Mathieu Lévesque
Partner
Article
8
Gowling WLG is proud to have represented the Canadian Bankers' Association as an intervener before the Supreme Court of Canada (SCC) in a hearing dealing with letters of credit and the application of the fraud exception.
On April 5, 2024, the SCC released its decision in Eurobank Ergasias S.A. v. Bombardier inc. The majority of the SCC dismissed the appeal filed by Eurobank Ergasias S.A. and further clarified the legal principles relating to letters of credit/letters of guarantee. The SCC reiterated but also adequately expanded on the principles that were established in its 1987 internationally recognized decision in Bank of Nova Scotia v. Angelica‑Whitewear Ltd.
This decision confirms that the legal principles applicable to letters of credit/guarantee also apply to letters of counter-guarantee and therefore provides greater clarity for banks and their clients. Congratulations to Mathieu Lévesque, Patrick Cajvan, Jeff Beedell, Alana Scotchmer, Gowling WLG (UK) and the whole team for this greatly positive and beneficial outcome.
In the case under appeal, Bombardier entered into a procurement contract with the Greek government ("HMOD"). There was also an Offsets contract by which Bombardier committed to programs inviting Greek suppliers as subcontractors for the work. This contract was secured by a letter of guarantee issued by Eurobank Ergasias (in Greece) to the benefit of HMOD. Bombardier arranged a corresponding letter of counter-guarantee issued by National Bank of Canada in favour of the appellant, Eurobank. A dispute arose under the Offsets contract and HMOD demanded payment from Eurobank under the letter of guarantee.
Bombardier sought and received interim injunctions preventing payment from Quebec courts and through an Interim Order of the ICC Arbitral Tribunal; and Eurobank obtained an interim injunction from a Greek court. When a further injunction was denied by a Greek court, and with the imminent release of the ICC Arbitral Tribunal Award, HMOD served Eurobank with an Extrajudicial Invitation Protest, ordering it, under penalty of law and imprisonment, to make payment under the letter of guarantee. Shortly after Eurobank paid HMOD, the Final Award of the ICC Arbitral Tribunal was released, ruling that the Offsets Contract was null and void ab initio. When National Bank refused payment to Eurobank under the letter of counter-guarantee, the latter sought recovery through the courts of Quebec.
The Superior Court of Quebec confirmed its jurisdiction and rejected Eurobank's demand for payment under the letter of counter-guarantee on the basis of the fraud exception. It held that the letter of counter-guarantee was unenforceable and enjoined National Bank from paying pursuant to it. The court homologated the ICC Arbitral Tribunal Final Award and ordered the HMOD to comply with it. The Quebec Court of Appeal confirmed the trial court decision, save and except by striking out the conclusions of the trial judgment ordering HMOD to comply with the Final Arbitral Award.
The Canadian Bankers' Association (CBA) sought leave to intervene before the SCC on behalf of the banking industry to advocate for:
The SCC decision in Angelica-Whitewear, rendered 37 years ago, established that the standard of proof must be evaluated differently depending on whether the fraud exception is raised i) by a party seeking to prevent payment under a letter of credit by way of injunctive proceedings, or ii) by an issuing bank in its own evaluation of the circumstances when deciding whether to honour a letter of credit. In the first scenario, a strong prima facie case of fraud must be proven to a court to prevent payment by way of injunction. In the second, it must rather be demonstrated that the fraud is clear and obvious and sufficiently established to the knowledge of the issuing bank.
The majority of the SCC ultimately ruled that, given that the Greek bank (Eurobank), as the beneficiary of the Canadian Letter of Counter‑Guarantee, knew of, and participated in the "fraud"(under civil law) perpetrated by the Greek government ("HMOD"), that fraud could also be attributed to the Greek bank, as its own.
Through its lengthy analysis, the SCC took care to reinforce and carefully expand the following key principles established in Angelica-Whitewear:
If you have any questions, please reach out to one of the authors or a member of our Commercial Litigation Group.
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