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Note: Aria Inc. (Charterer/Applicant) chartered a vessel and sub-chartered it to Allied Maritime (Sub-charterer/Debtor) which arranged to purchase fuel from World Fuels Services (Singapore) Ltd. (Creditor). Charterer/Applicant informed Creditor that the cost for the fuel was to be paid by Subcharterer/ Debtor and not Charterer.

Because Sub-charterer/Debtor was experiencing financial difficulty, it could not pay for the fuel, so Creditor had the vessel arrested in France. To obtain the release of the ship, Charterer/Applicant was required to provide a bank guarantee which it did. It was issued by Credit Agricole Corporate & Investment Bank (Guarantor) for USD 550,000 and governed by English law. The guarantee stated,

"In consideration of your immediately releasing the conservatory arrest effected over the above vessel and ordered by decision of the President of the Tribunal de Commerce de Bordeaux on 29 November 2012 and your undertaking not to effect a further conservatory arrest over the vessel ... or any other property of [Charterer/Applicant] we hereby undertake to pay you on first demand such sum as may be due in respect of the above claim to you by [Charterer/Applicant] and/or the owner of the [vessel] and/or the Master of the [vessel] and/or its operators and/or [Subcharterer/ Debtor] by virtue of an enforceable decision of a competent court or arbitration award of a competent tribunal or pursuant to a settlement agreement with [Charterer/Applicant]."

When the guarantee was issued, Creditor dropped the suit.

However during the start of French proceedings, Sub-charterer/Debtor was declared insolvent by a Greek court, which appointed a liquidator to handle any claims against Sub-charterer/Debtor. Under Article 25 of the Greek Insolvency Code, all parties who have claims against an insolvent are forbidden to file actions against the Insolvent in any other venue but must file them with the liquidator.

When payment for the fuel had still not been made, Creditor sued Sub-Charterer/Debtor again in the French court in an attempt to obtain a judgment in order to call upon the guarantee. The Greek Liquidator informed Creditor of the insolvency decree and that any action against Sub-charterer/Debtor would be void in Greece. Creditor did not respond to the Liquidator and presented the case to the French court and obtained the judgment it sought. When Charterer/Applicant discovered the Greek insolvency declaration and the new French judgment, it sought injunctive relief in the High Court in London as per the guarantee, on its own behalf and for Sub-Charter/ Debtor, against Guarantor paying and Creditor calling upon the guarantee.

At the hearing, Charterer/Applicant presented evidence that Creditor received several communications from the Greek Liquidator and knew that any French proceedings were void. Charterer/ Applicant accused Creditor of knowing that the French judgment was wrongfully obtained, and Charterer/Applicant invoked the Fraud Exception for the injunction to issue.

The High Court of Justice, Queen's Bench Division, Commercial Court, Leggatt, J., dismissed Charterer's case but enjoined Guarantor from paying on Sub-Charterer/Debtor's claims. The court found,

"On the material before the court, it seems to me that [Creditor] has failed to provide any satisfactory explanation of his conduct which would show it to be consistent with an honest belief that [it] was entitled to pursue proceedings against [Sub-Charterer/Debtor] in France, notwithstanding the Greek insolvency order.... I therefore am persuaded that there is a seriously arguable case of a clearly established fraud. That is sufficient in principle to invoke the fraud exception and to surmount the first stage of the American Cyanamid test...."

The court dismissed Charterer/Applicant's claim because there was a legitimate contract between it and Guarantor. If Guarantor refused to pay, Charterer/ Applicant would have no case against Guarantor, but if Guarantor wrongfully paid, then damages would be remedy enough. The court granted the injunction for Sub-Charterer/Debtor however because of the irreparable damage that could result to its creditors in the liquidation process if Creditor could get payment under guarantee.

The court noted, "There will, if payment is made under the guarantee, be potential prejudice at least to the creditors of [Sub-charterer/Debtor]. That is because an additional claim will arise against [Sub-charterer/Debtor's] assets made by [Charterer/Applicant] or passed on by [Charterer/ Applicant] to [the vessel's owners] and then made against [Sub-charterer/Debtor] as a result of the loss suffered by [Charterer/Applicant] in having to fund the guarantee."

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.