Of process

p 8 [performance bond]

The key part is the third clause:

' 3.3 The buyer's vessel shall begin loading within two (2) calendar days from the confirmation of the arrival of buyer's nominated vessel at trans-shipping location and the receipt of the Performance Bank Guarantee by the Buyer. Failure to fully load buyer's vessel within Eight Calendar (8) days when buyer's vessel is in position for trans-shipment, seller shall incur demurrage at the ship owner's standard daily rates until the 15 day, at which time will result in forfeiture of Seller's $300,000.00 Operative PBG unless Force Majeure is the cause.'

The 2nd defender suggests that provision guarantees the whole of the contract.

I submit that '…in conformity with the terms and conditions of the above-mentioned contract' means that we need to look at the contract to see what the performance bond guarantees. Put shortly, clause 3.3 obligations mean that the performance bond can only be called up where the seller:

· Fails to fully load the buyer's vessel

· By the 15th day

· From when the buyer's vessel is in the agreed position for trans-shipment.

Therefore a number of things must happen:

· The buyer has to be there with a vessel

· For 15 days.

If at the end of 15 days he is not fully loaded, then he gets the money.

But it is not disputed that [the buyer, i.e. the 2nd defender]

· Was not there &

· Never chartered a ship.

[ii] A contract induced by the fraud of one or other of the parties is voidable, but not void: McBryde, 'Contract', p 383, 14.54

Here, no third parties are affected; therefore:

· The contract is voidable, but

· only on the part of the person defrauded.

The 2nd defender pleads that it was defrauded by MPL. That is what they did.

When they discovered that La Esperanza was a 'ghost ship', they decided to go no further and rescinded the contract.

Once rescinded, the whole contract goes. Therefore retaining rights under clause 3.3 would be a legal nonsense. The personal bond does not survive this process. You cannot treat a contract as partially void.

This proposition is supported in the 2nd defender's pleadings:

'Believed to be true that the purported purchase and sale contract …was a sham… It was Moustaf who were attempting to perpetrate a fraud on the 2nd defender who believed the contract was genuine.' [p 8]

'Moustaf Petroleum attempted to perform some kind of fraud on them'

[p 10 & the evidence]

[iii] The contract is a sham and void

Therefore there is no contract at all; it is a fraud, an illusion. It does not exist: Gordon, 'Criminal Law', 3rd Edn.

Both parties were trying to defraud each other, therefore there is no contract. It is void.

· The 2nd defenders were after the performance bond.

· It is more difficult to say what MPL were going to get out of it, but D.S. Burke said that such companies would try to get an advance of $40,000 to $50,000.

Therefore the pursuer's principal position is that it was a sham on the part of both. Each was trying to defraud the other.

(4) Two 'Esto' Positions

1. The contract was voidable and repudiated by the 2nd defender; and

2. Anyway, on an ordinary reading of the contract the 2nd defender was not entitled to call up the bond.

(5) A 'Tailpiece'

[Money not being released once police investigation finished]

For a background to the law of performance bonds see Edward Owen Engineering Ltd. V Barclays Bank International, 1977 1QB 159,p er Lord Denning @ 171.

Therefore the only exception is a clear fraud of which the bank has notice.

Cases since then have all affirmed Lord Denning's dicta, but he could not take into account the passing of the Proceeds of Crime Act 2002 and its implications.

Therefore the bank's refusal to release the funds is explained by this case, the fraud and the proceeds of crime proceedings.

(6) Expenses

If the court finds fraud by both parties, it would be harsh indeed for the 2nd defender's expenses to come out of the fund in medio.

Therefore I ask for expenses against them, although the chances of recovery are probably zero: Macphail, 21.72

I'm asking the court to depart from the general rules: Pollard v Galloway and Nivison, 1881per Lord Young @ p 24.

'I do not think that a party who has no good claim to a fund at all, whose claim' on the contrary, is totally unsound, but by the making of which claim he justifies the debtor in resorting to a multiplepoinding, is to be allowed to reduce the fund to the party legally entitled thereto.'

(7) Responses to Submissions for the 2nd Defender

US Law

This is a matter of Scots law. The court can put US law aside.

If Action Incompetent quoad the Pursuer

If the action is incompetent, there is only one claimant on the fund. It would follow that the court would have to dismiss the action __ against everybody! You need at least two claims on an identifiable fund.

'Direct' Fraud on the Pursuer

It is no part of the pursuer's case that there was a 'direct' fraud on him. His position is that two parties were trying to defraud each other, therefore the contract is a sham.

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