The claimants, all Korean companies, entered into an agreement with the respondent, an Egyptian company, for the purpose of creating an industrial plant in Egypt. A performance guarantee in favour of the respondent was issued by a bank in Egypt and a US corporation in turn issued a counter-guarantee in favour of the guarantor bank. The respondent demanded payment under the guarantee, and the guarantor bank in turn demanded payment under the counter-guarantee from the US corporation, which in turn demanded payment from the claimants under a deed of indemnity between it and the latter. At the request of the first respondent, a State court in Egypt issued an injunction suspending payment of the guarantee and a US court issued an injunction suspending payment of the guarantee and counter-guarantee and ordering an amount equivalent to the guarantee to be placed in escrow. The injunction issued by an Egyptian court was subsequently overturned due to lack of jurisdiction. The claimant applied to the arbitral tribunal for an interim and conservatory measure declaring the calling of the guarantee to be abusive and ordering it to be withdrawn.

'2. Applicable Law

2.1 The Parties have agreed to Egyptian substantive law as applicable to their contractual relations (see Sect. 12.12 of the Terms of Reference).

It is well established that the legal relations between the applicant of a bank guarantee and the beneficiary of such guarantee is independent from the guarantee (see Art. 2 lit. b ICC Uniform Rules for Demand Guarantees).

2.2 The relations between applicant and beneficiary are subject to the applicable law of the contract between both Parties, i.e. Egyptian law.

Even if one would submit the question of fraud in calling a guarantee to the law governing the guarantee (see Schütze, Bankgarantien, 1993, p. 885), this would lead according to Art. 27 of the ICC Uniform Rules for Demand Guarantees to Egyptian law as the guarantor and the instructing party have their place of business in Egypt. In this respect the ICC Uniform Rules for Demand Guarantees only reflect an internationally applied principle of private international law which requires application even if the ICC Uniform Rules for Demand Guarantees are not agreed between [Guarantor Bank] and Respondent. Art. 355, para. 2 of the Egyptian Commercial Code requires the application of international customs and practice. The ICC Uniform Rules for Demand Guarantees can be regarded as such international customs under Egyptian law (see Elwan, La loi applicable à la garantie bancaire à première demande, 2000, p. 86 s.).

2.3 It is therefore Egyptian law that governs the question whether the calling of the performance bond by Respondent was fraudulent as well as whether Respondent is obliged not to pursue its calling.

3. Merits of the Application for Interim Conservatory Measures

3.1 Requirements for Demand.

Guarantees on first demand are payable on mere request of the beneficiary without justification or contestation. Demand guarantees are like discounts. The beneficiary has only to state that the guaranteed risk has occurred. It is not necessary that the underlying facts have occurred. This is the situation under Egypt law and international usage as incorporated in the ICC Uniform Rules for Demand Guarantees (see Art. 20 URDG; Schütze, Bankgarantien, 1993, p. 64 ss.).

Claimants do not allege that the formal requirements of the demand to [Guarantor Bank] have not been fulfilled.

3.2 Fraudulent calling.

Under Egyptian law the bank must not pay if the request is fraudulent and abusive (see Elwan, op. cit. p. 77 ss.).

This follows from the principle of good faith. But fraud must be obvious and shown by documents and/or other means of clear proof.

According to Art. 966 of the Egyptian Civil Code, good faith is always presumed in the absence of proof [to] the contrary.

Claimants have not presented proof for a clear case of fraud or manifest abuse. The proper performance of the contract by Claimants is highly contested by Respondent. Both Parties have raised claims and counterclaims in considerable amounts. In Procedural Order No. 12 the Arbitral Tribunal has ordered evidence to be taken by expert's opinion to exactly those questions Claimants allege in their application for interim measures as to be obvious. The uncontested claims of Claimants are not sufficient for a set-off of the alleged counterclaims of Respondent.

Claimants' assertion that Respondent has grave financial difficulties and that the call on the guarantee was made for the purpose of obtaining cash is strongly contested. The Arbitral Tribunal is, however, satisfied that Respondent has a proper and legitimate case that the steel plant was not provided in accordance with the requirements of the Contract. That being so, the extent to which Respondent is or has been financially embarrassed and the extent to which that embarrassment may have influenced the decision to call the guarantee is irrelevant. The Arbitral Tribunal accepts that there is a risk that, if Claimants' case on the merits succeeds in this arbitration, the monies paid under the guarantee will not be available to satisfy, in whole or in part, an award in Claimants' favour. But this is a risk which is inherent in the practice of providing on-demand bonds and guarantees. Pierce (Demand Guarantees in International Trade, 1993, p. 22) states: "Simple demand guarantees are like discounts, and as such no one willingly concedes them. However, they may have to be given in order to win a contract."

According to Art. 355.1of the Egyptian Commercial Code "The letter of guarantee is a written undertaking issued from the bank upon the request of a person called "the applicant of a bank guarantee" to pay an amount, determined or determinable to another person called "the beneficiary" if he asked the bank to do so, within the period specified in the letter, and without considering any objection".

Art. 358 of the Egypt Commercial Code also provides: "The bank shall not refrain from paying to the beneficiary for a reason attributable to the bank's relation with the applicant or the appliance [sic] relation with beneficiary."

3.3 Offer of Security.

Claimants have offered security by an escrow account corresponding to the amount of the performance bond. Respondent has not agreed to accept this security in exchange of the calling of the bond. Respondent is not obliged to and the Arbitral Tribunal has no power to order so. Either the demand is fraudulent or not. In the first alternative Respondent has no right to call the bond, in the second it is not restricted to do so. If the Parties had wanted to secure possible claims of Respondent by money in escrow they could have agreed so. But despite the known risk of guarantees on first demand Claimants provided such bank guarantee.

3.4 No fraud proved.

As Claimants have not proved fraud by clear evidence the application has to be rejected.'