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French appeals court overturns BKV vs Alstom ruling

A French court ruled that Budapest public transport company BKV may call down a bank guarantee on an order for underground carriages from French engineering giant Alstom.

The second instance ruling overturns an earlier decision in December in which another French court sustained a plea by Alstom to prevent BKV from calling down the guarantee.

The latest ruling establishes that BKV called down the guarantee in accordance with the rules, Budapest mayor István Tarlós said on Friday.

Alstom must pay court costs under the ruling.

Bayerische Landesbank and Credit Agricole Corporate and Investment Bank must pay BKV the more than HUF 30 billion guarantee within five days.

Under a contract signed in May 2006, Alstom was to deliver 22 trains for one of Budapest’s three metro lines for €150 million and 22 trains for a new line under construction at present for €114 million. BKV said in October 2010 that it cancelled the contract because Alstom "failed to do all that was expected of it in the interest of fulfilling the contract".

Alstom's application for permits for the vehicles it was to deliver was hampered because the brake systems used differed from those stipulated in Hungarian regulations.

Tarlós said earlier that Hungary's National Transportation Authority told Alstom four times in 2007 and 2008 that the brakes on the trains it was to deliver were unsuitable according to Hungarian safety rules.

BKV tried to call down a bank guarantee on the order but a French court in December accepted a plea by Alstom blocking the attempt. The Budapest local council appealed the decision and the first hearing in the case was on Wednesday.

BKV made a 50% advance payment on the trains of about HUF 30 billion. Alstom's indemnity was worth 10% of the order.

Alstom acknowledged the ruling but said it still believed the cancellation of the contract was illegal. Alstom said it remained committed to settling questions on the dispute over the carriages at talks between the two sides.

Tarlós said in a television interview late Wednesday that he and National Development Minister Tamás Fellegi would meet with the head of Alstom on June 17.