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Note: Pursuant to a joint operations agreement between a Dutch company, MUR Joint Ventures BV (Beneficiary), and Monaco Seatrade SAM (Applicant) for chartering and operating a bulk carrier, Compagnie Monegasque de Banque (Guarantor), a private bank based in Monaco, issued a “Guarantee” on 17 September 2012 in favor of Beneficiary for a maximum sum of USD 500,000 including interest, fees, and accessories. The Guarantee stated it was “to operate as an indemnity,” was valid for up to three years (until 17 September 2015), and required that any demand had to be received on or before the expiry date. Clause 2 of the Guarantee required that Beneficiary furnish the following for the demand to be valid: a “request for payment, certified copies of [Beneficiary]’s Extract of Registry, and passport of the signatory signing the request; the request of payment should be authenticate as well as representative’s powers of [Beneficiary] by a notary and duly apostilled.” It also required that the demand be sent by registered mail. The agreement was governed by English law with exclusive jurisdiction in the English courts. After Applicant failed to pay for sums due under the joint agreement, Beneficiary made two demands on 18 August 2015 and 14 September 2015 under the Guarantee.

The first demand was signed by one of Beneficiary’s directors, Mr. Veltema (Director). Beneficiary recorded and confirmed that USD 876,305.00 was due and unpaid. It sent a demand under the Guarantee to Guarantor by courier, fax, and email requesting payment. The demand letter, Extract for Beneficiary from the Netherlands Chamber of Commerce Commercial Register, and Director’s passport were notarized and apostilled as required by the Guarantee. After receipt, Grantor passed the demand to Applicant. Applicant’s solicitor wrote Guarantor on 20 August 2015 raising various defects in the demand, including the fact that Clause 1 of the Guarantee required the demand be signed by “duly authorized legal representatives of [Beneficiary]” and sent by registered mail. The letter noted that only Director’s signature was on the demand and the demand was not sent by registered mail. On 9 September 2015, Guarantor’s solicitor wrote to Beneficiary, stating that the demand was defective and offering to place the guaranteed amount in escrow until the dispute was resolved.

On 14 September 2015, Beneficiary sent Guarantor a representation that sought to meet the points raised by the Solicitor’s first letter of refusal. The second demand stated that USD 1,197,117 was due, was signed by the same director, and was sent, notarized, and apostilled in the same manner as the first demand, but it was additionally sent by registered mail.

When no payment was made on the second demand, Beneficiary sued Applicant in England for wrongful dishonor, seeking USD 500,000 plus interest under the first Guarantee demand. The High Court of Justice, Queen’s Bench Division Commercial Court, Cranston, J., granted Beneficiary’s claim under the first demand for USD 500,000 plus interest. The Judge interpreted the application of strict compliance on demand guarantees. The Judge noted that strict compliance does not necessarily apply to demand guarantees and then considered the question of whether the presented documents complied.

Guarantor argued that Beneficiary’s demand failed to include signatures from all authorized representatives of Beneficiary because Director was unable to act solely on behalf of Beneficiary. However, Beneficiary was incorporated in the Netherlands, and is regulated by Dutch Civil Code, which provides that each director is vested with the authority to represent their company. Authority for a director to represent their company can only be restricted by the company. Furthermore, Dutch Civil Code provides that, “management represents the company to the extent that the contrary does not follow from the law.” Based on the Dutch Civil Code, the Judge concluded that Director was authorized to act unilaterally on behalf of Beneficiary.

Although Director was authorized to sign the demand, Guarantor argued that Beneficiary’s document failed to meet the requirements of Clause 2 because the demand did not contain an authentication that Director was authorized to act on behalf of Beneficiary unilaterally, a condition that would have required the Dutch Notary to conduct research to confirm that Director had the right to act on behalf of Beneficiary. However, the Judge rejected Guarantor’s interpretation of Clause 2. The opinion stated that, “the terms for demanding payment under a demand guarantee should be clear and precise.” The Judge stated, “[i]f the Guarantee had required a legal opinion under Dutch law as to [Director’s] powers to make the demand on [Beneficiary’s] behalf, it should have said so expressly.”

Guarantor also contended that, because the first demand was not sent by registered mail as required by the Guarantee, the demand was invalid as it failed to meet a condition precedent. Its position was that “[e]nd results … are nothing to the point.” The Judge disagreed, noting that “this requirement in clause 1 is directory, not mandatory. That is because the guiding principle is one of effective presentation of a demand. The first demand and all its attachments were sent by a variety of means, including couriering. The importance of registered mail is that the communication in question is signed for by the recipient and signature precludes any suggestion that it was not received. In this case there is no question but that the demand and its attachments were received by the [Guarantor]. Presentation of the first demand was effective.”

Texts: The text of the Guarantee as reproduced in the opinion stated:

“The Guarantee was dated 17 September 2012. It provided:

‘We, Compagnie Monegasque de Banque, 23 avenue de la Costa, BP 149 MC 98000, Monaco, Principality of Monaco, registered under no RCI 76 S 1557 hereinafter referred to as ‘the BANK’ hereby guarantee to pay to MUR (hereinafter referred to as ‘the beneficiary’) any and all sums up to a maximum amount of US$500,000 (United States Dollars five hundred thousand) hereinafter referred to as ‘the Guaranteed Amount’) as far as these sums are due and payable by Seatrade to MUR (the ‘Guaranteed Payments’ or as the case may be a ‘Guaranteed Payment’) under or pursuant to the Seamur Agreement provided that the Bank’s obligation under this Guarantee to make a Guaranteed Payment shall arise forthwith upon written demand sent to the bank by way of registered mail to the above mentioned bank’s address. Such demand must be signed by duly authorised legal representatives of MUR certifying in writing that the Charterer has defaulted in its obligation to make the Guaranteed Payment concerned; that the amount claimed under this guarantee is due.

For the purpose of identifying the Legal authorised representatives, the Beneficiary shall provide to the Bank, together with the request for payment, certified copies of MUR’s Extract of Registry and the passport of the signatory signing the request for payment; the request of payment should be authenticate as well as representative’s powers of MUR by a notary and duly apostilled.

The Guarantee was limited to a maximum amount of US$500,000, including interest, fees and accessories: clause 4. It was to operate as an indemnity: clause 5. Under clause 6(a) the Guarantee was valid for up to three years i. e. , 17 September 2015. Any demand had to be received by the Bank on or before that stated expiry date: clause 8. The Guarantee was governed by English law with exclusive jurisdiction being in the English courts: clause 12.”

[AWL/JMC]

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