AES-3C Maritza East 1 EOOD v Alstom Power Systems GmbH

An on-demand bond must be construed according to its particular wording. Where the bond requires notices or claims supporting the demand, those documents must relate to the relevant breach and support the amount demanded. A beneficiary cannot demand sums which were not due and payable at the date of the demand merely because they are expected to become payable shortly afterwards.

The requirement is not to provide every notice exchanged under the underlying contract. Only notices or claims relating to the breach relied upon in the demand are required. A mistaken construction of the bond does not amount to fraud without evidence of an absence of honest belief.

AES sought summary judgment against Crédit Agricole Corporate and Investment Bank under a performance bond issued in connection with the construction of a Bulgarian power station. Alstom, whose obligations were supported by the bond, was joined as a defendant.

AES made two demands. The first sought €93 million but was accompanied by notices and claims totalling approximately €27 million, including sums not yet due. The second sought €96,604,166.83 and was supported by documents corresponding to the amount claimed. French injunctions prevented the bank from making payment.

The issues were whether either demand complied with the bond, whether the first demand was fraudulent, and whether the court could grant judgment while payment was restrained by the French orders.

1. First Demand. The first demand was invalid. Clauses 4(b)(i) and 4(f), read with the Uniform Rules for Demand Guarantees, required the notices or claims supplied with the demand to support the amount demanded and to relate to the alleged breach. The documents supported approximately €27 million, not the €93 million claimed.
2. The bond did not permit demands for sums which were not due and payable by Alstom at the date of demand merely because they were expected inevitably to become payable. This was distinct from an accrued claim for damages where the precise expenditure had not yet been incurred.
3. The reasoning in Enka Insaat Ve Sanayi AS v Banca Popolare Dell'alto Adige SPA [2009] EWHC 2410 (Comm) did not assist because the guarantees there contained materially different wording and did not require supporting documents.
4. There was no sufficient basis for alleging fraud. The evidence showed, at most, a mistaken belief about the bond’s scope, not a dishonest demand known to be invalid.
5. Second Demand. The second demand was compliant. The bond did not require every notice or claim under the EPC Contract to be attached. The omitted notices did not relate to the breaches or sums relied upon in that demand. Calyon had no real prospect of defending the claim.
6. Relief. Summary judgment was granted for €96,604,166.83. Applying the principle in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287, the judgment was not to be enforced while the French injunctions prevented payment. The contractual obligation to pay was nevertheless declared.