## Facts

- Foxboro, a Massachusetts corporation, contracted to supply a process-control system for Aramco’s refinery in Saudi Arabia.
- The contract selected Saudi law and required disputes to be resolved by arbitration.
- The payment structure permitted Aramco to retain part of progress payments as security, but Foxboro could avoid retention by providing a bank guarantee; Foxboro chose the guarantee option.
- Samba issued a bank guarantee in Aramco’s favor; Citibank issued a standby letter of credit to secure Foxboro’s obligation to Samba.
- Aramco terminated the contract pursuant to a contractual termination-for-convenience provision.
- Aramco demanded payment under Samba’s guarantee; Samba demanded payment under Citibank’s letter of credit.
- Foxboro alleged Aramco’s demand was fraudulent and sought to prevent payment, claiming it would be forced to pursue relief in Saudi arbitration and would suffer increased future credit costs, loss of bargaining position, and reputational harm.

## Issues

1. Whether a preliminary injunction may bar honoring an international bank guarantee and standby letter of credit based on alleged fraud where the asserted injuries are primarily monetary, bargaining-related, and reputational.
2. Whether Foxboro showed irreparable harm sufficient to justify injunctive relief interfering with payment under letter-of-credit instruments.

## Decision

- The First Circuit reversed and vacated the preliminary injunction.
- Foxboro failed to show irreparable harm, a necessary prerequisite to preliminary injunctive relief.
- The asserted harms (monetary loss, contract-based bargaining disadvantage, and speculative reputational injury) were insufficient to justify restraining payment under the instruments.
- The court emphasized the strong policy favoring reliability and prompt honor of letters of credit in international commerce and cautioned against broad judicial interference.

## Legal Principles

- A preliminary injunction requires a clear showing of irreparable harm; without it, injunctive relief is improper.
- Monetary injury is ordinarily not irreparable where the claimant can seek recovery through agreed dispute-resolution mechanisms, even if recovery may be delayed or procedurally inconvenient.
- Speculative reputational harm and indirect economic consequences (such as potentially higher future credit costs) generally do not constitute irreparable injury.
- A counterparty’s “bargaining advantage” arising from contract terms and agreed risk allocation is not, by itself, irreparable harm.
- Courts should apply any fraud-based restraint on honoring international letters of credit narrowly to preserve the independence and reliability of letter-of-credit transactions.

## Conclusion

The First Circuit vacated an injunction preventing payment on a bank guarantee and standby letter of credit because Foxboro did not demonstrate irreparable harm beyond compensable economic loss and speculative secondary effects, and because interfering with letter-of-credit payment undermines the commercial function of these instruments in international trade.


Foxboro Co. v. Arabian Am. Oil Co., 805 F.2d 34 (1st Cir. 1986)