The Gazette 1986

GAZETTE

JULY/AUGUST 1986

He referred to some possible alternative remedies. It

appeared to him that the reservations of Kerr J. in the

Harbotile

case

as to whether the plaintiffs in that case

were entitled to injunctive relief were well founded,

because the granting of an injunction to the sellers in

such circumstances would, he said, appear to pre-

suppose the absence of an adequate remedy in damages.

He continued:

"This aspect of the case was not fully canvassed at

the hearing, but I am assuming that the Irish

Bank, as a pre-condition of issuing the perfor-

mance guarantee, required the furnishing of

counter-indemnities by the sellers. If the sellers

are correct in their contention that the Irish Bank

are under no obligation to pay on foot of the

guarantee, they may well be in a position to resist

any demand on foot of the counter-indemnities;

or, alternatively, to recover the amount involved

from the Irish Bank as customer and banker."

Guidelines on

ex-parte

injunctions

Bolivinter Oil S.A.

-v-

Chase Manhattan

Bank,'

Donaldson M.R. issued guidelines about the circum-

stances in which an

ex parte

injunction

should be

issued which prohibits a bank from paying under an

irrevocable letter of credit or a performance bond or

guarantee. In the absence of an Irish authority dealing

directly with the point, Donaldson M.R.'s remarks are

important. He said:

"The unique value of such a letter, bond or

guarantee is that the beneficiary can be completely

satisfied that, whatever disputes may thereafter

arise between him and the bank's customer in

relation to the performance or indeed existence of

the underlaying contract, the bank is personally

undertaking to pay him provided that the specified

conditions are met. In requesting his bank to issue

such a letter, bond or guarantee, the customer is

seeking to take advantage of this unique charac-

teristic. If, save in the most exceptional cases, he

is to be allowed to derogate from the bank's

personal and irrevocable undertaking, given be it

again noted at his request, by obtaining an

injunction restraining the bank from honouring

that undertaking, he will undermine what is the

bank's greatest asset, however large and rich it

may be, namely its reputation for financial and

contractual probity. Furthermore, if this happens

at all frequently, the value of all irrevocable bonds

and guarantees will be undermined.

Judges who are asked, often at short notice and

parte,

to issue an injunction restraining payment

by a bank under an irrevocable letter of credit or

performance bond or guarantee should ask

whether there is any challenge to the validity of the

letter, bond or guarantee itself. If there is not or if

the challenge is not substantial,

prima facie

injunction should be granted and the bank should

be left free to honour its contractual obligation,

although restriction may well be imposed on the

freedom of the beneficiary to deal with the money

after he has received it. The wholly exceptional

case where an injunction may be granted is where

it is proved that the bank knows that any demand

for payment already made or which may there-

after be made will clearly be fraudulent. But the

evidence must be clear, both as to the fact of fraud

and as to the bank's knowledge. It would certainly

not normally be sufficient that this rests on the

uncorroborated statement of the customer

for

irreparable damage can be done to a bank's credit

in the relatively brief time which must elapse

between the granting of such an injunction and an

application by the bank to have it discharged."

The legal position regarding the circumstances in

which an

ex parte

injunction should be issued to restrain

beneficiary

from making demand under a first

demand bond is unclear. In the

Bolivinter

case, the

Court of Appeal did not lay down guidelines as to the

proper approach to be adopted by a court in such

circumstances. One Court of Appeal judge has said

that as between buyer and seller the seller should be

entitled to restrain the buyer from making a call upon

the bond in circumstances which are wider than those

permitted under the fraud exception applicable to

banks. However, it is submitted by the editors of

The

Encyclopaedia of Banking Law,

in the writer's opinion,

correctly, that principles similar to those set out in the

Bolivinter

case apply to the grant of injunctions to

restrain the beneficiary from making demand under a

bond.

The editors of the Encyclopaedia cite in support of

this view

State Trading Corporation of India Ltd.

-v-

E.D.&F. Man (Sugar) Ltd.

in which the performance

bond given by a bank on behalf of the sellers was

payable upon the buyers giving notice of default. The

sellers sought an injunction to stop the buyers giving

notice of default under the performance bond. The

sellers argued that a term must be implied in the

agreement of sale between the parties that the buyers

would not serve notice of default except when there was

reasonable and just cause for doing so. The Court of

Appeal held that no such term was to be implied. The

only term to be implied was that the buyers, when giving

notice of default, must honestly believe that there had

been a default on the part of the sellers. If there was no

honest belief, it was evidence of fraud. If there was

sufficient evidence of fraud, the court might intervene

and grant an injunction but otherwise not.

Mareva Injunctions

Intraco Limited

-v-

Notis Shipping Corporation (The

"Bhoja Trader"p

established that there is jurisdiction

in an appropriate case to grant a

Mareva

injunction in

respect of the proceeds of the bond in the hands of the

recipient:

"It is the natural corollary of the proposition that

a letter of credit or bank guarantee is to be treated

as cash that when the bank pays and cash is

received by the beneficiary, it should be subject to

the same restraints as any other of his cash assets.

Enjoining the beneficiary from removing the cash

asset from the jurisdiction is not the same as

taking action, whether by injunction or an order

staying execution, which will prevent him

obtaining the cash."

174