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Note: Bombardier Inc. (Seller/Counter Guarantee Applicant) and the General Directorate for Defense Armaments and Investments of the Hellenic Ministry of National Defense, “HMOD”, (Buyer/Local Guarantee Beneficiary) entered into a supply contract and an auxiliary contract (Offsets Contract) obliging Seller to subcontract to local Greek businesses and provided for liquidated damages to be secured by an independent guarantee (Local Guarantee) issued by Eurobank Ergasias, S.A. (Local Guarantor/Counter Guarantee Beneficiary), a Greek bank, in favor of Buyer/Local Guarantee Beneficiary. To facilitate issuance of the Local Guarantee, Buyer/Local Guarantee Beneficiary caused an independent counter guarantee (Counter Guarantee) to be issued by National Bank of Canada (Counter Guarantor) in favor of Local Guarantor/Counter Guarantee Beneficiary. The Counter Guarantee was governed by Quebec law and subject to URDG 458. The Local Guarantee was subject to Greek law.

After a dispute between Seller and Buyer regarding the Offsets Contract, Buyer attempted to draw on the Local Guarantee. Seller initiated arbitration proceedings against Buyer, in which Local Guarantor/Counter Guarantee Beneficiary made an express promise to Seller and the arbitral tribunal that no demand on Local Guarantee would be made before the conclusion of arbitration proceedings. Arbitral award was rendered in favor of Seller (“total victory for [Seller]”), declaring Offsets Contract “null and void ab initio” due to violation of European Union procurement laws and, as a consequence, the Local Guarantee was determined to be “null and void ab initio”. Additionally, Seller obtained provisional injunctive relief from a Canadian Court, ordering (i) Buyer/Local Guarantee Beneficiary to withdraw its demands on Local Guarantee; (ii) prohibiting Local Guarantor from making payment to Buyer; and (iii) prohibiting Counter Guarantor from making payment to Counter Guarantee Beneficiary.

A few days before the arbitral award was issued, however, Buyer served a specific legal remedy under Greek law (“extrajudicial invitation protest”) on Local Guarantor/Counter Guarantee Beneficiary, demanding immediate payment of the Local Guarantee and threatening severe civil and criminal penalties on Local Guarantor and its staff. Local Guarantor succumbed and honored Buyer/Local Guarantee Beneficiary’s demand on Local Guarantor. In turn, Local Guarantor/Counter Guarantee Beneficiary demanded payment under the Counter Guarantee.

As a continuation of the provisional injunctive relief procedures in Canada, the Superior Court, Province of Québec, decided the case on the merits and rendered judgment in favor of Seller/ Counter Guarantee Applicant. Wery, S.C.J., “homologated” (i.e. officially confirmed) the ICC arbitral award in favor of Seller/Counter Guarantee Applicant and ordered that Buyer/Local Guarantee Beneficiary comply with the award. The Judge also decided that payment by Local Guarantor to Buyer under Local Guarantee could not form the basis of a valid demand on Counter Guarantee. Buyer/Local Guarantee Beneficiary’s demand on Local Guarantee was in violation of its promise not to draw before finalization of the arbitration proceedings, fraudulent and supported by “legal blackmail and extortion”, so stated the Canadian Court. Because Local Guarantor knew of Buyer/Local Guarantee Beneficiary’s fraudulent conduct when it eventually succumbed to intense pressure by Buyer/Local Guarantee Beneficiary and honored its demand, the court stated that: “[Local Guarantor] ma[de] payment knowing that [Buyer/Local Guarantee Beneficiary]’s conduct constituted clear fraud”; “[Local Guarantor] knowingly enabled fraud to produce its fruits”. Any subsequent demand by Local Guarantor/Counter Guarantee Beneficiary on the Counter Guarantee could not be valid.

Counter Guarantor was therefore ordered not to honor the demand by Local Guarantor/Counter Guarantee Beneficiary, rendering judgment in favor of Seller/Counter Guarantee Applicant.

* Brunswick European Law School, Ostfalia University of Applied Sciences (Germany); Visiting Researcher at Centre for Banking Law, University of Johannesburg (South Africa).

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