Cases - Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd
Record details
- Name
- Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd
- Date
- [2010]
- Citation
- EWHC 2443 (Ch)
- Legislation
- Keywords
- Parent company guarantee not performance bond- performance bond is from a bank - primary or secondary obligation
- Summary
-
Vossloh was the parent company of a group of rail companies (Vossloh Group). Between September 2000 and September 2008, the Vossloh Group and Alpha Group entered a Master Purchasing Agreement ('MPA') under which the Vossloh Group sold trains to the Alpha Group.
Vossloh provided a guarantee to Alpha of Vossloh Group's obligations under the MPA. Alpha called on the guarantee in relation to 63 locomotives supplied under the MPA which it argued had engine and gearbox defects. Alpha requested that Vossloh pay €17million to Alpha on demand.
The court held that as the guarantee from Vossloh was not given by a bank there was a strong presumption that the instrument was not a performance bond and therefore not on demand.
Alpha argued that the wording of clause 2.1 'principal debtor and not merely as surety, as a separate, continuing and primary obligation', meant that the obligation by Vossloh was primary not secondary and so on demand. Alpha also referred to a 'waiver of defences' clause that included a requirement to pay the liabilities owing on demand and a "conclusive evidence clause" stating that the beneficiaries statement of what was owing was conclusive. Alpha asserted that these clauses all supported the view that the Vossloh's obligation to Alpha was on demand.
However, the court upheld Vossloh's argument that Alpha was the beneficiary of a secondary obligation because, read as a whole, clause 2.1 required an initial breach or default of the underlying contract by the guaranteed party. This meant that Vossloh Group, the party providing the guarantee, had the primary obligation. Alpha's interpretation of the waiver of defences and conclusive evidence clauses was also rejected as they both required compliance with clause 2.1 which, in the court's view, placed a secondary obligation on the guarantor.
The court rejected Alpha's attempt to overturn the presumption and upheld the position that a performance bond is a specific banking instrument to be given by a bank. As a result, the obligation was held to be a guarantee and not a performance bond (on demand). Therefore, Alpha had to evidence a default on behalf of the beneficiary before it could make a claim.