Commercial

Beneficiary claiming payment on performance bond - bank alleging bond obtained by fraud - beneficiary not entitled to summary judgmentSolo Industries UK Ltd v Canara Bank: CA (Potter and Mance LJJ and Sir Martin Nourse):3 July 2001The claimant, as the beneficiary of a performance bond issued by the defendant bank, began proceedings against the bank after it refused to honour the bond.The judge refused the claimant's application for summary judgment on the ground that the bank had a real or reasonable prospect of justifying its avoidance, and that the principle that performance bond obligations were to be treated like promissory notes, bills of exchange or cash had no application where the challenge was to the validity of the bond, rather than to the propriety of any demand under it.

The claimant appealed.

Paul Downes (instructed by Bower Cotton) for the claimant.

Ian Hunter QC and Nigel Eaton (instructed by Lawrence Jones) for the bank.Held, dismissing the appeal, that there was no legal or commercial justification for extending the 'cash principle' to defeat challenges against the validity of the instrument itself or indeed for any more extensive principle of integrity of such transactions; that where a bank had a good arguable case that the only realistic inference was that the demand on the bond was dishonest or that the bond's issue had been obtained by fraud or misrepresentation, the court was entitled to refuse summary judgment on a beneficiary's claim; and that since on the facts before the court the bank did have a real prospect of successfully justifying its avoidance of the bond, the judge was right to refuse the beneficiary's application for summary judgment.

(WLR)