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CIMC Raffles Offshore (Singapore) Limited and Yantai CIMC Raffles Offshore Limited v Schahin Holding

24th Jun 2013

CIMC Raffles Offshore (Singapore) Limited and Yantai CIMC Raffles Offshore Limited v Schahin Holding [2013] EWCA Civ 644

Christopher Butcher Q.C. Marcus Mander acted in an appeal by a guarantor, Schahin Holding S.A., from a judgment of Blair J granting partial summary judgment to a creditor under a deed of guarantee and indemnity for approximately $53m.  The creditor cross-appealed seeking summary judgment for a further $25m.  

The guarantee had been given in respect of the obligations of two companies as buyers under two contracts for the construction of semi-submersible drilling rigs.  Following delays in construction of the rigs the parties agreed to defer payment of the final milestone payments for each rig until after delivery when the rigs would be earning chartering income.  As part of a restructuring of their financing arrangements required as a result of the delays, the buyers’ financing banks required the buyers to procure a guarantee of their obligations in respect of the milestones so as to protect the banks’ interests in the chartering income, which was then given by the guarantor which is the holding company of a related group of companies.  The projects later encountered further difficulties, and the parties agreed to amend the contracts again to defer further milestones until after delivery, but no further guarantee was sought.  A dispute then developed between the buyers and the yard, the buyers contending that the losses suffered by them as a result of the yard’s defective performance of the contracts exceeded their liability for the outstanding milestones.  The yard sought to recover the outstanding milestone payments from the guarantor under the guarantee and applied for summary judgment.

The guarantor argued that the guarantee did not extend to the additional milestone payments deferred until after delivery and that the further amendments to the contracts made after the guarantee was given were outside the purview of the guarantee and therefore had the effect of discharging it from liability, relying on cases such as Trade Indemnity Company v Workington Harbour [1937] AC 1 and Holme v Brunskill (1878) 3 QBD 495.  The yard argued that the language of the guarantee meant that it expressly covered the obligations created by the later amendments and that the guarantor could not be discharged by the amendments because the guarantee created a primary liability and contained strong “anti-discharge” wording.  At first instance Blair J held that the question whether the guarantee extended to the later amendments to the contracts required a trial but that the guarantor had no real prospect of arguing that it had been discharged.  He considered that the amendments were not outside the purview of the guarantee and that the primary obligor provisions of the guarantee excluded the purview doctrine.

The Court of Appeal (Arden and McCombe LJJ and Sir Bernard Rix) allowed the guarantor’s appeal and dismissed the yard’s cross-appeal, holding that the question whether the later amendments were outside the purview of guarantee required a trial to determine its proper interpretation.  The court reviewed the authorities in relation to the purview doctrine and considered whether the doctrine was one of construction only or was a rule of law, and whether it could be excluded by “anti-discharge” language or the creation of primary liability.  It concluded that the purview doctrine is not necessarily excluded by such provisions and that the case was not suitable for summary disposal, noting that a trial was required in any case, and that the jurisprudence in relation to the purview doctrine was unclear.

Of particular interest to practitioners is the court’s conclusion that neither primary obligor provisions nor widely-drafted “anti-discharge” language necessarily displace the purview doctrine.  

To view the judgment click here.