Parties to the query

Claimant: Beneficiary

Respondent: Issuing Bank

Detailed description

The Respondent issued an advance payment guarantee in favour of the Claimant, subject to the URDG 758. The terms and conditions of the guarantee required presentation of a statement that the applicant had failed to properly perform its obligations under the underlying agreement and had refused to return the advance payment made to the applicant.

The guarantee provided no further requirement in this respect but did provide details of the underlying agreement.

At a later date, due to apparent incomplete performance under the commercial agreement, the Claimant made an “extend or pay” request which included the required statement and the details of the agreement.

The Respondent refused to honour this request on the basis that no statement was submitted as required by the URDG 758 sub-article 15 (a). This was disputed by the Claimant.

Subsequently, the Respondent clarified that the provided statement did not specify how the breach happened and why it was a contract violation.

The question was raised as to whether the “extend or pay” request filed by the Claimant complied with the terms of the guarantee issued by the Respondent and with the URDG 758, specifically sub-article 15 (a).

Analysis

The guarantee was made subject to the URDG 758 by means of an amendment.

The terms and conditions of the guarantee required a written demand stating that the applicant had failed to properly perform its obligations under the agreement and had refused to return the advance payment made to the applicant.

It also provided details of the agreement including the reference number, the parties thereto and what it concerned.

The URDG 758 article 15 sets out the requirements for a demand.

The URDG 758 article 23 provides that a demand may include, as an alternative, a request to extend the expiry date.

The URDG 758 sub-article 15 (a) states that any demand under a guarantee must be supported by a statement by the beneficiary, indicating in what respect the applicant is in breach of its obligations under the underlying relationship”. The sub-article further states that the statement may be in the demand.

The URDG 758 article 5 states that a guarantee is by its nature independent of the underlying relationship and the application, and the guarantor is in no way concerned with or bound by such relationship. It further states that a reference in the guarantee to the underlying relationship for the purpose of identifying it does not change the independent nature of the guarantee.

The URDG Article 15 provides no guidance nor limitation in the amount of detail required in the supporting statement of the beneficiary, nor does it mandate any statement content requirements or that such statement should include additional detail to that required by the terms of the guarantee itself.

The ICC Opinion TA612, in reference to a guarantee subject to the URDG 458, provided that payment would be upon receipt of a specifically worded demand. Under this guarantee, a beneficiary’s statement was stated as being required by the text of the guarantee, although the guarantor rejected the demand stating that the submitted statement did not conform to the terms of the warranty bond which incorporated the URDG guarantee nor to the URDG 458 article 20. However, this Opinion concluded that the demand for payment, and the accompanying statement of breach, were in conformity with the text of the guarantee and the URDG 458 article 20.

It was decided that the wording of the URDG 458 article 20 and the URDG 758 article 15 were sufficiently similar as to have the same effect in the context of this query, with the result that the statement within the Claimant’s demand sufficiently described the nature of the breach in accordance with the URDG 758 sub-article 15 (a).

Decision

The extend or pay request and incorporated statement were in accordance with both the terms and conditions of the guarantee and the terms of the URDG 758, particularly sub-article 15 (a) and did, therefore, constitute a complying demand.