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Journal of International Banking & Financial Law/2013 Volume 28/Issue 10, November/Articles/Doosan
Babcock Limited v Comercializadora de Equipos y Materiales Mabe Limitada - (2013) 10 JIBFL 650
Journal of International Banking and Financial Law
(2013) 10 JIBFL 650
1 November 2013
Features
On Demand Performance Guarantees
Jonathan Lawrence
K&L Gates LLP jonathan.lawrence@ klgates.com
www.klgates.com
© Reed Elsevier (UK) Ltd 2013
[2013] EWHC 3201 (TCC)
(Mr Justice Edwards-Stuart) (24 October 2013)
Doosan Babcock Limited (the Claimant) agreed to supply two boilers for a power plant in Brazil to
Comercializadora de Equipos y Materiales Mabe Limitada (the Defendant).
Banks issued two performance guarantees in favour of the Defendant at the behest of the Claimant. The performance guarantees expire either on the issue of a Taking-Over Certificate (TOC) in relation to each boiler by the Defendant or on 31 December 2013, whichever is earlier. The Claimant's case was that the
Defendant should have issued the TOCs and therefore the Defendant did not have any right to the continuing existence of the guarantees.

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The Claimant was entitled to interim relief against the Defendant making a call on the performance guarantees. There was a strong case that the Defendant's failure to issue the TOCs was breach of the underlying boiler supply contract and that the Defendant was seeking to take advantage of its own breach of contract to derive a benefit, namely the continuing existence of the performance guarantees. The judge considered that the Claimant had a realistic prospect of establishing that the Defendant's refusal to issue the
TOCs (on the ground that the operating of the boilers was a temporary measure) was not a bona fide position. Even though the underlying dispute was the subject of separate arbitration proceedings between the parties, the court had jurisdiction under s 44 of the Arbitration Act 1996 to grant interim relief in the circumstances and the injunction would remain in place until either: (i) the arbitrators had heard and determined the issue of whether the Defendant's refusal to issue the TOCs was a breach of contract; or (ii) further order by the court.
In the court's view, the remedy for any non-achievement of the contract performance specification was the payment of a specified sum by way of liquidated damages and nothing else. Indeed, the evidence showed that the boilers had been in commercial operation for several months, since when they had exported more than 7,500 hours of power to the local grid.
The judge could not decide whether there was a breach of contract. However, he decided that there was at least a reasonably good or good arguable case around that question. He accepted that his decision had extended the law, but had been done adopting a principled and incremental approach that did not undermine the general principles applicable to interim injunctions to restrain a party making a call on a bond. The decision justified the grant of interim relief as the Claimant could show a strong case.