Note: A Joint Venture entered a Design-Build Agreement with Jordan Magnesium Company Ltd. (Owner) after winning a bid on a contract to construct a magnesium oxide plant for the Owner in the Hashemite Kingdom of Jordan. One joint venturer, Attila Dogan Construction and Installation Co. (Applicant) provided an irrevocable standby letter of credit in the amount of US$5 million in favor of the other joint venturer, Americas Ltd. (Beneficiary). After Applicant failed to perform its obligations under the Joint Venture, Beneficiary drew under the standby and was paid the full amount.

Owner then terminated the Design-Build Agreement for non-performance. After the termination, the ensuing arbitration determined that the Joint Venture was liable and the Joint Venture agreed to pay $41 million in settlement that was paid by Beneficiary, its insurers, and the Joint Venture's insurers.

Claiming that Beneficiary had breached the Joint Venture Agreement and had wrongfully drawn on the standby, Applicant sued Beneficiary for breach. Beneficiary counterclaimed for US$11,030,302, which included security costs and Applicant's share of the legal fees incurred during the arbitration. Applicant requested that the court attach the $5 million dollar of the drawn standby to secure costs.

The Alberta Court of Queen's Bench, Wittman C.J., ruled in favor of Beneficiary with respect to the counterclaim and ordered Applicant to pay a first installment in the amount of $1.6 million as security for costs and reserved a ruling regarding the total sum due. The Judge noted that one of the issues to be decided at trial was whether there was breach and, accordingly, whether the drawing was proper. Further, the Judge noted that the standby functioned as a guarantee for Applicant's underlying obligation and had nothing to do with the security costs in question. Therefore, the Judge did not order attachment of the standby proceeds.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.