Can I please ask your view.
A guarantee was issued in GBP subject to URDG with the clause that the guarantee will only become effective on payment of x % of the contract value in the amount of GBPxxx.
An advance payment was made but it was made in EUR and not GBP as specified in the guarantee. The EURO advance payment transfer mentioned it was the advance payment and by applying the exchange rate at that time almost one year ago the EURO payment is very very close to the GBP amount stated in the guarantee to be made as the advance payment.
The principal and beneficiary are arguing as to whether the guarantee is effective or not.
The principal says ‘no’ as advance payment not made in GBP as expressly required in the URDG guarantee.
The beneficiary says ‘yes’ as the amount is so close (almost exact) with that stated in the URDG guarantee and as the principal was quite happy to take the money at that time ‘silence means agreement’
Sveta
URDG Guarantee
URDG Guarantee
I do not think it makes any difference whether or not the guarantee was subject to the URDG. The answer can only lie in what the law applicable to the guarantee has to say on the matter. I imagine it would be influenced by how clear the terms of the guarantee were, i.e. did the guarantee make it clear that the payment had to be in GBP?
URDG Guarantee
The guarantee provided in its text:
"THE GUARANTEE SHALL ENTER INTO EFFECT ON CONDITION OF CREDITING ACCOUNT NO XX AT BANK YY WITH THE SUM OF GBPXXXX”
However, despite the guarantee stating it shall enter into effect on payment of an amount of GBP, it happened that the actual payment was made and received in EURO.
But applying the average exchange rate on the day the amounts are basically the same.
Svetlana
"THE GUARANTEE SHALL ENTER INTO EFFECT ON CONDITION OF CREDITING ACCOUNT NO XX AT BANK YY WITH THE SUM OF GBPXXXX”
However, despite the guarantee stating it shall enter into effect on payment of an amount of GBP, it happened that the actual payment was made and received in EURO.
But applying the average exchange rate on the day the amounts are basically the same.
Svetlana
URDG Guarantee
Difficult for me to say with any certainty. I would hope that a court would rule that the pay't had to be GBP.
URDG Guarantee
I would also hope so, as it is really the only clear solution that can be absorbed as applied logic based on the rules, the rules which when applied make the law.
My experience is centred more on LC operations (including Standby LC) and my view is that if the condition stated in the guarantee to make it effective did not happen then the guarantee is not effective.
It is not for me or my banking colleagues to decide if something similar, but not the same is good enough.
The guarantee clearly stated the payment must be in GBP to make it effective but the payment was made and received in EURO.
So I see it simply that as the condition to make the guarantee effective did not happen as specified in the guarantee then the guarantee is not effective against the issuer of the guarantee.
However, one of my colleagues who comes from the ‘guarantee’ school of thought says that in his view it is of ‘immaterial’ consequence if the amounts when cross calculated are basically the same.
It goes against the grain with me to wonder what impacts events outside the guarantee might have.
For example, what if the EURO devalued in the meantime would it still be ‘immaterial’?
Svetlana
My experience is centred more on LC operations (including Standby LC) and my view is that if the condition stated in the guarantee to make it effective did not happen then the guarantee is not effective.
It is not for me or my banking colleagues to decide if something similar, but not the same is good enough.
The guarantee clearly stated the payment must be in GBP to make it effective but the payment was made and received in EURO.
So I see it simply that as the condition to make the guarantee effective did not happen as specified in the guarantee then the guarantee is not effective against the issuer of the guarantee.
However, one of my colleagues who comes from the ‘guarantee’ school of thought says that in his view it is of ‘immaterial’ consequence if the amounts when cross calculated are basically the same.
It goes against the grain with me to wonder what impacts events outside the guarantee might have.
For example, what if the EURO devalued in the meantime would it still be ‘immaterial’?
Svetlana
URDG Guarantee
The relevant articles of URDG are
Article 2 (b) which deals with the separateness or independence of the URDG guarantee:
“Guarantees by their nature are separate transactions from the contract(s) or tender conditions on which they may be based, and Guarantors are in no way concerned with or bound by such contract(s),”
and
Article 6 when deals with when a URDG guarantee enters into effect:
“A Guarantee enters into effect as from the date of its issue unless its terms expressly provide that such entry into effect is to be at a later date OR IS TO BE SUBJECT TO CONDITIONS SPECIFIED IN THE GUARANTEE and determinable by the Guarantor on the basis of any documents therein specified”
I hope this helps.
Regards
Pavel
Article 2 (b) which deals with the separateness or independence of the URDG guarantee:
“Guarantees by their nature are separate transactions from the contract(s) or tender conditions on which they may be based, and Guarantors are in no way concerned with or bound by such contract(s),”
and
Article 6 when deals with when a URDG guarantee enters into effect:
“A Guarantee enters into effect as from the date of its issue unless its terms expressly provide that such entry into effect is to be at a later date OR IS TO BE SUBJECT TO CONDITIONS SPECIFIED IN THE GUARANTEE and determinable by the Guarantor on the basis of any documents therein specified”
I hope this helps.
Regards
Pavel
URDG Guarantee
Based on the summary description of the undertaking, it looks like a non-documentary condition to issuance, which would be ineffective (to be disregarded) under URDG Article 6 (and under ISP98 rule 4.11).
Regards, Jim Barnes
Regards, Jim Barnes