A recent case has highlighted one of the key differences
between guarantees and letters of credit: that the doctrine of
strict compliance applies to letters of credit but not to
guarantees. However, that doesn't mean that a demand under a
guarantee can take whatever form the presenter chooses. Below, we
have identified the key messages from this case that you may come
across in practice.
The decision in MUR Joint Ventures BV ('MUR') v
Compagnie Monegasque De Banque (the 'Bank')  EWHC
In this case, a demand guarantee had been provided by the Bank
to MUR. Two demands for payment were sent to the Bank, which
were rejected on the grounds that they failed to meet three of the
payment criteria, namely;
they were not sent by registered post;
they were signed by a sole representative of MUR; and
the notary did not confirm that the signatory had the power to
act on behalf of MUR
Under English law, the doctrine of strict compliance does not
automatically apply to demand guarantees. It is
possible to expressly require strict compliance
with the form of demand but, in the absence of very clear drafting,
it will not be imposed.
Assessing faulty demands for payment
If a demand for payment does not exactly comply with the terms
set out in the guarantee, a good starting point is considered to
"What is the promise that has been made by the Bank to the
beneficiary and has the beneficiary availed itself of that
It is generally accepted that a demand should contain sufficient
information for a Bank to be able to tell that payment under a
guarantee has fallen due. However, it does not need to follow
the precise wording of the guarantee to the letter (as would be
required for a letter of credit). By way of example, in this
case it was decided that;
the requirement for registered post was a means of ensuring
effective (and proven) delivery and not a condition precedent to
the demand taking effect. Given that notices had been sent by
a combination of email, fax and courier (first demand) and fax,
courier and registered mail (second demand), there was no doubt
that the documents had been received by the Bank. The demand
would not fail for this reason.
the requirement for a demand to be signed by more than one
representative of a presenter can be effective, for example, if a
guarantee stipulates that a demand 'should be signed by not
less than two' of a presenter's representatives.
However, in the Bank's document, there were inconsistencies in
drafting which referred on some occasions to the demand being
signed by only one person. Accordingly, the clause was
interpreted as meaning that the demand had to been signed by
someone who was legally authorised to represent the presenter.
there were also drafting issues with the wording of the clause
which the Bank claimed required the notary to confirm that the
signatory was duly authorised to sign the demand on behalf of the
presenter. Had the guarantee explicitly required a legal
opinion to that effect, the term would have been enforced. As
it was, the court gave the drafting its 'natural meaning'
(in accordance with the principles of construction of contractual
terms) and concluded that the function of the notary was to
identify the signatory and not to pass judgment on the contents of
the demand document.
Better to be precise
If the terms and conditions for demanding payment under a
guarantee are clear and precise, the courts will apply their
natural meaning and enforce them. However it is worth bearing
in mind that there is no automatic requirement for strict
compliance with the wording of a guarantee and accordingly a demand
that fails to meet its requirements to the letter cannot
automatically be disregarded.
If you have any concerns about whether the Bank is required to
make payment in any given situation we would recommend that you
take advice and would be pleased to help you.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
We will start the morning looking at developments in the two years since the introduction of the Public Contracts Regulations 2015. We will go through some of the key themes and issues which have arisen on the new rules, including post-contract variations; the new Selection Questionnaire; incomplete submission of bids; and (of course) Brexit.
Next, our experts will look at procurement challenges/disputes, in particular issues such as standing to bring a claim, disclosure of documents and current trends, in light of recent case law including EnergySolutions EU Ltd v Nuclear Decommissioning Authority.
We will finish with a practical workshop where we will invite attendees to consider and discuss various public procurement issues. We will draw on experience from within the room to identify pragmatic solutions to sometimes very difficult situations.
The European Commission's Regulation on indices used as financial benchmarks in financial instruments and financial contracts forms part of the EU's response to a series of high profile investigations in recent years...
The Prudential Regulation Authority's (PRA) consultation paper on "Refining the PRA's Pillar 2A capital framework" (CP3/17) introduces revisions to the assessment of capital requirements for credit risk.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).