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PARRY & COMPANY LTD

vs.
PIONEER FOOD CANERY AND SAHEL SAHARA BANK
[HIGH COURT (COMMERCIAL DIVISION), ACCRA]
SUIT NO.BDC/21/2015 DATE: 16TH NOVEMBER, 2016

CORAM:
HIS LORDSHIP ERIC KYEI BAFFOUR JUSTICE OF THE HIGH COURT

RULING
The Plaintiff/Applicant prays for a two headed order of interlocutory injunction.
The first injunction he seeks is to restrain the 1st Defendant from having recourse
to a security in the form of Bank guarantee which the 2nd Defendant Bank
provided. The second injunction he seeks is directed at the 2nd
Defendant/Respondent, the Bank that gave the unconditional guarantee to the
1st Defendant on behalf of the plaintiff in relations to the Plaintiff’s obligations
under a Sales Stock Handling Agreement it had entered into with the 1st
Defendant. The Applicant intends to stop 2nd Defendant from honouring any call
on it to perform or make payment to 1st Defendant to the tune of Ghc
1,650.000.00.

The 1st Defendant is a manufacturer of a variety of canned tuna products whiles

the Plaintiff until recently, a distributor of 1st defendant’s products. The parties
have been in a long standing business relationship where the Plaintiff was
mandated as the authorized distributor of 1st defendant’s products. The parties
renewed their contract in 2014 for the supply of starkist brand of canned fish. The
Plaintiff claim that with time the sale and distribution of the 1 st defendant’s
product was affected due to infiltration of counterfeit products on the market
and this has occasioned losses to the Plaintiff. The renewal agreement called for a
period of 60 days payment on invoices failing which it will lead to a call in of the
Bank guarantee provided by the 2nd Defendant.
And it was under such circumstance that Plaintiff claims that 1 st Defendant
dumped on it quantities of dented, rusted, near expiry and inferior goods which
had been rejected in the European market for distribution. As a result the
Plaintiff has been unable to pay an amount of US$ 1,376.271.56 plus an interest of
US$ 33.770.14 and has led to 1st defendant making demands on the 2nd Defendant
to make good its obligation under the guarantee it provided.
To Plaintiff the guarantee given should not be honoured because the 1st

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defendant is indebted to it in terms of accumulated losses he the plaintiff has

suffered, and that the 1st defendant need to reimburse it for costs expended on
advertisement, brand development, promotion etc, a compensation that ought to
be paid it and other reliefs he seeks from the court.
Before the application for injunction was heard 1st defendant filed a motion to
stay proceedings pending arbitration. Counsel for Plaintiff conceded that it was
in principle not opposed to going to arbitration in terms of the agreement
between the parties provided its application for injunction pending arbitration
would be considered by the court. The court has granted the prayer of the 1st
Defendant to stay proceedings and ordered the parties to submit the dispute to
arbitration.

What the court will have to determine is whether pending the arbitral
proceedings this court ought to restrain the bearer of an unconditional Bank
guarantee from having recourse to that security.

Order 25 of the High Court, (Civil Procedure) Rules, C. I 47 enjoins the court to
grant an application for injunction in all cases in which it appears just or
convenient to do so. Has there been enough showing on the face of the affidavits
and the document filed to convince the court that it will be just and convenient
for the court to hold in abeyance the calling of the beneficiary the Bank guarantee
to his benefit?
It is the general rule that the invocation of a Bank guarantee by the beneficiary
can be restrained by an injunction. The caveat is that the normal consideration
which may apply in granting an injunction will not apply in matters where Bank
guarantee or letters of credit are involved. The reasons are that Bank guarantee
agreement is independent of the main contract. The courts follow strict approach
in granting injunctions against the encashment of Bank guarantee when it
appears to be unconditional guarantee such that even arbitration proceedings
will not affect the enforcement of the guarantee.

In the case of UP STATE SUGAR CORP v SUMAC INTERNATIONAL LTD.

(1997) SCC 568 the Indian Supreme Court had this to say:
“whenever an irrevocable and unconditional bank guarantee to be paid without
demur is invoked, the Bank is bound to honour the guarantee irrespective of any
dispute raised by the customer with notable exceptions of fraud and irretrievable
injustice”.
The two exceptions were explained further to mean fraud committed in the
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notice of the bank which would vitiate the very foundation of guarantee; (ii)
injustice of the kind which would make it impossible for the guarantor to
reimburse himself.

There was even a better rendition of this principle and expansion of the scope of
the exceptions that may sway the court to grant an injunction restraining the
payment of a bank guarantee in a subsequent case of HIMADRI CHEMICALS v
COAL TAR REFINING COMPANY (2007) AIR SC 2798 when the court noted
that:
“...the courts should not readily issue injunction to
restrain the realization of a Bank Guarantee or a Letter of Credit. So far as the
first exception is concerned, i.e. of fraud, one has to satisfy the court that the fraud
in connection with the Bank Guarantee or Letter of Credit would vitiate the very
foundation of such a Bank Guarantee or Letter of Credit. So far as the second
exception is concerned, this court has held ... that it relates to cases where
allowing encashment of an unconditional bank guarantee would result in
irretrievable harm or injustice to one of the parties concerned”.
See also OWEN ENGINEERING v BARCLAYS BANK (1978) ALL ER 976;
VINITEC ELECTRONICS v HCL INFOSYSTEMS (2008) 1 SCC 544.

The question is has the Applicant been able to situate its application within the
exception to the general rule that a bank must make good its guarantee when
there had been a failure of a party upon whose benefit a guarantee was provided,
unless there is an issue of fraud that goes to the root of the issuance of the
guarantee or where there will be an irretrievable harm?

For an allegation of fraud to succeed it has been held that it “must be of an

egregious nature such as to vitiate the entire underlying transaction”. See HIMADRA
CHEMICALS CASE Supra. And in BOLIVINTER OIL SA v. CHASE
MANHATTAN BANK (1984) 1 All ER 351 it was noted that the exceptional 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 thereafter 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. No allegation of fraud has been made by
the Applicant neither has the 2nd Respondent, being the Bank opposed the
payment on the ground of fraud known or brought to its attention. It seems clear
that the Applicant cannot find any solace under the first leg of exceptions that an
applicant must set out to prove fraud to stop the honouring of the guarantee.
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Regarding the second leg learned counsel for the Plaintiff/Applicant has
canvassed that if the 2nd Respondent were to pay the monies, the 2nd Respondent
will then come after Plaintiff to pay it the monies 2nd Respondent has paid. And
for now it is in financial difficulties as its business has gone down and this will
effectively cripple its operations and existence as a business entity.
Can this be said to be the irretrievable injustice or irreparable injury that the law
anticipates?
What the law expects to be an irreparable harm has been said to be an
exceptional circumstances which make it impossible for the guarantor to
reimburse himself if he ultimately succeeds or better still that the 1st Respondent
will not be in a position to pay back the monies it received. The Law Dictionary
defines irreparable harm or injury to mean “the type of harm which no monetary
compensation can cure or put conditions back the way they were”. It connotes a harm
that is of irretrievable effect. See AMERICAN CYANAMID v ETHICON [1975]
AC 396. 1st Respondent has stated its willingness to provide an undertaking of its
readiness to pay the value of the guarantee in the event that it is adjudged not to
be entitled to the payments at the arbitration. As long as the harm or injury could
adequately be compensated for in terms of damages, whatever harm suffered
cannot be said to be an irreparable harm.
Instances of the difficulties that the Applicant is going through are not enough to
meet the test of irreparable harm. On the whole the court is satisfied that the case
of the Applicant has not been brought within the exception to necessitate the
grant of an injunction to restrain the call for the bank guarantee provided by the
2nd Defendant.

I will accordingly dismiss the application as lacking merits. I will award cost of
Ghc 1.000.00. in favour of the 1st Defendant/Respondent.