Enka Insaat Ve Sanayi AS v Banca Popolare Dell'alto Adige SPA

On a summary judgment application concerning an on-demand performance or advance payment guarantee, the bank must show a real prospect that it will establish at trial that the only realistic inference is that the demand was fraudulent. The beneficiary’s demand is fraudulent only if the beneficiary could not honestly have believed in its validity. The court must apply that test with particular caution because independent banking commitments carry a strong presumption of fulfilment and fraud requires particularly cogent evidence. The guarantee’s wording governs the amount payable. Unless clear words require a statement of loss, damage or repayment liability, a demand may be valid upon the beneficiary’s stated breach and entitlement under the guarantee.

Enka sought summary judgment against two Italian banks on advance payment and performance guarantees issued in connection with a Russian construction sub-contract. The guarantees were governed by English law and required payment on written demand, subject to specified statements concerning the sub-contractor’s breach and the claimant’s entitlement.

The banks alleged that demands made before termination of the sub-contract were fraudulent because Enka did not honestly believe that the sums demanded were then recoverable, or that the alleged breaches had caused equivalent loss. The court also considered whether a fraudulent demand could terminate an unconditional and irrevocable guarantee before later, otherwise valid demands.

1. Summary judgment test. CPR Part 24 required the court to ask whether the banks had a real prospect of establishing at trial that the only realistic inference was that Enka could not honestly have believed in the validity of its demands. The court was not bound by the heightened formulation discussed in Solo Industries UK Ltd v Canara Bank and Banque Saudi Fransi v Lear Siegler Services Inc., because those decisions concerned different issues.
2. Fraud exception. Although the applicable threshold was the Part 24 real-prospect test, the court had to remain mindful that banks resisting payment under independent banking commitments require particularly cogent evidence. The presumption in favour of fulfilment was not to be diluted.
3. Construction. The word “accordingly” connected the alleged breach with the banks’ liability under the guarantees, but did not require Enka to state or believe that it had suffered loss in the amount demanded under the performance guarantee, or that the advance payments were then repayable by the sub-contractor. The guarantees operated more like secure payment instruments or promissory notes than ordinary guarantees of the sub-contractor’s obligations. Clear words would have been needed to impose those additional requirements.
4. Application and result. The evidence did not establish a real prospect that Enka could not honestly have believed in the validity of its demands. Enka therefore obtained summary judgment against CRB on the performance guarantee and BP on the advance payment guarantees. The question whether Enka could retain the guarantee proceeds remained for the Moscow arbitration between Enka and F&R.
5. Alternative issue. Even if BP could establish the necessary fraud prospect, the guarantees could not be terminated before the later demands merely because the earlier demands were fraudulent. They were unconditional and irrevocable. The guarantor’s defence arose when the demand was made fraudulently.