Bombardier inc. victory before Supreme Court of Canada

Our Montreal office successfully represented the firm’s long-time client Bombardier inc. on its victory before the Supreme Court of Canada in a case of whether a bank is required to refuse payment to the beneficiary of a letter of credit if the beneficiary is found to have engaged in fraudulent behaviour.

In 1998, Bombardier, a Montreal-based aviation company, concluded a procurement contract with the Hellenic Ministry of National Defense (“HMOD”) in Greece, for the sale of firefighting amphibious aircraft. The parties concluded an offsets contract where the Canadian company would subcontract some work associated with the procurement to Greek companies. However, in the contract there was a stipulation that Bombardier would owe HMOD liquidated damages if it did not fulfill its subcontracting obligations. Payment of the liquidated damages was then secured by an initial letter of credit by a Greek bank in favour of HMOD, followed by a second letter of credit by a Canadian bank in favour of the Greek bank. 

Eventually a dispute arose between HMOD and Bombardier regarding subcontracting obligations. HMOD undertook not to demand payment under the letter of credit until the issuance of a final award in the arbitration. Despite this undertaking, HMOD demanded payment from the Greek bank. In response, Bombardier sought and obtained various orders to prevent any payment by the banks involved. Despite these orders, HMOD made new demands for payment to which the Greek bank eventually acceded, after which it turned to the Canadian bank to claim payment under the second letter of credit.

After our team successfully obtained an injunction prohibiting the Canadian bank from distributing funds to the Greek bank under the second letter of credit, on the basis that HMOD perpetrated fraud and the Greek bank had knowledge of it, a leave to appeal was granted to the Greek bank in mid-2023. 

We represented Bombardier in the appeal before the Supreme Court of Canada, which was dismissed on April 5, 2024. The majority of the Court concluded that because the Greek bank knew of and participated in the fraud committed by HMOD, that fraud could be attributed to it and prevented payment by the Canadian bank under the second letter of credit. This is the first time since 1987 that the Supreme Court of Canada has heard a matter concerning the fraud exception to international letters of credit, and first time ever that it has heard a matter involving a letter of guarantee and a letter of counter-guarantee.

This was a true team effort. The appeal was led by Sophie Melchers and included Michel Sylvestre (now retired) and Jérémy Boulanger-Bonnelly. Michel Sylvestre led prior proceedings and hearings with the help of several members of our Montreal office. Charles P. Blanchard of Bombardier was also an integral part of the team.