INTERLEGES

Independent Bank Guarantees in the UK

Independent Bank Guarantees

• About Guarantees

• Types of Guarantees

• International trade and Guarantees

• Fraud exception

• Case Studies

• Q&A

About Guarantees

• Common Law:

1.A creditor

2.A principal debtor

3.A guarantor who undertakes to be liable to the creditor if the principal debtor fails to discharge his obligation.

• Secondary obligation

• Release of guarantee

Types of Guarantees

• On demand guarantee

1.Payable upon demand

2.Unconditional

• Conditional guarantee

1.Payment obligation triggered by non performance of an underlying obligation

International Tradeand Guarantees

• International Trade:

• Guarantees

1.Very rarely guarantees in the “Common Law” sense, ie. secondary obligation.

2.Normally a primary and independent undertaking to pay if the provisions of the guarantee are fulfilled.

3.Autonomous

International Tradeand Guarantees

1. Bank guarantee procured by the buyer:

• Payment protection, ie. “Reliable paymaster”

1. Bank guarantee procured by the seller:

• Protect claim for damages for non- delivery of goods, defective goods etc.

Fraud Exception

• Under a guarantee the guarantor must pay the guaranteed amount once it has been presented with a demand in accordance with the guarantee.

• The guarantor should not concern itself with the underlying contract.

• Exception: fraud. • Three sets of circumstances must be

distinguished in this regard.

Fraud exception• Situation 1:• Fraud is only an allegation or a suspicion

• For example the allegation may be made by the seller or the guarantor suspects fraud.

• In this event the guarantor should pay.

Fraud Exception

• Situation 2:

• Fraud has clearly been established to the satisfaction of the guarantor. For example by way of a forged document.

• But there is no evidence that the beneficiary knew of the fraud.

• The guarantor must still pay

Fraud Exception

• Situation 3:

• The guarantor has positive proof of fraud and that the beneficiary knew of the fraud.

• The guarantor should not pay

Case Studies

• What type of guarantee is it? • Challenges to the guarantee itself• Contesting the demand • The use of injunctions • Recent Royds experience

Q&A

Q & A:Claus AndersenE cka@royds.comStewart WilkinsonE saw@royds.com

Tel: +44 (0) 20 7583 2222 I royds.com