Autoridad Del Canal De Panamá v Sacyr, S.A. & Ors

Whether an advance payment guarantee is a first-demand instrument depends on construction of the instrument as a whole. Labels such as primary obligor, and words such as on demand, are not decisive. The court must consider the operative trigger, the relationship with the underlying contract, protective clauses, conclusive evidence provisions and the nature of the issuer. Where the instrument requires the guarantor to perform the principal debtor’s obligations according to the underlying contract, it is not a first-demand bond merely because liability is primary and payment follows demand. A conclusive determination clause may establish quantum without conclusively establishing liability. Under section 9 of the Arbitration Act 1996, the relevant matter is the substance of the claim. A substantial overlapping issue does not displace an exclusive jurisdiction clause governing a separate security. A discretionary stay remains possible, but requires rare and compelling circumstances.

The claimant employer, beneficiary of six English-law, exclusive-jurisdiction advance payment guarantees, sought summary judgment for US$288,275,465.20 against members of a construction consortium.

The defendants applied for a mandatory stay under the Arbitration Act 1996, or alternatively a discretionary case-management stay, relying on overlapping Panamanian-law guarantees and related Miami-seated arbitrations.

The central questions were whether the English-law guarantees were unconditional first-demand instruments, whether the repayment issue was a referred matter for section 9, and whether a stay was justified while the Guarantee Arbitration progressed.

1. Summary judgment. The application was refused on the first-demand case. The alternative case was not decided because the parties had agreed that the hearing would be confined to the first-demand issue, and the alternative case had been raised late and was not yet pleaded. It could be restored for a further hearing.
2. Construction of the guarantees. Whether an instrument is a first-demand bond or a see-to-it guarantee is a matter of construction. The instrument must be read as a whole, without preconception. Labels, primary-obligor clauses and words such as on demand have limited weight. The operative trigger and the relationship with the underlying contract are decisive. The approach in Gold Coast Ltd v Caja de Ahorros Del Mediterraneo [2002] 1 Lloyd's Rep 231, and the authorities concerning autonomous demand instruments, was applied.
3. The APGs required payment of the guaranteed amount as and when due under the Main Contract. On default, the guarantors had to perform the contractor’s obligations according to that contract. Those provisions were inconsistent with first-demand liability. Clauses permitting enforcement without prior recourse to the contractor or other security did not make the guarantees autonomous.
4. Conclusive determination clause. Paragraph 4.2 concerned the rate and amount of interest. Alternatively, if it extended to principal, it determined quantum only. Clear words would have been required to permit ACP conclusively to determine liability. Any ambiguity was resolved in favour of the guarantors.
5. Section 9 stay. Section 9 of the Arbitration Act 1996 requires a practical and common-sense identification of the substance of the controversy. The claim was a claim under the English-law APGs, which fell within the exclusive jurisdiction of the English courts. The underlying issue whether GUPC was liable to repay the advances was bound up with the claim, but was not itself the referred matter for section 9 purposes. The mandatory stay was refused.
6. Case-management stay. The arbitration exclusion in the Regulation (EU) No 1215/2012 meant that the Owusu v Jackson [2005] QB 801 inhibition did not prevent a temporary stay pending arbitration. Such a stay remained discretionary and required rare and compelling circumstances. The arbitration was commenced by the defendants after the court proceedings, the tribunal was not yet constituted, and the preliminary issues might be self-contained. No compelling case existed at that stage, although a future application was not excluded.