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 16 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." Bank,' 7 Donaldson M.R. issued guidelines about the circum- stances in which an ex parte injunction 18 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 ex 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 no 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 Guidelines on ex-parte injunctions In Bolivinter Oil S.A. -v- Chase Manhattan

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 19 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 a 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 20 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. 21 The editors of the Encyclopaedia cite in support of this view State Trading Corporation of India Ltd. -v- E.D.&F. Man (Sugar) Ltd. 11 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." 24

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