Holborn Oil Trading Ltd v Esso AG 1994 Civil Jur. No. 406

• Jurisdiction: Bermuda
• Judgment Date: 11 October 1995
• Date: 11 October 1995
• Docket Number: Civil Jurisdiction 1994 No. 406
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Meerabux, J

Civil Jurisdiction 1994 No. 406

BETWEEN

Holborn Oil Trading Limited

Plaintiff

and

Esso A.G.

Defendant

Mr. J. Elkinson for the Plaintiff

Mr. A. Dunch and Miss Bell for the Defendant

Spiliada Maritime Corp. v Cansulex Ltd.ELR [1987] 1 AC 460

Tzortzis v Monark LineWLR [1968] 1 WLR 406

National Iranian Oil Company v Ashland Overseas Trading Limited 1987 Civil Appeal No. 15

International Metal Investment Co. Ltd. v Mocatta Metals Corp. 1983 Civil Jur. No. 215

BP Exploration (Libya) Ltd v HuntWLR [1976] 1 WLR 788

Mackender v Feldia AGELR [1967] 2 QB 590

Hadmor Productions Ld. v HamiltonELR [1983] AC 191

Chevron International Oil Co. Ltd. v AS Sea TeamUNK [1983] 2 Lloyds Rep. 356

Continental Bank NA v Aeakos CompaniaUNK [1994] 1 Lloyds Rep. 505

The NimrodUNK [1973] 2 Lloyds Rep. 91

The VikfrostUNK [1980] 1 Lloyds Rep. 560

Rules of the Supreme Court, O. 11, r. 1

Service out of the jurisdiction — Guaranty of performance — Jurisdiction of the court — Appropriate forum

JUDGMENT

Meerabux, J.

PRELIMINARY

This is a summons by the Defendant seeking an Order to set aside an order of the Court dated 3 November 1994 providing for leave to serve notice of the Writ of Summons out of the jurisdiction.

FACTUAL BACKGROUND

I take the facts from the affidavit evidence filed on behalf of the parties. The Defendant agreed to sell and Holborn Europa Raffinerie GmbH (HER) agreed to buy, inter alia, an oil refinery located in Hamburg. On 15 September 1987 a Refinery Acquisition Agreement was executed (RAA). Under the RAA the Defendant agreed to sell the oil refinery in exchange for a liquidated sum and an environmental indemnification of the Defendant by HER with respect for liabilities and obligations as set forth in section 9 in the RAA.

It was part of the environmental indemnification in section 9 in the RAA that HER agreed to indemnify the Defendant for such liabilities arising out of pollution of the soil after the transfer date and if the shares of NWO or NDO were respectively transferred to HER which pollution was caused by the operation of NWO and NDO for which their members were liable

Under section 9.7 of the RAA it was a condition precedent to the transfer of title of the refinery that HER would cause to be delivered to the Defendant a Guaranty of Performance issued by Holborn Oil Trading Limited (Holborn Old Bermuda) whereby Holborn Old Bermuda would guarantee for an indefinite period of time prompt and complete performance of the obligations of HER as set out in section 9 of the RAA

The Guaranty of Performance was executed by Holborn Old Bermuda for the benefit of the Defendant on 12 October 1987.

Recitals 5, 6 and 7 of the Guaranty of Performance read as follows:

‘WHEREAS, Holborn has agreed to indemnify Esso for certain environmental liabilities pursuant to Section 9 of the Refinery Agreement (herein the ‘Environmental Liabilities’);

and

WHEREAS, Esso has required Holborn to provide a guarantee by Holborn-Bermuda for the performance of Holborn for the Environmental Liabilities pursuant to the terms hereinbelow;

and

WHEREAS, simultaneously with the execution of the Refinery Agreement, Esso and Holborn-Bermuda have executed that certain Collateral Agreement dated September 9, 1987 (the ‘Collateral Agreement’) wherein Holborn-Bermuda has agreed to pledge certain assets as collateral for the obligations contained in this Agreement’.

Thus HER fulfilled the requirement by the Defendant for the provision of a guarantee by Holborn Old Bermuda. Paragraph 1 of the Guaranty of Performance states thus:

‘FOR VALUE RECEIVED, Holborn-Bermuda hereby unconditionally guarantees the full and punctual performance of all duties, liabilities, and obligations of Holborn for the Environmental Liabilities to the extent Holborn has duties, liabilities, and obligations as contained in Section 9 of the Refinery Agreement, together with all amendments, renewals, and extensions thereof, even though represented by new instruments or occurring after the date hereof, and together with all interest, attorneys' fees and court costs for which Holborn is responsible in connection therewith (all of the foregoing being hereinafter referred to as the ‘Obligations’). The undersigned further agrees to pay to Esso, or to its successors or assigns, all reasonable attorneys' fees and court costs incurred in enforcing this Guaranty if the Obligations guaranteed hereunder are not paid by the undersigned upon demand when due as required herein or if this Guaranty is enforced by suit or through bankruptcy court or through any judicial proceedings whatsoever, and should it be necessary to reduce Esso's claim to judgment, said judgment shall bear interest at the highest rate permitted by applicable law. It is further agreed that the liability of the undersigned for the Obligations shall be primary and not secondary; provided, however, Holborn-Bermuda shall only be responsible to the extent Holborn is responsible under Section 9 of the Refinery Agreement and provided Esso satisfies its obligations contained in said Section 9.’

The last 2 paragraphs of the Guaranty of Performance provide:

‘Notwithstanding anything contained in this Guaranty to the contrary, this Guaranty shall terminate and be of no further force or effect in the event that:

• (i) Esso receives written notice from all appropriate German local and national governmental authorities releasing Esso from the Environmental Liabilities;

  or

• (ii) Coastal executes and delivers to Esso a guaranty substantially similar in form and content to this Guaranty.

The construction, interpretation, and performance of this Guaranty shall be governed by the laws of Bermuda, except for any conflict of law rules which would require the application of the laws of any other jurisdiction. The courts in Bermuda shall have exclusive jurisdiction unless otherwise agreed by the parties hereto’.

It is to be noted that the Collateral Agreement between Holborn Old Bermuda and the Defendant as stated in recital 7 of the Guaranty of Performance was executed on 9 September 1987 and prior to the execution of the Guaranty of Performance. Under the Collateral Agreement Holborn Old Bermuda pledged certain assets as collateral for the obligations contained in the Guaranty of Performance. In paragraph 1 thereof Holborn Old Bermuda agreed to execute and deliver the Guaranty of Performance mentioned in section 9.7 of the RAA, to execute and deliver certain Possessory Lien Trust Agreement and to transfer to the Trustee to be appointed in trust assets collateral in the sum of $20 million which sum was to be maintained in trust until 2 January 2003 and thereafter to be reduced to $10 million and maintained until 2 January 20 13.

The Collateral granted, assigned, conveyed and transferred by Holborn Old Bermuda was under paragraph 2 of the Collateral Agreement given to secure the performance of the obligations, agreements and undertakings of Holborn Old Bermuda as contained in the Guaranty of Performance.

Holborn Old Bermuda entered into the Possessory Lien Agreement whereby it granted to the trustees US$20 million in collateral to be held for the benefit of the Defendant.

If Holborn Old Bermuda does not honour its guarantee pursuant to the Guaranty of Performance, within twenty days notice from the Defendant that HER has failed to satisfy its obligations to the Defendant under section 9 of the RAA, the trustees are obliged to pay out of the trust funds an amount equal to the Defendant's assessed liability to the Defendant itself.

Section 21 of the Collateral Agreement and section 12 of the Possessory Lien Trust Agreement provide for the Agreement to be binding on successors and assignees.

The Plaintiff claims that it is the successor in title to Holborn Old Bermuda by reason of an assignment dated 1 January 1988 whereby the company formerly called Holborn Oil Trading Limited and then called Holborn International Limited assigned all the rights, benefits and performance obligations of contracts entered into, in particular the Collateral Agreement of 9 September 1987, the Guarantee of Performance of 12 October 1987 and the Possessory Lien Trust Agreement of 24 November 1987 to Holborn Oil Trading Limited, the Plaintiff.

The Plaintiff went before the Court on 3 November 1994 seeking leave to issue and serve a Writ of Summons out of the jurisdiction on the Defendant on the ground that ‘the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract or to recover damages or obtain other relief in respect of the breach of the contract being in either case a contract …… which is by its term …, …… governed by Bermuda Law’.

On 3 November 1994 such leave was granted by Order of the Court to the Plaintiff. The Defendant now seeks to discharge the Order made by the Court. Counsel for both parties informed the Court that the question of whether there was a v&d assignment to the Plaintiff was not a point to be decided at this stage. Hence I have not ruled on that point.

SUBMISSIONS

Counsel for the Defendant submitted that the true dispute was solely over whether a condition precedent to termination of the Collateral Agreement and the trust created pursuant to the Possessor-y Lien...