Québec – Court prevents “improper attempt to circumvent” final ICC award – #634

In Eurobank Ergasias v. Bombardier inc., 2022 QCCA 802, a majority of the Québec Court of Appeal (Mainville and Baudouin, JJ.A.): (1) confirmed the homologation of an ICC Arbitral Tribunal Final Award (“Final Award”); (2) confirmed the trial judge’s decision that a Québec bank did not have to pay under a Letter of Counter-Guarantee that was called upon, the purpose of which was the evasion of the binding ICC arbitration process; and (3) overturned the trial judge’s decision to direct the Hellenic Ministry of National Defence (“HMOD”), a branch of the Greek government,  to comply with the Final Award because HMOD was not an entity domiciled in Québec and homologation is for the purpose of rendering the Final Award legally binding in Québec, not in Greece.

This matter involved a Procurement Contract entered into by Bombardier Inc. (“Bombardier”) and HMOD in 1998, pursuant to which Bombardier, a Québec corporation, agreed to deliver certain aircraft to HMOD in Greece. Contemporaneous with the Procurement Contract, the parties concluded an Offsets Contract pursuant to which Bombardier undertook to attempt to subcontract some work to Greek suppliers. The Offsets Contract called for liquidated damages, payable by Bombardier, if it did not fulfill its undertakings. The Offsets Contract also required these potential liquidated damages to be secured by a Letter of Guarantee in favour of HMOD from a bank operating in Greece and that all disputes thereunder were to be submitted to arbitration before the ICC in Paris. The Letter of Guarantee was ultimately provided by Eurobank Ergasias S.A. (“Eurobank”) in Greece. Eurobank obtained a Letter of Counter- Guarantee from National Bank of Canada (“National Bank”), to guarantee its obligation to HMOD under the Letter of Guarantee.

The arbitration and related interim court proceedings – In 2008, a dispute arose between Bombardier and HMOD with respect to the Offsets Agreement. The dispute proceeded to ICC arbitration in Paris.

During the arbitration, an issue arose with respect to the Letter of Guarantee when, in August 2013, after previously representing that it would not call upon the Letter of Guarantee, HMOD made a demand for payment under the Letter of Guarantee. Eurobank refused to pay in light of the ongoing ICC arbitration in which HMOD’s rights to the liquidated damages, which were secured by the Letter of Guarantee, were at issue. Bombardier applied for interim relief before the ICC Arbitral Tribunal, which granted an interim order enjoining HMOD from demanding payment before issuance of the Final Award (the “Interim Order”). Bombardier also sought interim relief from the Québec Superior Court, which granted a provisional interlocutory injunction similarly enjoining Eurobank from paying under the Letter of Guarantee, ordering HMOD to withdraw its demand for payment, and enjoining National Bank from paying under the Letter of Counter-Guarantee. Eurobank also initiated parallel proceedings in Greece, obtaining a provisional injunction authorizing it not to pay.

In December 2013, shortly after the ICC Arbitral Tribunal advised that it had submitted its Final Award for approval under ICC processes, the provisional injunction obtained by Eurobank in Greece authorizing it not to pay was dismissed. In the weeks that followed, HMOD issued another demand for payment by Eurobank under the Letter of Guarantee and Bombardier filed an amended motion for interlocutory relief in the Québec Superior Court, which it obtained, essentially providing for the same relief it had obtained months earlier. Then, on December 23, 2013, the ICC Arbitral Tribunal indicated its Final Award would be communicated on December 30, 2013 and HMOD ordered Eurobank, under penalty of law, to pay under the Letter of Guarantee. On December 24, 2013, Eurobank paid, in Greece, under the Letter of Guarantee.

When the Final Award was issued on December 30, 2013, it was a complete victory for Bombardier; no liquidated damages were owing to HMOD as the underlying agreement was null and void and thus there was no basis to call upon the Letter of Guarantee. HMOD was not successful in its subsequent application to the Paris Court of Appeal to annul the Final Award.

The Québec Superior Court decision – Bombardier’s action against HMOD continued in the Québec courts and, on June 21, 2018, Justice Wery of the Québec Superior Court issued judgment in favour of Bombardier. He concluded that: the Court held jurisdiction over the Letter of Counter-Guarantee because National Bank is domiciled in Québec; Bombardier would suffer damages in Québec if the Letter of Counter-Guarantee was paid; and the obligations arising out of the Letter of Counter-Guarantee were to be performed in Québec. Next, he concluded that the Letter of Counter-Guarantee was null and void (because the basis for the Letter of Guarantee, as a result of the Final Award, was null and void) and enjoined National Bank from paying anything thereunder. He also homologated the Final Award, and ordered that HMOD comply with the Final Award.

The Québec appeal – Eurobank appealed to the Québec Court of Appeal on many points that the majority of the Court grouped into two main issues. First, it alleged the Québec Superior Court had no jurisdiction over the matter because the Letter of Counter-Guarantee depended upon the Letter of Guarantee, which was governed by Greek law; therefore, the Letter of Counter-Guarantee should also be subject to Greek law and the jurisdiction of the Greek Courts. Second, it alleged that Justice Wery erred in concluding the Letter of Counter-Guarantee was null and void and therefore not enforceable. Eurobank relied upon Greek court decisions issued after the Final Award (which were admitted as new evidence), which held that HMOD was not bound by either the Arbitral Tribunal’s Interim Order or the Final Award. Eurobank argued that these decisions were evidence that Justice Wery’s finding that HMOD’s pursuit of the Letter of Guarantee was improper in the face of the Interim Order and the Final Award, under which it did not have the right to payment.

Mainville J.A., writing for the majority, rejected Eurobank’s argument on the jurisdictional issue. He found that Article 3134 of the Civil Code of Québec, CQLR c CCQ-1991 (“Civil Code”) is clear that in the absence of any special provision, Québec authorities have jurisdiction when the defendant (here, Bombardier) is domiciled in Québec. In addition, Bombardier’s request for an order preventing payment under the Letter of Counter-Guarantee was a personal action of a patrimonial nature that, because National Bank was domiciled in Québec, fell within Québec jurisdiction pursuant to Article 3148 at paragraph 1 of the Civil Code. Further, Article 652 of the Code of Civil Procedure, CQLR c C-25.01 granted the court jurisdiction to homologate the Final Award, to which Bombardier was a party. In homologating the Final Award, that Final Award would become recognized within Quebec. Thus the conclusions made in that Final Award – that the contracts underlying the Letter of Guarantee and Letter of Counter-Guarantee were null and void rendering both unenforceable – could be relied upon by Bombardier in support of its claims with respect to the unenforceability of the Letter of Counter-Guarantee. Mainville J.A. did, however, find there was no jurisdiction with respect to the order sought that HMOD comply with the Final Award because HMOD was not domiciled or resident in Québec. Homologation would render the Final Award legally binding only within Québec, not in Greece.

Mainville J.A. also rejected Eurobank’s argument that Justice Wery had erred in finding the Letter of Counter-Guarantee was null and void. He found no reviewable error in the finding because the actions of HMOD amounted to an improper attempt to circumvent the Interim Order and Final Award of the ICC Arbitral Tribunal. Similarly, there was no reviewable error by Justice Wery in refusing to place any weight on foreign judgments that were not formally recognized in Québec, as these were only prima facie proof of the judgment and foreign law; they were not binding on Québec courts.

In the result, the majority homologated the Final Award, confirmed that National Bank was not required to pay under the Letter of Counter-Guarantee, but reversed the decision compelling HMOD to comply with the homologated Final Award because this went beyond the territorial limitations of a court when homologating an arbitral award.

Contributor’s Notes:

First, the dissent of Hamilton J.A., which does not directly comment on the application for homologation, embarked upon a detailed assessment of the law on letters of credit to find that Bombardier ought to have also applied to a Greek court to enjoin HMOD from pursuing payment under the Letter of Guarantee. In his view, it was unfair to leave this to Eurobank, which had supposedly entered into a risk-free transaction. The dissent did not comment on the agreement to arbitrate and the law on international arbitration with respect to the force or enforceability of the Interim Order and Final Award, ultimately finding that the appeal should be allowed in part so as to dismiss Bombardier’s action that Eurobank and National Bank be enjoined from payment under the Letter of Guarantee and Letter of Counter-Guarantee, respectively.

Second, this case demonstrates the practical difficulties that can be encountered in international arbitrations where there are many potential courts and tribunals that might exercise jurisdiction over a matter, in particular when looking to obtain interim relief to protect assets (or as is the case here, enjoin payment). In this regard, the decision also highlights the very real issues that can emerge were local laws differ, and where local courts with jurisdiction take a contrary view to that of an international arbitral tribunal. While each situation needs to be assessed on its unique facts and circumstances, if it is possible to align dispute resolution clauses between related agreements that may be a tool to help mitigate prospectively against issues amongst competing potential jurisdictions.