Parties to the query

Claimant: Issuing Bank

Respondent: Beneficiary

Detailed description

The Claimant issued a demand guarantee, subject to the URDG 758, in favour of the Respondent. The Claimant itself was the beneficiary of a counter-guarantee, also subject to the URDG 758.

The Respondent submitted a demand to the Claimant stating that the applicant of the guarantee had failed to fulfil its payment obligations, and included statements required by the terms and conditions of the guarantee together with copies of relevant unpaid invoices.

The Respondent separately presented a copy of a contract between the Respondent and the applicant, which was not required by the guarantee.

The Claimant rejected the demand on the grounds that the order reference number and date in the copies of the unpaid invoices and default notice did not match the order reference number and date stated in the guarantee. This was not accepted by the Respondent which initiated legal proceedings against the Claimant.

The issue was whether or not the discrepancy identified by the Claimant was valid, and whether the Claimant had an obligation to examine the additional documents submitted by the Respondent and, finally, whether the Claimant, as guarantor, was entitled to reject the Respondent’s demand.

Analysis

It was pointed out that a guarantee is independent of the underlying relationship between the applicant and the beneficiary. The URDG articles 5 and 6 emphasise the importance of this independence principle.

The URDG article 8 specifies that all demand guarantees should specify the reference number or other information identifying the underlying relationship. Furthermore, sub-article 15 (a) requires that a demand be supported by a statement of the beneficiary indicating in what respect the applicant is in breach of the underlying relationship.

The demand for payment made no reference to the required order reference number and, in fact, the Claimant stated that the invoices and default notice presented with the demand letter referenced a different order reference number.

The standard for examination of a demand is outlined in the URDG article 19 with the primary obligation, that of determination of whether a presentation appears on its face to be complying, stated in sub-article 9 (a).

It was noted that since the demand, and the documents enclosed with the demand, did not comply with the terms of the guarantee in respect of the order reference number, then the presentation was not compliant.

The URDG sub-article 19 (b) states that whilst there is no need for an identical match in data contained in submitted documents, such data must not be in conflict with data in the guarantee.

In this case, there was a conflict between the order reference number as shown in the guarantee and the order reference number as stated on the submitted invoices.

Whilst the Respondent stated that, under the URDG sub-article 19 (c), a document should be accepted if it appears to fulfil the function of a required document, this was only applicable if the document also complied with sub-article 19 (b).

Under the URDG sub-article 19 (d), the guarantor should disregard any presented document which was not required by the guarantee.

Decision

It was decided that the discrepancy identified by the Claimant was valid.

Furthermore, the Claimant had no obligation to examine the additional submitted documents and the rejection of the demand was, therefore, justified.