AES 3C Maritza East 1 Ecod v Credit Agricole Corporate Investment Bank & Anr [2011] EWHC 123 (TCC)

AES sought summary judgment against the defendant bank (“Calyon”) in respect of two demands made on an on-demand bond provided to AES under a contract for the construction of a power plant in Bulgaria. The contractors under that contract were two Alstom Group companies. The bond stated that it was independent of the EPC contract and would remain in full force and eff ect despite any illegality, invalidity, termination, disclaimer or discharge of the EPC contract. The bond was payable “on receipt of a demand” made in accordance with clause 4. The bond was governed by English law and the English courts had non-exclusive jurisdiction over disputes connected with it. Any liability of Calyon to pay under the Bond was subject to an indemnity from Alstom. By 20 December 2010, AES considered that it was clear that Alstom would inevitably fail to achieve the performance required under the EPC contract in relation to unit 1 by the due date of 25 December 2010 and that Alstom would not achieve the performance required in relation to unit 2 by the due date of 31 December 2010.

On 20 December 2010, AES issued a demand for EUR93 million under the bond to Calyon (fi rst demand) which covered both certain existing liabilities and those liabilities that it seemed clear would arise on 25 and 31 December 2010. On 28 December 2010, before a court in France, Alstom obtained interim injunctions preventing Calyon from making payment to AES under the Bond. On 31 December 2010, AES applied for summary judgment in respect of the sum claimed under the fi rst demand. Calyon responded by stating that the demand was ineff ective on the grounds that the demand was for €93 million but the documents enclosed with the fi rst demand related to only €27 million. And so on 17 January 2011, Calyon received a second demand from AES, demanding payment of €96,604,166.83. The second demand exhibited letters and invoices in relation to the total sum claimed. To complete the picture, Alstom obtained a second injunction in France and AES issued a second summary judgment application, both in relation to the second demand.

Calyon referred to clause 4(f ) of the bond which said that the demand should contain “any notice to or claim against Contractor [Alstom] relating to the respective breach of its obligations to which the demand refers”. They argued that the claim was made in respect of monies that were not due until 25 and 31 December 2010. Alstom further suggested that the second demand was also invalid because, having made the fi rst demand, any further demand for the same amount of money was invalid.

AES submitted that they were entitled to demand sums which had not yet become due and payable but which, on the evidence were inevitably going to become due and payable within a short period after the demand. In these circumstances, the fi rst demand did contain the necessary statement that Alstom had failed to comply with its obligations under the Contract and AES had supplied the relevant notices or claims relating to the breach relied on.

Mr. Justice Ramsey held that the question of whether there has been a relevant demand under an on-demand bond depends upon the wording of the particular bond. Here he accepted that the bond, like many on-demand bonds, was payable against an appropriately worded demand accompanied by such documents as the demand required and without proof of the existence of a liability under the underlying contract. The issue was whether a claim for sums not yet alleged to be due and payable, and for which there was no notice to or claim, could be demanded under the Bond. The Judge felt that the documents which had to be provided to support the call were those which support the demand which is made for a failure to comply with the obligations of the contract. That requirement did not mean that there had to be any proof of breach of the underlying obligations under the contract.

The only documents which were required were a notice to or claim against Alstom relating to the alleged breach of obligations under the contract which was relied upon by AES in their demand. Given that Calyon were entitled to decide whether or not to pay based upon those documents, he did not consider that there could be a valid demand where, the notices or claims were in respect of some €27million but the claim was made for €93 million. There was therefore no document or claim in respect of the balance of some €66 million. As the demand had to include a statement that Alstom has failed to comply with its obligations in accordance with the contract, the claim had to be based on an assertion by AES that the sum is due and payable by Alstom for the breach of the obligation.

That left the second demand. Here of course the “problem” with the call made the fi rst time round had been corrected. The documentation which was served with the second demand properly supported the sums claimed and conformed to the terms of the Bond. The Judge disagreed with Alstom that having made the fi rst demand, the second was defective because AES could not make another demand for the same sums in circumstances where the fi rst demand had not been withdrawn. As the fi rst demand was invalid, there was only one valid demand – namely the second. Accordingly, the Judge granted summary judgment in the sum of €96,604,166.83 but ordered that the judgment was not to be enforced so long as Calyon was prevented from complying with that judgment by the Order of the French Court.