Meritz –v- Jan De Nul [2011] BLR 196 Court of Appeal
Facts
Jan De Nul ('JDN') is a Dutch company which contracted with a Korean shipbuilder to buy ships from it. The Korean shipbuilder provided a performance guarantee – in the form of an on-demand bond upon Meritz. Meritz was therefore absolutely liable to pay on the bond provided a properly worded demand was made by JDN. The shipbuilder then went through a merger and joined with another Korean company to form a quite new entity. It also failed to deliver on time, so JDN gave notice to determine the shipbuilding contract and then gave notice calling in the bond from Meritz. Meritz sought a declaration from the court to the effect that they were released from paying under English Law because there had been a fundamental change in the identity of the shipbuilder, which changed the nature of the contingent obligations against which the bond had been given.
HELD
The Court of Appeal held that the bond contract between JDN and Meritz said nothing about reserving any right to Meritz to complain in such circumstances. The clear intention of the International Chamber of Commerce Rules, under which this bond was drawn up, was that if a properly prepared Demand was presented upon a performance bond, then the bondsman cannot avoid payment by reference to changes in the underlying circumstances.
Comment
The Claimants instructed specialist lawyers including a leading QC to argue ingeniously that they should not be bound to pay because of the change in character of the shipbuilder. The court had no difficulty in asserting yet again that public policy and confidence in the International Bonding system set up by the ICC Rules requires that bonds should be enforced wherever possible.
Normally bondsmen do not object in this way because they usually have the comfort of counter indemnities in place behind the bond so that any sum which they have to pay out they can claw back from the performer of the contract who procured the bond in the first place. One can only assume that in this case Meritz was taking a shortfall between the sum it had to pay to JDN and the sum it could recover from the Korean shipbuilder.