Note

Identical to DOCDEX Decision No. 343.

Only the Initiator had submitted documents related to this decision.

This decision was rendered without the participation of the Respondent.

Parties

Initiator: Bank S (Second counter-guarantor)

Respondent: Bank P (First counter-guarantor)

Background and transaction

On 28 April 2013, the Respondent issued three counter guarantees (SWIFT MT760), detailed below, subject to URDG 458 in favour of the Initiator covering three Performance guarantees (hereinafter called Guarantee), which the Initiator was instructed to allow to be issued by a Guarantor in favour of a local beneficiary. The counter guarantees were:

1) Counter guarantee for USD 24,344,829

2) Counter Guarantee for USD 11,290,763

3) Counter Guarantee for USD 47,037,248

The expiry dates of the three counter guarantees issued by the Respondent were 4 February 2015. The expiry dates of the three guarantees to be issued accordingly were 31 December 2014. The SWIFT message included the wording of the guarantees to be issued by the Guarantor within quotes. The quoted wording of the guarantees did not show any rule to apply but included the following: "This guarantee shall be governed by and construed in accordance with laws of England".

The three counter guarantee obligations were undertaken by the Respondent as follows: "In consideration of your issuing your guarantee as above, we, [...Respondent...], hereby establish our irrevocable counter guarantee in your favour and undertake to pay to you any sum not exceeding in total an amount of USD [relevant amount ] (say ......) after receipt by us of your demand through authenticated SWIFT message (or tested telex) quoting the guarantee reference number and issuing date of our counter guarantee and stating that you have received a written demand for payment under your guarantee in accordance with its terms".

The Initiator issued three counter guarantees (via SWIFT MT 760) as per terms of the counter guarantees received from the Respondent, stating subject to URDG in field 40C, without version number, in favour of the Guarantor, instructing the latter to issue their own guarantees in favour of the Beneficiary according to the relevant texts inserted into the counter guarantees. The instructions to the Guarantor specified that these guarantees were to be for the same aggregate maximum amount of the relevant counter guarantees, i.e. USD 24,344,829, USD 11,290,763, and USD 47,037,248. These guarantees were expressed to remain in full force up to 31 December 2014, with the last date for lodgement of claim thereunder being 3 January 2015 for each guarantee. The expiry dates of all the counter guarantees issued by the Initiator were 19 January 2015.

The counter guarantees issued by the Initiator stated: "This guarantee [meaning the counter guarantee] is subject to uniform rules for demand guarantees, ICC publication n. 458", clarifying the intent to apply such version of URDG rules to the counter guarantees. The guarantees did not show the application of any rules but stated: "This guarantee shall be governed by and construed in accordance with laws of England". The counter guarantee obligations were undertaken by the Initiator consistent with the three counter guarantees it had earlier received from the Respondent.

On 30 April 2013, the Guarantor issued their three performance guarantees in favour of the Beneficiary for the same amounts of the counter guarantees received by the Initiator i.e. 24,344,829, USD 11,290,763, and USD 47,037,248, stating 31 December 2014 as the expiry date and 3 January 2015 as last date of lodgement of claim for each guarantee. A clause appearing in the copy of the guarantee texts received by the Initiator stating: "This guarantee shall be governed by and construed in accordance with laws of England" was repeated in each guarantee.

The guarantee obligations undertaken by the Guarantor stated: "We [...bank...] hereby irrevocably and unconditionally guarantee and undertake, subject to no other condition to pay to you, the above-named owner, or such other persons for the time being entitled to the benefit hereof, upon your written request in accordance with the agreement, any sum or sums up to the aggregate amount of this guarantee as amended from time to time. We as guarantor, will effect payment forthwith upon receipt of your written demand without proof (including any proof that such demand is in accordance with the agreement), conditions, grounds or reasons for such demand for the sum specified therein notwithstanding any contestations, claims demands or objections made by the civil contractor or any other third party ..."

On 3 November 2014:

• the Beneficiary submitted three claims in writing to the Guarantor for payment of USD 82,672,840 as aggregate amount of the three performance guarantees;

• on the same date the Guarantor claimed the same amount from the Initiator and the Initiator in turn claimed from the Respondent.

Between 4 and 5 November 2014:

• one meeting was held between officials of Initiator and Respondent;

• one reminder was sent by the Initiator to the Respondent;

• the Respondent required the Initiator to provide by email, the written demands submitted by the Beneficiary to the Guarantor in respect of the three claims;

• the Initiator replied that "as per counter guarantee terms it is not required to provide evidence of written claim of the beneficiary" and confirmed that "the Beneficiary had lodged a written claim at the counter of the Guarantor".

From 6 November to 11 November 2014:

• a meeting was held between officials of the Initiator and Respondent; the minutes of the meeting recorded that "the Respondent expresses that they require a reasonable time of 5-7 days to process the request of the Beneficiary";

• one reminder was sent from the Guarantor to the Initiator;

• seven reminders were sent from the Initiator to the Respondent.

On 12 November 2014:

• the Initiator paid the amount of USD 82,672,840.00 to the Guarantor as total claim under the three guarantees of USD 24,344,829, USD 11,290,763, and USD 47,037,248.

• the Guarantor credited the same amount to the Beneficiary;

• the Initiator advised the Respondent that the payment has been affected and that interest will be charged at the rate of 1.3 % p.a. for the period of delay in payment.

• the Initiator sent a copy of each Beneficiary's demand by email to the Respondent and confirmed such action by a separate SWIFT message for each guarantee.

On 13 November 2014:

• the Initiator sent two more reminders to the Respondent demanding immediate payment of its counter guarantees.

On 14 November 2014:

• the Respondent informed the Initiator that it had been intimated about an order of status quo of the High Court . (The court Order was not attached).

On 17 November 2014:

• the Initiator received a Petition of appeal filed by the Applicant on 6 November 2014, a Notice of Court order of Hearing dated 12 November 2014 for the Initiator to appear in the High Court on 16 September 2015 and a Notification of Presentation of Proofs.

On 18 November 2014:

• the Initiator received the High Court Civil Order dated 14 November 2014 restraining order directing all parties (Applicant, Respondent and Guarantor) to stop payment of Guarantees / Counter guarantees.

• the Respondent informed the Initiator that they had received an injunction issued by the High Court refraining it from effecting payments under the counter guarantees. (The notice did not include copy of the injunction. The panel assumed that the injunction was served to the Respondent on or around 18 November 2014).

On 9 December 2014:

• the High Court passed an order stating that the Guarantor bank "did nothing wrong in honouring the guarantee and making the payment to the Beneficiary on 12 December 2014".

Issues

1. Had the Respondent failed to honour valid claims made by the Initiator for amounts mentioned below on 3 November 2014 under their Counter Guarantees within a reasonable time as per URDG 458?

i) Counter guarantee for USD 24,344,829

ii) Counter Guarantee for USD 11,290,763

iii) Counter Guarantee for USD 47,037,248

2. Given the Court order of the High Court dated 9 December 2014, was it justified for the Respondent to delay the payment to be made to the Initiator when it was clear that the Order did not apply to the Respondent and the Initiator as they were not party to the proceedings before the High Court, and considering the fact that the order of the High Court had specified that only the parties to the proceedings were to maintain status quo?

3. Did the Respondent allow an unreasonably long time which enabled the applicant to obtain a restraining order from the Court on 14 November 2014 after the Initiator and the Guarantor of the local guarantee honoured the commitments on 12 November 2014? Was such delay a violation of URDG 458 article 10, which requires that the Guarantor has to examine the demand under the guarantee within a reasonable time, especially in view of the fact that the claim had been made by the Beneficiary on 3 November 2014?

4. Was the Respondent obliged to pay the Initiator the claimed amounts under the Counter Guarantee mentioned hereinabove, along with any applicable delayed payment interest and costs?

Analysis

Question 1.

A) Applicable rules. The counter guarantees issued by the Respondent in favour of the Initiator were subject to URDG 458 as stated in each SWIFT MT 760, field 40C and repeated at the end of each message.

B) The claim. The counter guarantees issued by the Respondent in favour of the Initiator contained a condition for the claim as follows: "We hereby establish our irrevocable counter guarantee in your favour and undertake to pay to you any sum not exceeding in total an amount of USD ...... (say.....) after receipt by us of your demand through authenticated SWIFT message (or tested telex) quoting the guarantee reference number and issuing date of our counter guarantee and stating that you have received a written demand for payment under your guarantee in accordance with its terms". This condition, to be respected for a valid request of payment, is in line with URDG 458 sub-article 20 (b) which states that "Any demand under the Counter Guarantee shall be supported by a written statement that the Guarantor has received a demand for payment under the guarantee in accordance with its terms and this article". The claims made by the Initiator via SWIFT MT 799 dated 3 November 2014 contained the date and the reference number of the Respondent's counter guarantees and statements that the Initiator received a "written demand dated 3 November 2014 for immediate payment of USD 82,672,840.00 in accordance with its terms". The claims were valid.

C) Payment of the counter guarantees. As the Initiator had complied with the terms and conditions of the counter-guarantees by sending complying statements of claim within the validity of the counter-guarantees, the payment obligation of the Respondent under the counter guarantees were duly triggered on 3 November 2014. URDG 458 article 10 states: a) "A guarantor shall have a reasonable time within which to examine a demand under a guarantee and to decide whether to pay or to refuse the demand. b) If the guarantor decides to refuse a demand he shall immediately give notice thereof to the beneficiary by teletransmission, or, if that is not possible, by other expeditious means."

There is no definition of "reasonable time" under URDG 458. However, so far as the reasonable time issue is concerned, the ICC Banking Commission Opinion R 504 (in "Collected Opinions of the ICC Banking Commission 1995-2001") states that: "On the basis that a guarantee under URDG 458 would consist of a demand and possibly a statement as required by article 20, a reasonable time for the processing thereof would be within three banking days from receipt. This position reflects that which has been openly stated in the International Standby Practices (ISP98) for a product, standby letters of credit, which often calls for similar documentation both in volume and content. This may, however, be subject to any local court decisions regarding reasonable time." In addition, taking into account that the current version of URDG 758 article 20 states that "the guarantor shall, within five business days following the day of presentation, examine the demand and determine if it is a complying demand", this panel holds the view that the period from 3 November 2014 up to 18 November 2014 (the date the Initiator was informed by the Respondent that an interim injunction was issued by High Court dated 14 November 2014 and payment was suspended pending further instructions from the Court), exceeded the "reasonable time" mentioned in URDG 458 sub-article 10 (a) , being a total of 11 banking days.

Question 2

This question went beyond the competence of DOCDEX Rules article 1 (Publication no. 853 E), which covers only ICC rules. The interpretation and the effects of Court orders were under the law of the place where the Court Order was issued. Accordingly, this panel expressed no opinion on this question.

Having said that, as stated in Analysis 1 above, the panel reiterated the view that the Respondent had already exceeded the "reasonable time" as per URDG 458 sub-article 10 (a) when it notified the Initiator in respect of the High Court order on 14 November 2014, being a total of 9 banking days after 3 November 2014.

Question 3

The reasonable time issue was addressed under question 1 point C.

The panel highlighted that the only documents that the Respondent should examine in order to determine whether it was obligated to honour the claims made under the counter guarantees were the Initiator's requests and not any other document such as the Beneficiary's requests or correspondence.

Based on the above analysis, the Respondent failed to act in accordance with URDG 458 sub-articles (10 a) and (b) because it neither provided for payment nor gave any notice of refusal within a reasonable time. It was therefore obligated to honour the Initiator's demands. The Respondent could either refuse the demands within a reasonable time if the demands were discrepant or effect payment; there was no third option.

The panel was not in a position to adjudicate whether the Respondent delayed the payment in order to enable the applicant to obtain a restraining order from the Court. However, as the Initiator only received the High Court Notification of Assisting the Execution of the Judicial verdict on 18 November 2014, six days after the Initiator honoured the Guarantor's demand on 12 November 2014, the relevant Court order has no bearing on the Initiator's right to claim reimbursement from the Respondent.

It is well established that a bank guarantee subject to URDG 458 is separate from, and independent of, the underlying contract as stated in URDG 458 sub-article 2 (b). Accordingly, any dispute on the underlying contract has no bearing on the payment obligations of the issuing bank. Once the Initiator honoured the complying demands under the counter guarantees issued by it and made complying demands under the counter guarantees issued by the Respondent, the Initiator was fully entitled to be paid by the Respondent notwithstanding an injunction might be subsequently issued attempting to prohibit the beneficiary in India from obtaining payment under the guarantees issued by the Guarantor.

Question 4

See conclusion below.

Conclusion

The Initiator duly submitted complying demands on 3rd November 2014 and the Respondent neither issued a notice of refusal within the reasonable time as required by URDG 458 sub-articles 10 (a) and (b), nor provided for payment.

According to the unanimous view of the panel and based on best banking practice as represented by URDG 758 article 20, the reasonable time after 3rd November 2014 expired on absolute latest 10 November 2014, i.e. 5 working days after 3rd November 2014. According to URDG 458 the Respondent was obligated to pay the drawing amounts plus any applicable interest and costs claimed by the Initiator under the Respondent's counter guarantees.

It was up to the governing law and jurisdiction to rule about any possible suspension or derogation from the obligations undertaken by parties under URDG 458.

This decision was rendered unanimously.