Parties to the query

Claimant: Beneficiary

Respondent: Issuing Bank

Detailed description

The Respondent, acting as a guarantor, issued an advance payment guarantee in favour of the Claimant, via an advising bank.

A few months later, the Claimant presented a demand for payment to the Respondent, together with supporting documents. The demand was sent by three separate modes of delivery:

  • email, received by the Respondent on 12 May 2022
  • authenticated SWIFT, received by the Respondent via the advising bank on 16 May 2022
  • DHL courier, received by the Respondent on 23 May 2022.

On 26 May 2022, the Respondent sent a letter to the Claimant notifying a decision to dishonor the demand on the grounds that the Claimant failed to specify the respect in which the applicant had defaulted in fulfilling obligations under the guarantee.

The Claimant responded that the rejection notice of the Respondent was invalid because the demand was compliant and, in any event, the Respondent was precluded from raising any discrepancy pursuant to the URDG 758.

The Respondent had since asserted that as the SWIFT Message Text Field 40C “APPLICABLE RULES” within the guarantee stated “NONE”, the guarantee was not subject to any rules, and that the DOCDEX Panel had no jurisdiction.

It was questioned as to whether the URDG 758 applied to the guarantee, whether the query could be decided under the DOCDEX process, and whether the rejection notice was valid.

Analysis

The guarantee was issued with a “NONE” entry under the SWIFT Message Text Field 40C, entitled “APPLICABLE RULES”.

However, under the SWIFT Field 77, entitled “DETAILS OF GUARANTEE”, it was stated that the Guarantee was “subject to the Uniform Rules for Demand Guarantees, 2010 Revision, ICC Publication no. 758”.

In view of the fact that the SWIFT Field 77 specified a special rule that the guarantee was subject to the URDG 758, this had the impact of amending the general position stated under SWIFT Field 40C.

Accordingly, it was concluded that the URDG 758 applied to the guarantee.

Based upon the DOCDEX articles 1, 2(1), and 2(2), it was decided that sufficient jurisdiction existed to render a decision based on the DOXDEX process.

Specifically, under article 1, the URDG 758 fall within the definition of “ICC Banking Rules”. Furthermore, pursuant to article 2(1), disputes related to demand guarantees or counter guarantees are within the scope of the DOCDEX Rules.

And finally, in accordance with rule 2(2), the DOCDEX Rules allow any party to apply for such a decision, which is “an independent, impartial and prompt expert decision”.

Concerning the validity of the rejection notice, reference was made to the URDG 758.

Sub-article 20 (a) states that if a presentation of a demand does not indicate that it is to be completed later, the guarantor shall, within five business days following the day of presentation, examine that demand and determine if it is a complying demand. This period is not shortened or otherwise affected by the expiry of the guarantee on or after the date of presentation. However, if the presentation indicates that it is to be completed later, it need not be examined until it is completed.

Sub-article 24 (d) states that when the guarantor rejects a demand, it shall give a single notice to that effect to the presenter of the demand, stating therein that the guarantor is rejecting the demand, and each discrepancy for which the guarantor rejects the demand.

Sub-article 24 (e) states that the notice required by paragraph (d) of this article shall be sent without delay but not later than the close of the fifth business day following the day of presentation.

Sub-article 24 (f) provides that a guarantor failing to act in accordance with paragraphs (d) or (e) of this article shall be precluded from claiming that the demand and any related documents do not constitute a complying demand.

The Respondent received the demand initially by email on 12 May 2022, then by an authenticated SWIFT through the advising bank on 16 May 2022, and finally by DHL courier on 23 May 2022.

The guarantee specified that for the purpose of identification, the demand for payment and the required documents had to be presented to the Respondent through the intermediary of the bankers of the Claimant, requesting their bankers to forward to the Respondent by authenticated swift the full text of the Claimant’s demand for payment and confirming that the signatures therein were valid, genuine, and legally binding upon the Claimant.

Accordingly, the Respondent had until 23 May 2022, the fifth business day after the authenticated SWIFT presentation of the demand on 16 May 2022, to send its notice of rejection.

In view of the fact the notice of rejection was only sent by the Respondent to the Claimant on 26 May 2022, such rejection notice was not, as laid out in the URDG 758 sub-article 24 (e), sent on a timely basis.

As a result, the Respondent was precluded from claiming that the authenticated SWIFT demand was discrepant pursuant to the URDG 758 sub-article 24 (f).

Decision

In consideration of the fact that the SWIFT Field 77 “DETAILS OF GUARANTEE” clearly specified that the guarantee was subject to the URDG 758, it was decided that the URDG 758 did apply to the guarantee.

It was also determined that the DOCDEX process was applicable for this case.

Furthermore, it was decided that the Claimant’s demand was compliant, and, in any event, the Respondent was precluded from raising any discrepancy.

Accordingly, it was concluded that the rejection notice was invalid, and that the Respondent should have honoured the Claimant’s demand.