The case involves complex financial transactions related to the procurement of firefighting aircraft by the Hellenic Ministry of National Defense (HMOD) from Bombardier, secured by letters of credit from Eurobank Ergasias S.A. and National Bank of Canada.
Following contractual disputes and arbitration, HMOD demanded payment under a letter of credit (Greek Letter of Guarantee), which led to a chain of legal actions involving the payment obligations under a Canadian Letter of Counter-Guarantee.
Issues and Decision:
The Supreme Court had to determine if fraudulent conduct by a third party (HMOD) could be attributed to Eurobank, the beneficiary under the Canadian Letter of Counter-Guarantee, thus invoking the fraud exception to refuse payment.
The Court upheld the decisions that prevented payment under the Canadian Letter of Counter-Guarantee due to fraud by HMOD, which was attributed to Eurobank as they had knowledge of and participated in the fraud.
Legal Analysis:
The Court examined the autonomy principle of letters of credit, the strict compliance required in demands for payment, and the exception for fraud.
It found that the fraud exception applies when the beneficiary of the credit is involved in fraudulent conduct known to the issuing bank.
Outcome:
The appeal was dismissed, supporting the lower courts' decisions that the National Bank of Canada should not pay under the Canadian Letter of Counter-Guarantee due to the fraudulent conduct associated with the Greek Letter of Guarantee.
This case highlights the importance of the fraud exception in the law governing letters of credit, especially in international commercial transactions.
