## Facts

- A Spanish contractor (Isolux) agreed to build electrical substations in Pakistan for a Pakistani governmental entity (WAPDA) and was required to provide performance guarantees to WAPDA.
- American Express Bank Ltd. (AEB), through its Pakistani branch, issued local performance guarantees naming WAPDA as beneficiary.
- Banco Español de Crédito, S.A. (Banesto) issued counter-guarantees in favor of AEB intended to reimburse AEB if AEB had to honor WAPDA’s demands under the local guarantees.
- A dispute arose between Isolux and WAPDA; an ICC arbitral tribunal issued a final award in Isolux’s favor and ordered WAPDA to cancel the performance guarantees.
- Despite the award, WAPDA demanded payment from AEB and pursued proceedings in Pakistan seeking to set aside the arbitral award and enforce the guarantees.
- AEB refused to pay WAPDA, asserted the demand was improper, and instead demanded payment from Banesto under the counter-guarantees.
- After Banesto refused, AEB sued in federal court to enforce the counter-guarantees and also sought a declaration of entitlement to payment if a Pakistani court later compelled AEB to pay WAPDA.

## Issues

1. Whether the performance guarantees and counter-guarantees should be treated as independent demand guarantees governed by letter-of-credit law rather than ordinary contract guarantees.
2. Whether, given the final ICC award and AEB’s refusal to pay WAPDA, AEB had a present obligation (and good-faith basis) to demand payment under Banesto’s counter-guarantees.
3. Whether AEB’s request for declaratory relief based on a contingent future payment obligation in Pakistan presented a ripe, justiciable controversy.

## Decision

- The court granted Banesto’s motion to dismiss.
- The court held the guarantees and counter-guarantees were governed by letter-of-credit law applicable to international demand guarantees.
- Because the ICC award was final and required cancellation of the guarantees, AEB had no present obligation to pay WAPDA and therefore lacked a good-faith basis to demand payment from Banesto on the counter-guarantees.
- AEB’s request for a declaration of entitlement to payment if it were later compelled to pay in Pakistan was not presently justiciable.
- The complaint was dismissed without prejudice to a later action if subsequent events created an actual obligation and a ripe dispute.

## Legal Principles

- International demand guarantees and related counter-guarantees may be treated as functionally analogous to letters of credit and governed by letter-of-credit law, including the independence principle.
- A beneficiary’s demand on an independent credit instrument must have a good-faith basis consistent with the structure and conditions of the credit arrangement.
- A party that denies any present duty to pay on a primary guarantee cannot, absent a matured obligation, compel reimbursement on a counter-guarantee designed to cover payments made or obligations incurred in good faith.
- Declaratory relief is unavailable when the asserted controversy depends on uncertain, contingent future events; federal courts do not issue advisory opinions regarding hypothetical future liability.

## Conclusion

The court dismissed AEB’s attempt to enforce counter-guarantees because, in light of the binding ICC award, AEB had no present obligation to honor the primary guarantees and thus no good-faith basis for reimbursement, and its alternative request for contingent declaratory relief was unripe.


American Express Bank Ltd. v. Banco Español de Crédito, S.A., 597 F. Supp. 2d 394 (S.D.N.Y. 2009)