A LANDMARK WIN IN THE DISPUTE OVER A PERFORMANCE BOND DRAW

Posted Feb 9, 2019

We are pleased to announce that Kancelaria Prawna SWS, representing its client, a leading construction company (general contractor), has won the case against the employer for the payment of PLN 33.77 million involving a groundless draw-down on a bank guarantee which served as a performance bond.

The court, both in the first instance (Regional Court in Szczecin) and in the second instance (Court of Appeals in Szczecin), agreed with the entirety of legal arguments put forward by SWS counsel, stating that in the case of contracts implemented under the FIDIC Conditions of Contract a bank guarantee may only be applied to specific (and not merely hypothetical) claims, which must exist as of the day of drawing down on the bond. In their decisions, the courts of the first and second instance held that despite the abstract nature of the bank guarantee (unconditional, payable on first demand) the employer (obligee under the guarantee), when drawing down on the bond, must have a claim against the contractor (principal under the guarantee) which is to be satisfied using payments out of the performance bond. In other words, the employer (obligee) may not use the performance bond to satisfy future or hypothetical claims. To do so is to give rise to unjust enrichment on the part of the employer, which the latter is obliged to repay to the contractor (principal under the guarantee). Without a doubt, the judgments of the Regional Court and Court of Appeals in Szczecin will also have a significant impact on other court disputes involving employers (or private investors) drawing down on performance bonds, particularly in the case of contracts based on the FIDIC Conditions of Contract. On behalf of our law firm, the case was handled by the partners, attorneys-at-law Marta Krawczyk and Jacek SroczyƄski.