Legal Opinion for execution of contract related Company

Mr. Z

Address….

Dear Sir,

RE: Legal Opinion for execution of contract no. ……………………A/C Company 1.

We refer to your letters no. ………………………. dated October 28, 2007 and our letter no. ………………….. dated October 27, 2007 on the above subject.

From perusal of your letters and the documents furnished to us it appears that, COMPANY 1 is a client of Bank 1.

IBBL recently approved an investment limit of Tk. 4909.70 Million equivalent to US $ 70.31 Million for construction of 6 units of sea going container vessels. In this regard COMPANY 1 has signed 6 contracts (“the Contracts”) with 2 buyers.

Two contracts were signed with Hildebrand, Singapore bearing contract No. 07/04 and 07/06 (Hull No. 226/35 and 226/39) for contract value of US $ 11,950,000/- (“Singapore Contracts”), two contracts were signed with Tomden Ship, Germany (“Tomden”), bearing contract no. 07/03 & 07/05 (Hull no. 226/34 and 226/38) for contract value of US $ 11,950,000/- (“Germany Contracts ONE”) and two contracts were signed with Tomden, bearing contract no. 07/01 & 07/02 (Hull no. 226/32 and 226/33) for contract value of US $ 12,800,000/- (“Germany Contracts TWO”).

Komrowski Maritim Gmbh, Germany (“Komrowski”) was the broker in the Germany Contracts ONE. COMPANY 1 and Komrowski entered into a Memorandum of Understanding dated 20 July, 2007 (“MOU”) whereby it was stated that the Germany Contracts ONE with Tomden will not come into effect and Komrowski as the borker has agreed to take an option for themselves for the two Ships. It was also agreed that Komrowski and/or a company nominated by them shall enter into a signed contract with COMPANY 1.

Accordingly, COMPANY 1 and Komrowski has entered into 2 contracts being no. 07/03 & 07/05 (Hull no. 226/34 and 226/38) dated 01 August 2007 for contract value of US $ 11,950,000/- (“FRESH Germany Contracts”)

According to the Contracts:

  • COMPANY 1 shall have to deliver to the relevant buyer a Performance Bond immediately upon execution of the contract but not later than 21 days thereafter.
  • The buyer shall no later that 14 days after receipt of the Performance Bond issue a Payment Guarantee in favour of Company 1.
  • COMPANY 1 shall within 21 days of issuance of the Payment Guarantee furnish to the relevant buyer a Refund Guarantee for the 1st installment. COMPANY 1 shall thereafter furnish further Refund Guarantees for the 2nd, 3rd, 4th and 5th installments in accordance with the contracts.
  • As soon as the final delivery and acceptance of the Ship has taken place and prior to the release of the 5thinstallment of the contract price, COMPANY 1 Shall have to furnish to the Buyer a Warranty Guarantee.

IBBL has already issued two Performance Bonds for US $ 5,97,500/- each in favour of Hildebrand, Singapore against the Singapore Contracts. COMPANY 1 has now received 2 Payment Guarantees from Hildebrand, Singapore against the Singapore Contracts securing the 1st instalment of the contract price. Hildebrand has requested IBBL to issue 2 Refund Guarantees in their favour.

COMPANY 1 has also received 2 Payment Guarantees from Komrowski against the FRESH Germany Contracts securing the 1st instalment of the contract price. Komrowski has requested IBBL to issue 2 Performance Bonds and 2 refund Guarantees in their favour.

In these circumstances, you require our legal opinion regarding the following issues:

Whether IBBL may issue two Performance Bonds and two Refund Guarantees against the FRESH Germany Contracts in favour of Kowrowski?

As the FRESH Germany Contracts were executed between COMPANY 1 and Kowrowski, IBBL may issue Performance Bonds and Refund Guarantees in accordance with the terms of the said contracts.

According to Clause 10(a) (read with Clause 9.1 (c)) of the FRESH Germany Contracts, COMPANY 1 shall have to deliver to Kowrowski a Performance Bond immediately upon execution of the contract but not later than 21 days thereafter. The FRESH Germany Contracts were executed on 01 August 2007. More than 21 days have already passed from the date of execution of the FRESH Germany Contracts. Therefore, the effectiveness of the FRESH Germany Contracts has been compromised and the said contracts, according to Clause 10, have not entered into force. This defect may be remedied if Kowrowski and COMPANY 1 execute an express variation in writing to Clause 10(a) (read with Clause 9.1 (c)) of the FRESH Germany Contracts, which allows Company 1to issue the Performance Bonds even though more than 21 days have passed from the execution of the said contracts.

Regarding issuance of two Refund Guarantees, according to Clause 10(c) (read with Clause 9.4) of the FRESH Germany Contracts, COMPANY 1 shall have to furnish to Kowrowski a Refund Guarantee for the 1st installment within 21 days of issuance of the Payment Guarantees. More than 21 days have already passed from the date of issuance (19 October 2007) of the Payment Guarantees. Therefore, for the contracts to be effective Kowrowski and COMPANY 1 have to execute an express variation in writing to Clause 10(c) (read with Clause 9.4) of the FRESH Germany Contracts, which allows Company 1to issue the Refund Guarantees even though more than 21 days have passed from the issuance of the Payment Guarantees.

Therefore, in our opinion, IBBL may only issue two Performance Bonds and two Refund Guarantees in favour of Kowrowski after the parties have executed an express variation in writing to Clause 10(a) (read with Clause 9.1(c)) and Clause 10(c) (read with Clause 9.4) of the FRESH Germany Contracts, allowing COMPANY 1 to issue the Performance Bonds and Refund Guarantees even though the time limit for executing these have passed.

Whether any risk will arise taking into the fact that the Payment Guarantees do not comply with the ICC Uniform Rules for Guarantees, although the issuing bank has confirmed through an authenticated swift message that they will accept ICC Uniform Rules for Demand Guarantees to be applicable as far as nor being contradicting the applicable English Law?

According to Clause 11 of the Payment Guarantees dated 19 August 2007, the Guarantees shall be construed in accordance with and governed by the laws of England and the High Court in London shall have exclusive jurisdiction for the purpose of any legal action or proceedings.

The issuing bank through an authenticated swift message dated 25 August 2007 stated that they will accept ICC Uniform Rules for Demand Guarantees to be applicable as far as not being contradicting the applicable English Law.

The Payment Guarantees are irrevocable in nature and were apparently issued through a non-swift method. Therefore, amendments to the Payment Guarantees may not be made through an authenticated swift message. Any amendment to the Payment Guarantees has to be made by executing amendments to the Guarantees and such amendments shall only be effective after Company 1, the beneficiary, has given their written approval to such amendment.

Regarding which law shall govern the guarantees and which court shall have jurisdiction to resolve disputes, it is a commercial decision to be decided by Company 1. However, please note that the Payment Guarantees are subject to the exclusive jurisdiction of the High Court in London. According Section 28 of the Contract Act 1872, any agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals of Bangladesh is void to that extent. Therefore, the exclusive jurisdiction of the High Court in London in the Payment Guarantees may not comply with the Contract Act of Bangladesh. Therefore, we are of the opinion that Clause 11 of the Payment Guarantees should be deleted and replaced with the following:

“11. This Letter of Guarantee shall be construed in accordance with and governed by the laws of England. We hereby submit to the non-exclusive jurisdiction of the High Court in London for the purpose of any legal action or proceedings in connection herewith in England. However, neither COMPANY 1nor company 2 shall be prevented from taking proceedings relating to any dispute in any other courts with jurisdiction.”

Moreover, as the cost of litigation in England is exorbitantly high, we are of the opinion that IBBL should take an undertaking from Company 1that Company 1shall indemnify IBBL for all costs expended by IBBL for the purpose of any legal action or proceedings in courts of England and/or in Bangladesh.

Whether the Payment Guarantees represent the Letters of Credit for assurance of the export proceeds?

The Payment Guarantees do not represent the Letters of Credit. The Payment Guarantee only guarantees the punctual payment by Kowrowski of the 1st instalment of the contract price i.e. within seven days after the Performance Bond and Refund Guarantee have been issued by IBBL on behalf of COMPANY 1.

Whether any clauses of the contracts are detrimental for IBBL as per “Guidelines for Foreign Exchange Transaction” of Bangladesh Bank?

We have perused the Singapore Contracts, Germany Contracts ONE, FRESH Germany Contracts and have found that the clauses of the contracts are not detrimental for IBBL as per “Guidelines for Foreign Exchange Transaction” of Bank 2.

However, as there shall be inward remittance on account of payments against exports, IBBL should ensure that the provisions contained in Chapter 22, Section – 1 of the “Guidelines for Foreign Exchange Transaction” of Bank 2 are complied with.

If you have any further inquiries please do not hesitate to contact us.

Thanking you.

Yours truly,

………………….

For: “The Lawyers & Jurists”

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