Parties

Initiator: Bank R (Guarantor)

Respondent: Bank I (Counter-Guarantor)

Note

Only the Initiator had submitted documents related to this decision.

This decision was rendered without the participation of the Respondent.

Background and transaction

On 1 April 2011, the Respondent issued a counter-guarantee (SWIFT MT760) subject to URDG 758 covering an Advance Payment Guarantee, which the Initiator was instructed to issue in favour of a local beneficiary, also subject to URDG 758.

• Amount: USD 16,400,000.

• The SWIFT message contained the text of the counter-guarantee and included the wording of the guarantee, which was issued by the Initiator accordingly.

• The counter-guarantee obligation was undertaken by the Respondent as follows: "In consideration of your issuing your guarantee as requested above, we, [respondent], hereby give you our irrevocable and unconditional counter-guarantee n. ..... and undertake to pay to you without reservation and notwithstanding any contestation from our principal or any third party any sum or sums not exceeding in total the amount of USD 16,400,000.00 (say US dollars sixteen million four hundred thousand only) upon receipt by us of your first demand quoting our counter guarantee n. ... in writing or by authenticated SWIFT message wherein you state that you had received a claim from the beneficiary which is within the validity and is in compliance with the terms and conditions of your a/m advance payment guarantee and a copy of the beneficiary's claim has been mailed to us."

On 31 January 2012, the expiration dates of the original guarantee and counter-guarantee were extended to 20 September 2012 and 5 October 2012 respectively.

On 20 September 2012, the Initiator sent an authenticated SWIFT message to the Respondent demanding payment of USD 9,262,843.77 under the counter-guarantee and notified that a copy of the beneficiary's claim had been mailed to the Respondent.

On 26 September 2012, the Respondent sent a rejection notice by SWIFT MT 799 to the Initiator before the close of the fifth business day following the day of presentation, stating the sole discrepancy: "copy of bene's claim was not presented".

On 26 September 2012, the Initiator refuted the discrepancy raised by the Respondent by sending a SWIFT MT799 message to the Respondent and requested payment of the amount demanded.

On 27 September 2012, the Respondent advised the Initiator that they had received the copy beneficiary's claim and would examine that document within the following five business days.

On 3 October 2012, the Initiator again requested payment from the Respondent under their counter-guarantee and pointed out that counting five business days from the date of receiving the copy of the beneficiary's claim was incorrect. The correct starting day should be the day after the date of receipt of the demand message.

On 10 October 2012, (which was the fifth working day after 27 September due to national holidays) the Respondent advised the Initiator, by SWIFT MT 799, that some discrepancies were found in the copy of the beneficiary's claim presented to the Initiator, as follows:

"......we found that the presentation made by the beneficiary was not in compliance with the terms and conditions of the a/m advance payment guarantee, which is contrary to yr statement of yr demand in the following respects:

1) The number of the advance payment guarantee stated in the copy of the beneficiary's claim n. ............ is different from the number of the a/m advance payment guarantee that is covered by the Counter-guarantee. [Note from the Panel of Experts: it appears that one number out of fourteen numbers of which the guarantee number consisted was wrong]

2) The date of the underlying contract stated in the beneficiary's claim February 3, 2012 is different from the date stated in the a/m payment guarantee, which should read February 3, 2011.

3) The beneficiary failed to state in the claim that the obligation(s) in respect of which the principal is in breach is/are covered by the advanced payment guarantee and that they are therefore entitled to demand repayment of the advance payment up to the amount as requested by the a/m advance payment guarantee.

In addition to the discrepancies stated above, the respect in which the principal is in breach are not covered by the advance payment guarantee, and that the beneficiary is therefore not entitled to demand repayment of the advance payment up to the amount, therefore, the beneficiary abused the right of claim.

In consideration of the discrepancies stated above and abuse of right of claim by the beneficiary, you are obliged not to effect the payment under the a/m advanced payment guarantee, and your demand for payment has been rejected by us."

Issues

1. Based on the wording of the counter-guarantee issued by the Respondent, was there a requirement for the Initiator to present a copy of beneficiary's claim, which it had received under its local guarantee to the Respondent, when making its demand under the counter-guarantee issued by the Respondent?

2. Was the alleged discrepancy made by the Respondent on 26 September 2012, "Copy of bene's claim was not presented" a valid discrepancy?

3.With the Respondent having stated what it considered to be one single discrepancy in its SWIFT message of 26 September 2012, can the Respondent raise further discrepancies at a future date in respect of the copy of the beneficiary's claim?

4. Can the counter-guarantor, the Respondent, withhold payment from or reimbursement to the Initiator pending receipt of presentation documents under the local guarantee of the Initiator?

5. What is the governing law of the local guarantee, which was issued by the Initiator subject to URDG 758 as, requested and authorised by the Respondent?

Analysis

Issue 1

According to the wording of the counter-guarantee, the obligation undertaken by the Respondent is effective under two alternative conditions to be respected by the Initiator:

a) upon receipt by us of your first demand quoting our counter guarantee n. ... in writing

or

b) by authenticated SWIFT message wherein you state that you had received a claim from the beneficiary which is within the validity and is in compliance with the terms and conditions of your a/m advance payment guarantee and a copy of the beneficiary's claim has been mailed to us."(hereinafter called the "statement of claim").

The Initiator chose option b), which was in line with URDG 758 sub-article 15 (b) which states: "A demand under a counter-guarantee shall in any event be supported by a statement, by the party to whom the counter-guarantee was issued, indicating that such party has received a complying demand under the guarantee or counter-guarantee issued by that party. The statement may be in the demand or in a separate signed document accompanying or identifying the demand".

A copy of the beneficiary's claim was not required to be presented with the statement of claim sent by authenticated SWIFT message by the Initiator. The statement of claim was merely required to state that a copy of the beneficiary's claim had been mailed to the Respondent. The statement of claim complied with this requirement.

It is to be noted that the Initiator's duty to send to the Respondent a copy of the beneficiary's complying presentation was covered by URDG 758 article 22 which states: "The guarantor shall without delay transmit a copy of the complying demand and of any related documents to the instructing party or, where applicable, to the counter-guarantor for transmission to the instructing party. However, neither the counter-guarantor nor the instructing party, as the case may be, may withhold payment or reimbursement pending such transmission."

It is also to be noted that URDG 758 is silent in respect of, a) the time frame within which a counter-guarantor is to examine the copy of the demand under the guarantee subsequently received and, b) the action to be undertaken if the counter-guarantor believes that the guarantor has honoured a non-complying demand.

As the Initiator had complied with the terms and conditions of the counter-guarantee by sending the statement of claim within the validity of the counter-guarantee, the Respondent should not withhold payment pending receipt of the copy of beneficiary's claim. This is clearly stated in URDG 758 article 22.

Issue 2

A physical copy of the beneficiary's claim was not requested as a condition of a complying presentation under a claim by SWIFT. It merely required a declaration of its transmission, and this was so stated in the Initiator's statement of claim.

Accordingly, the discrepancy "Copy of bene's claim was not presented" was not valid. The Respondent was obliged to honour its counter-guarantee pursuant to URDG 758 sub-article 20 (b).

Issue 3

URDG 758 sub-article 24 (d) states that: "When a guarantor rejects a demand, it shall give a single [emphasis added] notice to that effect to the presenter of the demand".

Furthermore, URDG 758 sub-article 24 (h) states that: "For the purpose of paragraphs (d), (f) and (g) of this article, guarantor includes counter-guarantor".

Accordingly, subsequent discrepancy messages are not allowed. The demand under the counter-guarantee was still compliant.

In this case, the Respondent sent a single rejection notice, which however, was incorrect in that the copy of the beneficiary's demand under the guarantee was not required by the counter-guarantee for the demand by SWIFT.

The subsequent notice that was sent by the Respondent to the Initiator on 10 October 2012 in relation to the incorrectness of the copy of the beneficiary's claim under the guarantee did not constitute a second rejection notice. The notice mentioned the reasons why the Initiator should not have honoured the demand.

URDG 758 sub-article 5 (b) states that: "A counter-guarantee is by its nature independent of the guarantee, the underlying relationship, the application and any other counter-guarantee to which it relates, and the counter-guarantor is in no way concerned with or bound by such relationship".

Owing to the independence between the guarantee and the counter-guarantee, each payment is made under separate undertakings and depends only on compliance to the terms and conditions of each related presentation. Under a compliant presentation, the Respondent must honour.

The Respondent, upon receipt of the copy of the beneficiary's claim, was entitled to examine it. However, any issues concerning the incorrectness of the copy of the beneficiary's claim and any ensuing actions and liabilities, were outside of the scope of URDG 758 and, therefore, also outside the scope of the ICC DOCDEX procedure. These issues are within the competence of the governing law and competent jurisdiction.

It should be noted that a copy of the beneficiary's claim presented to the Initiator under the guarantee had not been submitted in this DOCDEX case.

Issue 4

URDG 758 article 22 (cited above under issue 1) prevents the counter-guarantor or the instructing party from withholding payment or reimbursement, pending the transmission of the complying demand and any related documents.

The Respondent should have immediately honoured the demand under the counter-guarantee without waiting for the receipt of the copy of the beneficiary's claim.

Issue 5

If not otherwise agreed in the guarantee or counter-guarantee, or provided for under local law, URDG 758 articles 34 and 35 provide that the governing law and the jurisdiction of a guarantee or counter-guarantee are those of the place/country of the location of the branch or office that issued the guarantee or the counter-guarantee.

Therefore the guarantee as issued by the Initiator would be subject to the law in the Initiator's country, unless that law provides otherwise.

Conclusion

According to the wording of the counter-guarantee, the Initiator presented a complying demand that the Respondent was obliged to honour.

Any dispute between the Initiator and the Respondent in respect of the presentation of a non-complying beneficiary's claim under the guarantee should not be a reason for dishonouring the complying presentation under the counter-guarantee, and is outside the scope of URDG and ICC DOCDEX.

This decision was rendered unanimously.