ICC Rules: 1988

Claimant: Seller (Turkey)

Respondent: Purchaser (Egypt)

The parties entered into a sales/purchase agreement which provided for the supply of a performance guarantee by Claimant. Four months later, Respondent requested payment of the performance guarantee from the bank that had issued it in its favour, alleging that Claimant had failed to fulfil its obligations under the sales/purchase agreement. Maintaining that it had correctly fulfilled all its obligations, Claimant applied to the commercial court in Istanbul for an interlocutory injunction against its bank to prevent payment of the performance guarantee. Claimant filed a Request for Arbitration, asking for (i) the interlocutory injunction to be extended, (ii) the letter of guarantee by which Claimant's bank instructed its Egyptian correspondent to issue the performance bond in favour of Respondent to be released or declared null and void, (iii) Respondent to be ordered to reimburse the amount of the guarantee plus interest, should the letter of guarantee be paid, and to reimburse any bank commission paid until the release of the letter of guarantee and any other costs covered by Claimant; and (iv) arbitration costs to be awarded against Respondent. On the basis of the evidence presented to him, the sole arbitrator found that Claimant had fully performed its obligations under the sales/purchase agreement and that the calling of the performance bond was therefore improper. He then considered the relief sought by Claimant.

'Having found that Claimant has fulfilled the Sales/Purchase Agreement and that the calling of the performance bond by Respondent was improper, the Sole Arbitrator now has to decide whether to grant the specific relief requested by Claimant in its Request for Arbitration and confirmed in the Terms of Reference.

By so doing, the Sole Arbitrator must take the relief as requested by Claimant and does not have the power to grant another relief than the one that was specifically asked for. He has therefore to decide on the request[s] as they are submitted to him in the Request for Arbitration and confirmed in the Terms of Reference.

They shall now be examined in the order presented by Claimant.

1. Request for an extension of the interlocutory injunction

This request must be rejected for the following reason:

The injunction by the Commercial Court of Istanbul is a judicial order addressed to [Claimant's Turkish bank]. This Bank, however, is not party to the Sale/Purchase Agreement and to the arbitration convention contained therein, and its obligation to make a payment in a specific given situation is based on the guarantee supplied as appendix 2. More specifically, [Claimant's Turkish bank] did act based on an undertaking of its own and not based on the Sales/Purchase Agreement.

Accordingly, the Sole Arbitrator does not have any jurisdiction over [Claimant's Turkish bank]. If it cannot address an order to [Claimant's Turkish bank], then it cannot extend an order that the competent court has issued to such bank.

Hence, the request no. 1 must be rejected.

. . . '

The arbitrator thereafter rejected Claimant's second request, on the ground that he had no jurisdiction over the banks and that to order Respondent to release the letter of guarantee was beyond his powers since this was not what Claimant requested. With respect to the request for reimbursement in the event of payment of the letter of guarantee, the Arbitrator found as follows:

'This request shall be granted for the following reasons:

As stated above, it has been found that Claimant has fulfilled the Sale/Purchase Agreement while Respondent improperly attempted to collect the performance bond guarantee. So far, Respondent's endeavour has not been successful, apparently because of the injunction issued by the Commercial Court of Istanbul to [Claimant's Turkish bank].

In the event that the guarantee would still have to be paid, and that cannot be excluded with certainty, Respondent would be unjustly enriched in the amount of . . . and Claimant would have a corresponding claim for repayment.

The question arises whether the Sole Arbitrator should issue a conditional award for the event that the guarantee should still be collected. Given the prior history of this case, it can at least not be excluded that the interlocutory injunction may be lifted and that Respondent may still attempt to collect the performance bond guarantee. It is therefore proper to grant Claimant a corresponding right of reimbursement if such should take place.

Claimant asked for interest in the event that such performance bond guarantee should be called, although without specifying its rate. Given that the contract is subject to Swiss law and that Art. 73 of the Swiss Code of Obligations provides for the rate of 5% per annum if no other agreement has been entered into, it seems proper for the Sole Arbitrator to award such interest rate. The interest should start upon collecting the performance bond guarantee.'

With regard to the reimbursement of bank commission, the arbitrator awarded such reimbursement for the period starting from the improper calling of the bank guarantee until its release.

Finally, with respect to arbitration costs:

'From the foregoing, it appears that Claimant has been successful in substance but not all its Requests are granted. Applying the principle that the costs follow the event, it appears to be reasonable to award the costs at the rate of 5/6 to be borne by Respondent and at the rate of 1/6 to be borne by Claimant.'