A municipal water corporation in the city of Kharkiv, Ukraine, demanded to execute payment of over ILS 31 million under autonomous guarantees given to it by an Israeli company after an agreement to carry out a water infrastructure project was canceled due to the ongoing war in Ukraine.
The District Court granted the motion for an urgent temporary injunction and prevented the materialization of the guarantees. Courts usually tend to respect the principle of the autonomy of the bank guarantee, with the exception of rare cases in which the behavior of the beneficiary seeking the execution of the guarantee is tainted by serious fraud or there are extreme circumstances that justify the intervention of the Court (i.e., a serious and arbitrary action motivated by extraneous considerations, application of pressure, or as means of revenge). Here, disagreements arose between the parties with a notice of termination given by the Israeli company due to 'force majeure' and after 100 consecutive days of fighting in the Ukraine and the lack of ability to carry out the project due to the war with Russia. The guarantees were given to secure advance payments, but the debts to the Israeli company for work performed, expenses and war damages were estimated at USD 16 million (almost twice the amount of the guarantees). In this case, the parties are expected to resolve the financial dispute in an arbitration, but the damage that will be caused to the Israeli company if the guarantees are executed, in light of the situation in the Ukraine and the apprehension that it will be difficult to get the funds back, is greater than the damage that may be caused to the Ukrainian water corporation in case of a certain delay in realizing the guarantees until the dispute between the parties is settled within the arbitration stipulated in the agreement. Therefore, the Court granted a temporary injunction preventing the triggering of the guarantees.
For full disclosure: The Israeli company was represented by lawyers Doron Afik and Yair Aloni of Afik & Co.