertain ambit – see Chitty 3-061 and 3-068 – that an undertaking to perform an existing obligation may constitute good consideration where the promisee has conferred a factual as opposed to a legal benefit on the promisor, at any rate in circumstances where the promisee has not been guilty of duress.

Conclusion

47. I am not persuaded that Condor has no realistic prospect of establishing that between 17^th and 20^th June 2005 STM and EDIS reached a legally binding agreement under which EDIS agreed to make two substantial payments earlier than they were contractually bound to do in return for STM agreeing to continue (or recommence) shipping goods on 55 day terms; and that that agreement, made without the consent of Condor, is effective to discharge them from liability under the guarantee. It seems to me a possible inference from the documents that some such agreement was made.
48. I do not ignore the evidence of Mr Althorpe. But, in the light of the contemporary documents, I am not persuaded that his interpretation and description of events is incontestably correct. I also bear in mind that I have no direct evidence from Eurodis and that there has been no cross examination of any of the STM witnesses. Nor has there been disclosure of any notes that STM may have of meetings and telephone calls.
49. Further, insofar as the contractual force of any agreement is dependent on establishing that STM's undertaking was of practical, even if not legal, benefit, it seems to me that Condor have a prospect that cannot be described as fanciful of doing so. It is arguable that, in the condition in which EDIS found itself in June 2005, it was of significant benefit to it to have an assurance of supply from STM rather than be constrained to rely on legal rights, the vindication of which might come too late to save them, and which were not without ambiguity. In his skeleton argument Mr Stephen Phillips Q.C., for STM, asked rhetorically how a cessation of further supplies could be a variation of the principal obligation given that the Contract of Sales contains no obligation upon STM to maintain any particular level of supply. If the answer is that it would not, a promise to resume supplies was a considerable factual, and legal, benefit.
50. Miss Ife submitted that it was not necessary for Condor to establish that there had been a legally binding agreement to vary the Contract of Sales. The real test, she submitted was whether as a result of a change in the arrangements, there was a real chance that the guarantor might have been prejudiced. So expressed, the proposition appears to me too broad.
51. But she further submitted (a) that if the debtor makes an advance payment in response to a threat by the creditor to break his contract with the debtor and the guarantor (e.g. in this case, threatens to refuse to supply on 55 day terms, or at all) then the guarantor is discharged; and (b) that it was arguable that that is what happened here.
52. Since I do not propose to give the claimant a summary judgment, it is unnecessary for me to consider this alternative defence at any length. It is sufficient to say that Miss Ife's proposition (a) is at least arguable. "A long series of cases has decided that a surety is discharged by the creditor dealing with the principal … in a manner at variance with the contract, the performance of which the surety had guaranteed": Ward v National Bank of New Zealand Ltd (1883) 8 A.P. 755 P.C. cited in National Bank of Nigeria v Awolesi [1964] 1 WLR 1311. For the creditor to secure premature payment from the debtor by threatening to commit what would be a breach of both principal contract and guarantee could be said to be a dealing at variance with the contract whose performance the surety had guaranteed. Or, to put it another way, STM cannot enforce the guarantee if, by threatening not to honour the 55 day terms, it has, in practice, denied debtor and guarantor the benefit of the very terms that formed the basis of the guarantee, and the guarantor is exposed to a risk of prejudice as a result.
53. The evidence as to whether any such threat was made is tenuous and consists at this stage largely of (a) the fact that a threat to require cash with order was made in May; (b) the fact that STM gave an undertaking to continue to ship; and (c) the indication in the e-mail of 20^th June that controlled deliveries could begin once payment of € 1.5 million had been cleared. But I am not persuaded that the suggestion is fanciful.
54. It is impossible on a summary application to say that, if there was a variation of the principal contract, nevertheless there is no prospect of Condor establishing that the variation was not self evidently immaterial. The contrary was not suggested.

Cash with order after 24^th June 2005

55. Condor's second point is that there was a further variation of the principal contract when STM demanded cash with orders in respect of invoices after 24^th June. STM contend that on 24^th June Eurodis repudiated the principal contract by indicating that its bank would no longer make payments in respect of existing indebtedness but only on a cash with order basis. As to that Condor suggested that there cannot have been a repudiation because the e-mail of 24^th June 2005 refers to Eurodis' bank having stopped payment "due today" whereas the payment was not due until 25^th June. This is not significant. The clear effect of what was being said was that payment was being stopped for the future whether it was due on 24^th or, a fortiori, 25^th June.
56. More pertinently Condor contend that it is not at all clear from the documents that STM ever repudiated the contract or that STM accepted any such repudiation. On the contrary, since under condition 5 of the General Conditions, which were set out on STM's invoices, STM reserved the right at any time to require full or partial payment in advance of delivery, STM may have been relying on its apparent right under those conditions.
57. If this was Condor's only point it would not, in my judgment afford them a realistic prospect of success. On the written and oral evidence, which, in this respect I see no reason to doubt, Eurodis made it plain on 24^th June that its bank was not going to advance cash to pay outstanding invoices, but only against future orders on cash with order terms, and that goods supplied on the 55 day terms would not be paid for in accordance with those terms. Any obligation of STM to continue to supply goods on the 55 day terms carried with it an obligation on Eurodis to pay by the expiry of those 55 days. But Eurodis had made plain that it could not and would not be doing that. The fact that STM did not thereafter supply goods on 55 day terms was an acceptance of Eurodis' repudiation of their obligations. Acceptance of a repudiation is not the same as a variation: Moschi v Lep Air Services [1973] A.C. 331.
58. Condition 5 of the General Conditions is not relevant. That condition provides an entitlement to require payment in advance of delivery in respect of any sale made by STM. Where a sale has been made either on the payment terms set out in clause 5 or on terms otherwise agreed in writing, clause 5 gives STM a right to claim the price before delivery notwithstanding whatever different payment terms may have been agreed. But STM did not on or after 24^th June purport to exercise a right to claim payment in respect of any sale in advance of the agreed date for payment under that sale. After 24^th June it only accepted orders on cash with order terms.

Quantum

59. Lastly Condor submit that there appears to be a real dispute as to the sum alleged to be outstanding since no explanation has been given by STM of the reference in Eurodis' e-mail of 6^th July 2005 to a credit note for €1.324 m. Nor is it clear that Eurodis has remitted cash of € 598k entirely for cash on order deliveries. The reference to a stock return of € 900k has not been explained; nor has any explanation been given of the "phantom allowance".
60. Again, I need not deal with this at any length. It is clear from the e-mail of 8^th July that the cash payment of € 598,000 represented cash with order payments in respect of orders post 24^th June. The € 1.342 million credit note was taken against the May payment. € 450,000 of the stock return was used as the equivalent of cash against post 24^th June orders. Mr Phillips explained to me that thereafter STM had applied a 2 for 1 policy so that if € 900,000 of stock was returned € 450,000 of new stock could go out; and that appropriate reductions had been made to the outstanding balance, so that the sum claims was significantly less than the € 8.7 million due as of 8^th July as stated in the e-mail of that date. I have no reason to doubt that. But it is not proved by any witness statement, nor do the documents given to Condor show the calculation. Had I otherwise been in favour of STM I would not have given judgment for the entire sum but would have ordered a very substantial interim payment which made some discount to allow for any error in calculating stock credit and, also to cater for the possibility that "phantom allowances", the meaning of which has not been explained, might reduce the balance.
61. In a late coda to her submissions Miss Ife suggested that if, as STM contend, there was an acceptance by STM of Eurodis' repudiation of the principal agreement, it would be necessary to consider whether the guarantee was a guarantee of all of Eurodis' obligations to STM or, alternatively, a guarantee of the "If the debtor fails to pay any instalment, I will pay it" variety referred to by Lord Reid in Moschi. If the latter, as she submitted was arguable, then Condor would not be liable for the goods invoiced in May and June since payment for them did not become due until after 24^th June. As to that, it seems to me that Mr Phillips was right to submit that the proper analysis is that Condor guaranteed the debts due under the underlying sales, which, by virtue of the contract of sales, were on 55 day terms; and that those contracts have never been discharged by repudiation.
62. I will hear Counsel as to what case management directions should be made in consequence of this judgment.