Parties to the query

Claimant: Applicant and instructing party

Respondent 1: Beneficiary

Respondent 2: Guarantor

Detailed description

On the instructions of the Claimant, two demand guarantees were issued by Respondent 2 in favour of Respondent 1. Whilst neither guarantee was specifically stated to be subject to the URDG 758, both included a statement that matters not addressed in each guarantee would be governed by the URDG 758.

According to the Claimant, contractual disputes arose in respect of the underlying agreements.

Respondent 1 sent a demand for payment under both guarantees to Respondent 2 citing failure by the Claimant to fulfil its contractual obligations. Respondent 2 rejected both demands due to discrepancies.

According to the Claimant, and based upon receipt of information from Respondent 2 relating to the demands, the Claimant initiated judicial proceedings before the Paris Commercial Court.

According to Respondent 2, they had not yet accepted or rejected the demands when the Claimant objected that the demands did not comply with the provisions of the URDG article 15.

The Claimant was of the opinion that the guarantees were subject to the URDG 758 and that the demands complied with the URDG sub-article 15 (a). Respondent 2 had a contrary view in that the URDG article 15 was not applicable since the text of the guarantees stated that the URDG 758 applied only to matters not covered by the guarantees.

It was queried as to what extent the provisions of the URDG 758, and in particular article 15, applied to the guarantees and, as a consequence, whether the demands were complying within the meaning of the URDG 758 article 2 and with the provisions of article 15.

Analysis

It was stated that the URDG 758 are a set of rules published by the ICC for incorporation in demand guarantees and that they do not apply automatically. They only apply if they are expressly incorporated in the terms of the guarantee.

The URDG 758 sub-article 1 (a) provides that the rules apply to any demand guarantee that expressly indicates it is subject to them and that they are binding on all parties to the demand guarantee except so far as the demand guarantee modifies or excludes them.

The URDG 758 article 2 defines a complying demand as a demand that meets the requirements of a complying presentation. A complying presentation under a guarantee is defined as a presentation that is in accordance with, first, the terms and conditions of that guarantee, second, these rules so far as consistent with those terms and conditions and, third, in the absence of a relevant provision in the guarantee or these rules, international standard demand guarantee practice.

The URDG 758 article 12 provides that a guarantor is liable to the beneficiary only in accordance with, first, the terms and conditions of the guarantee and, second, these rules so far as consistent with the terms and conditions, up to the amount of the guarantee.

The URDG 758 article 15 provides the requirements for demand.

The URDG 758 sub-article 19 (a) provides that the guarantor shall determine, on the basis of a presentation alone, whether it appears on its face to be a complying presentation.

The URDG 758 sub-articles (a) and (b) state, inter alia, that the guarantor shall examine a demand within five business days following the date of presentation to determine if it is complying and, if so, the guarantor shall pay.

The URDG 758 article 24 outlines the process for a non-complying demand including waiver and notice.

It was highlighted that rather than a statement that matters not addressed in a guarantee shall be governed by the URDG 758, it was more common to see a provision stating that the Guarantee shall be governed by the URDG 758, i.e. without a reference to “matters not addressed”, but in practice it was considered that the effect was the same.

In line with the combined effect of the URDG sub-article 1 (a), article 2, and article 12, the express terms of the guarantee overrode the provisions of the rules where there was a conflict between the express terms and the rules.

Therefore, the expression “matters not addressed” did not alter the application and interpretation of the rules.

It was stated however, that there was one point on which the rules may have taken priority over the terms of the guarantee. This was the requirement under the URDG 758 sub-article 15 (a) for a statement by the beneficiary indicating in what respect the applicant was in breach of its obligations under the underlying relationship.

For the demands under both guarantees, no statement of breach was received. The demands were not, therefore, complying demands within the meaning of the URDG 758 article 2.

Decision

It was decided that the URDG 758 applied to both guarantees.

Although the demand under the first guarantee complied with the express requirement for a statement that the beneficiary had the right to receive payment from the Contractor, it was not a complying demand because it contained no statement as required by the URDG 758 sub-article 15 (a).

The demand under the second guarantee was not a complying demand because it contained no statement that the Contractor was in breach of its warranty obligations with respect to the contract, as expressly required by the guarantee.

However, it did not appear that Respondent 2 had examined, and accepted or rejected the demands, in accordance with the requirements of the URDG 758.

Accordingly, Respondent 2 failed to comply with the timetable in the URDG 758 article 24 and was precluded from rejecting the demands.