Note: In connection with the loan financing of a real estate transaction, which in Austria usually involves appointment of an attorney-at-law or a notary public as trustee for all involved parties, the plaintiff (Applicant) instructed the defendant bank (Issuer) to issue a bank guarantee for the benefit of the lending bank (Beneficiary) as security for repayment of the loan.

Issuer delivered the bank guarantee to the trustee (First Trustee). First Trustee subsequently returned the guarantee to Issuer together with a letter stating that the planned acquisition could not be completed for various reasons, including the fact that certain amounts had not been deposited with the Trustee. When the First Trustee was replaced by another (Second Trustee), Issuer delivered the same bank guarantee to the Second Trustee without informing Applicant of the First Trustee's letter or its content.

Eventually, the bank guarantee was drawn in full by Beneficiary including for reasons stated in the First Trustee's letter. Applicant sued Issuer for damages, claiming that it would not have consented to delivery of the bank guarantee to Second Trustee had it been aware of the First Trustee's letter. Rather, Applicant would have revoked the bank guarantee in which case it would not have suffered the loss incurred when the bank guarantee was drawn.

The claim for damages was admitted by two lower courts and the Austrian Supreme Court. The Austrian Supreme Court conceded that, as the general rule, a bank issuing a guarantee is not obligated to inform its client of the risks related to such instrument. However, in this case, Issuer had acquired information relating to the secured transaction which could have been appreciated in full only by Applicant.

Consequently, the Supreme Court held that Issuer breached its duty of care when it failed to forward the First Trustee's letter to Applicant and was liable for the loss suffered by Applicant.


The Supreme Court's judgment emphasizes the importance of evaluating information received by the issuing bank in relation to bank guarantees issued by it and transactions underlying these bank guarantees. Where such information includes factual or legal information on the particular bank guarantee or transaction, the bank is under an obligation to provide such information to its client.

* Philipp Fuchs is Attorney-at-law, BINDER GRÖSSWANG Rechtsanwälte GmbH (Austria).


The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.