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Bertrams, Roeland F., Bank Guarantees in International Trade, 4th Edition 2013

Bertrams, Roeland F., Bank Guarantees in International Trade, 4th Edition 2013


2.1 Indepence

2-1 An essential feature of guarantees, as this term is used in this study, is their independence (or autonomy) from the principal (or underlying or secured) contract.1 Although the purpose of a guarantee is to indemnify the creditor/beneficiary for losses resulting from the principal debtor (applicant)’s default in the underlying relationship, the beneficiary’s right to claim payment under the guarantee is to be determined solely by reference to the terms and conditions as specified in the guarantee, and the bank cannot invoke defences derived from the principal contract, cf. Article 5(a) Uniform Rules for Demand Guarantees (URDG), Rule 1.06 and 2.01(a) International Standby Practices (ISP98) and Article 2 UNCITRAL Convention.2 The question of whether or not the principal debtor (applicant) has failed to comply with his obligations and whether or not the creditor/beneficiary is entitled to payment as measured by the underlying relationship, is not a relevant issue between bank and beneficiary. Accordingly, once the terms and conditions of the guarantee are met, the beneficiary/creditor is entitled to claim payment, and he need not show default in any other way than that prescribed by the terms of the guarantee.

One must, however, bear in mind that as far as the principal debtor/applicant and creditor/beneficiary are concerned, the true significance of the principle of independence depends entirely on the particular type of conditions of payment. For example, if the guarantee is payable on first demand, the beneficiary is entitled to payment forthwith without any condition or requirement other than making the demand for payment. Accordingly, the bank must proceed to payment, and the principal debtor/applicant must reimburse the bank, without the slightest item of substantive evidence concerning the principal debtor’s default. First demand guarantees are, therefore, markedly different from the traditional suretyship (or accessory guarantee). However, if the guarantee is payable on submission of a judicial or arbitral award establishing the principal debtor’s breach of contract, the principle of independence is of little practical significance, and the actual difference between that type of guarantee and suretyship is negligible. The relationship between independence and the selected payment mechanism is examined in Chapter 4.


The rule of independence is limited by the exception of fraud. As a matter of fact, the earliest decisions on guarantees recognised both the independent nature of guarantees, in particular of first demand guarantees, and the exception in the case of fraud.3 The scope of the concept of fraud and especially the actual application of the juridical patterns which have evolved over time to actual cases, is examined in Chapters 14-16.


10.8.4 Strict compliance

10-21 As with documentary credits, compliance also means that the conditions of the guarantee must have been strictly complied with. It is perhaps surprising that this major principle is not explicitly stated in the URDG63 ISP9864 or UNCITRAL Convention,65 but has been developed in case law and legal writing.66

The purpose of the strict compliance rule is twofold. It protects the applicant as by specifying the conditions of payment, he intimates under what circumstances he is or is not prepared to accept the risk of payment, although no payment might have been due on the basis of the underlying contract. It is the bank’s duty towards the applicant to ensure that the condictions of payment have been strictly observed, and failure in this respect renders the bank liable to the applicant. At the samte time and more importantly, the rule of strict compliance serves the interests of the bank, since it has the distinct advantage of clarifying and facilitating its position. In fact, the principle of strict compliance has evolved in banking practice and has subsequently been endorsed in case law and legal writing. When the terms and conditions have not been strictly complied with, for example if the documents submitted are at variance with the prescribed documents, or if the required statement of default has not been presented or if the demand for payment has been made shortly after the expiry date, the bank knows that payment is to be refused and there is no need to apply its judgment as to whether the interests of its customer would or would not be impaired or whether the discrepancies are material. The requirement of strict compliance also avoids the risk to the bank of becoming involved in differences of opinion between the parties to the underlying contract. Thus, the rule of strict compliance greatly faliciates the performance of the duties of the bank, which also helps to reduce the costs of its services.67 On the other hand, the doctrine of strict compliance should not be allowed to produce results which are manifestly unreasonable or absurd.68

1See ch. 1, para 1-2 for the terminology used in this stud (guarantee means 'independent guarantee', aus opposed to the 'accessory guarantee'/'suretyship')
2Expressis verbis: CA Antwerp, 6. December 2006, RW 2008-9, p.370, nr. 17.
3See, for early examples, the Netherlands: CA Amsterdam, 30 March 1972, NJ 1973, 188; Rb Amsterdam, 18 December 1980, S & S 1981, 135: Rb Amsterdam, 19 March 1981, KG 1981, 30; Rb Amsterdam, 14 May 1981, KG 1981, 71. Germany: LG Frankfurt a.M., 11 December 1979, NFW 1981, p. 56; LG Braunschweig, 22 May 1980, RIW 1981, p. 789; OLG Saarbriicken, 23 January 1981, RIW 1981, p. 338; BGH, 12 March 1984 (ll ZR 198/82), NIW 1984, p. 2030. France: Riom, 14 May 1980, D. 1981 J. p. 336;, Paris, 24 March 1981, and 5 May 1981, D. 1981 J. p. 482; Paris, 12 February 1982, D. 1982 J. p. 504. Belgium: Brussels, 15 January 1980, ICB 1980, p. 147; Brussels, 23 December 1980, Rev. Banque 1981, p. 627; Brussels, 11 March 1981, BRH 1981, p. 361; Brussels, 18 December 1981, Rev. Banque 1982, p. 99. United Kingdom: R.D. Harbottle (Mercantile) Ltd. v. Nat. Westminster Bank Ltd., [1977] 2 All E.R. 862; Edward Owen Engineering Ltd. y. Barclays Bank Int. Ltd. [1978] 1 All E.R. 976; Howe Richardson Scale v. Polimex-Cekop, [1978] 1 Lloyd’s Rep. 161.
63While indeed not expressly stated, the principle of strict compliance does apply to demands for payment under the URDG, see Affaki/Goode, nr. 359 and ch. 4, nr. 19.5,
64The ISP98 Commentary at Rule 4.01 notes that this Rule avoids the term ‘strict compliance’ because it is a crude and abstract formulation of the standard of examination.
65Numerous statements in the UNCITRAL documents put beyond doubt, however, that compliance means strict compliance, see for example doc. A/CN.9/316, p. 27; A/CN.9/330, p. 18; A/CN.9/330, p. 18; A/CN.9/WG.II/WP.63, p. 5; and A/CN.9/WG.II/WP.68, p. 15.
66See, for example, BGH, 12 March 1984, NJW 1984, p. 2030; BGH, 23 January 1996, WM 1996, p. 393; BGH, 12 March 1996, WM 1996, p. 770; BGH, 10 October 2000, WM 2000, p. 2334; BGH, 26 April 2001, WM 2001. p. 1208; OLG Hamburg, 7 July 1977, WM 1978, p. 260; OLG Stuttgart, 25 January 1979, RIW 1980, p 729; OLG Karlsruhe, 21 July 1992, RIW 1992, p. 843; Cass. 5 February 1985, D.1985 J. p. 269; Cass. 24 March 1992, D. 1993 Somm. p. 99; HR, 9 June 1995, NJ 1995, 639; CA Amsterdam, 27 February 1992, NJ 1992, 735; HR 26 March 2004, JOR 2004, 153 (but see para. 10-22); Brussels, 27 July 1984, RDC 1984, p. 567; Brussels, 4 January 1989, TBH 1990, p. 1073; Brussels, 15 December 1992, RDC 1993, p. 1055; Brussels, 26 June 1992, RDC 1994, p. 51; Brussels, 5 February 1996, RW 1996/1997, p. 1263; CA Antwerp, 6 December 2006, RW 2008-09, p. 370; OG Austria, 24 March 1988, JIBL 1988 N-154; Lorne Stewart. PLC v. Hermes Kreditversicherung AG, [2001] All ER (D) 286. See also the case law mentioned in para. 10-22. See also von Westphalen, p. 186; Canaris, No. 1107, 1109; Dohm, No. 203: Nielsen. p. 82; and ZHR 1983, p. 150; Jack/Malek/Quest, no, 12.70-72.
67See for this aspect especially Dolan, § 6.02/3.
68See also ch. 13, paras. 13-12 and 13-13.

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