Vorwort

Fast zehn Jahre sind seit dem Erscheinen der dritten Auflage unseres Buches vergangen. Herausgeber und Autoren haben es daher sehr begrüßt, dass der Verlag sich entschieden hat, nunmehr in wesentlich ergänzter und überarbeiteter Form die 4. Auflage dieses Handbuchs vorzulegen. Nach wir vor ist ja die praktische Bedeutung einer auf erstes Anfordern zahlbar gestellten Bankgarantie für den gesamten, immer weiter globalisierten Handelsverkehr sehr hoch; sie kann nicht überschätzt werden. Erkennbar ist diese wachsende Bedeutung auch in dem Bestreben der ICC, neue „Uniform Rules for Demand Guarantees“ (URDG Nr. 758) vorzulegen, um auch auf diese Weise die Tendenzen zu einer Rechtsvereinheitlichung zu fördern und der Praxis Hilfestellungen zu geben.

Die rechtliche und auch praktische Beurteilung der URDG Nr. 758 nimmt daher auch in der hier vorliegenden Auflage einen gewichtigen Raum ein. Umrankt wird diese Darstellung neben der wissenschaftlichen Durchdringung dieses Instruments vor allem durch eine – gegenüber der Vorauflage – erweiterte Darstellung der Rechtslage betreffend die (abstrakte) Bankgarantie in anderen Rechtsordnungen. Länderberichte betreffend Frankreich, Italien und Spanien sind hinzugekommen. Damit sind neben Deutschland und Österreich, der Schweiz, den Niederlanden und Großbritannien alle für den deutschen Export wesentlichen Rechtsordnungen erfasst. Soweit möglich wurden auch Formulare als Muster für die Abfassung einer Bankgarantie unterbreitet, um so den praktischen Nutzen des Buches zu erhöhen.

Die Herausgeber danken in erster Linie den kundigen Mitautoren, die umfassend die in ihren Ländern bestehende Rechtslage keineswegs nur kursorisch dargestellt haben. Herzlicher Dank gebührt auch dem Verlag, hier insbesondere der jederzeit geduldigen, aber überaus versierten Lektorin, Frau Tanja Brücker, für die vielfältige und umsichtige Unterstützung.

So hoffen wir, dass auch die neue Auflage dieses Handbuchs in Wissenschaft und Praxis freundliche und wohlwollende Aufnahme finden möge. Für kritische Hinwiese aus der Praxis sind wir, aber auch die Mitautoren jederzeit dankbar.

Köln und Wien, im Juli 2014

Die Herausgeber

Bearbeiterverzeichnis

Kapitel A.–H. (Deutschland)

Prof. Dr. Friedrich Graf von Westphalen

Kapitel I. (Österreich)

Prof. Dr. Brigitta Zöchling-Jud

Kapitel J. (Schweiz)

Dr. iur. Nicolas de Gottrau, LL.M.

Kapitel K. (England)

Jennifer Howitt

Kapitel L. (Holland)

Tom Ensink, LL.M.

Kapitel M. (Frankreich)

Louis B. Buchman

Kapitel N. (Italien)

Prof. Stefano Troiano

Kapitel O. (Spanien)

Prof. Dr. Pedro Portellano

Abkürzungsverzeichnis

a.A.

anderer Ansicht

a.a.O.

am angegebenen Ort

ABB

Allgemeine Bedingungen für Bankgeschäfte 2001

ABGB

Allgemeines Bürgerliches Gesetzbuch, JGS 946/1811 i.d.F. BGBl. I 77/2004

Abs.

Absatz

AcP

Archiv für die civilistische Praxis

AG BS

Appellationsgericht Basel-Stadt

AGB

Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen

Anh.

Anhang

Anm.

Anmerkung

Art.

Artikel

Aufl.

Auflage

AWD

Außenwirtschaftsdienst des Betriebs-Beraters

AWG

Außenwirtschaftsrecht

BB

Betriebs-Berater

Bd.

Band

BGE

Amtliche Sammlung der Entscheide des Schweizerischen Bundesgerichts, Lausanne

BGer

Schweizerisches Bundesgericht

BGH

Bundesgerichtshof

BJM

Basler Juristische Mitteilungen, Basel

BR

Baurecht, Zürich

BuB

Bankrecht und Bankpraxis

BWG

Bankwesengesetz, BGBl. 639/1993 i.d.F. BGBl. I 70/2004

bzw.

beziehungsweise

cdbf

Centre de droit bancaire et financier der Universität Genf

CJ GE

Cour de Justice, Genf

d.h.

das heißt

DB

Der Betrieb

ders.

derselbe

E.

Erwägung(en)

EGBGB

Einführungsgesetz zum Bürgerlichen Gesetzbuch

ERA

Einheitliche Richtlinien und Gebräuche für Dokumenten-Akkreditive

ERAG

Einheitliche Richtlinien für auf Anfordern zahlbare Garantien, Publikation Nr. 458 der IHK, in Kraft getreten am 1.1.1993

ERI

Einheitliche Richtlinien für das Inkasso von Handelspapieren

etc.

et cetera

EvBl

Evidenzblatt der Rechtsmittelentscheidungen in Österreichische Juristenzeitung

EWiR

Entscheidungen zum Wirtschaftsrecht

f.

folgende

ff.

fortfolgende

Fn.

Fußnote(n)

Formular IHK

Musterformulare für die Ausstellung von auf Anfordern zahlbaren Garantien, im Anhang zu den Einheitlichen Richtlinien der IHK für auf Anfordern zahlbare Garantien (Publikation Nr. 458 der IHK), Publikation Nr. 503 der IHK, veröffentlicht 1994

FS

Festschrift

ggfs.

gegebenenfalls

GS

Gedächtnisschrift

h.A.

herrschende Ansicht

h.L.

herrschende Lehre

HG ZH

Handelsgericht des Kantons Zürich

HGB

Handelsgesetzbuch

Hrsg.

Herausgeber

HS

Handelsrechtliche Entscheidungen

i.d.F.

in der Fassung

i.d.R.

in der Regel

i.f.

in fine

i.i.

in initio

i.S.d.

im Sinne des

IHK

Internationale Handelskammer

IPR

Internationales Privatrecht

IPRax

Praxis des Internationalen Privat- und Verfahrensrechts

IPRG

Bundesgesetz über das Internationale Privatrecht vom 18.12.1987 (SR 291)

IPRG

Bundesgesetz vom 15. Juni 1978 über das Internationale Privatrecht, BGBl. 304/1978 i.d.F. BGBl. I 58/2004

JBl

Juristische Blätter

JT

Journal des Tribunaux, Lausanne

JuS

Juristische Schulung

JZ

Juristenzeitung

Lit.

Literatur

lit.

littera

LugÜ

Übereinkommen über die gerichtliche Zuständigkeit und die Vollstreckung gerichtlicher Entscheidungen in Zivil- und Handelssachen vom 30.10.2007 (SR 0.275.12)

m.E.

meines Erachtens

m.w.N.

mit weiteren Nachweisen

NJW

Neue Juristische Wochenschrift

Nr.

Nummer(n)

NRCP

Nuova rivista di diritto commerciale e processuale, Lugano

NZ-K

Kartei in Außerstreitsachen in Österreichische Notariatszeitung

ÖBA

Österreichisches Bank-Archiv

ÖBl

Österreichische Blätter für gewerblichen Rechtsschutz und Urheberrecht

OG TI

Obergericht (Tribunale d’Appello) des Kantons Tessin

OG ZH

Obergericht des Kantons Zürich

OGH

Oberster Gerichtshof

ÖJZ

Österreichische Juristenzeitung

OLG

Oberlandesgericht

OR

Bundesgesetz betreffend die Ergänzung des Schweizerischen Zivilgesetzbuches (Fünfter Teil: Obligationenrecht) vom 30.3.1911 (SR 220)

ÖZW

Österreichische Zeitschrift für Wirtschaftsrecht

QuHGZ

Quartalshefte der Girozentrale

RabelsZ

Rabels Zeitschrift für Internationales Recht

RdW

Österreichisches Recht der Wirtschaft

RG

Reichsgericht

RGRK-BGB

Kommentar zum BGB, herausgegeben von Reichsgerichtsräten und Bundesrichtern

RGRK-HGB

Kommentar zum HGB, herausgegeben von Reichsgerichtsräten und Bundesrichtern

RIW

Recht der Internationalen Wirtschaft

RIW/AWD

Recht der Internationalen Wirtschaft/Außenwirtschaftsdienst des Betriebs-Beraters

Rn.

Randnummer

Rspr.

Rechtsprechung

RZ

Österreichische Richterzeitung

s.

siehe

S.

Seite(n)

SAG

Schweizerische Aktiengesellschaft (= La société anonyme suisse) (seit 1990: SZW), Zürich

SchKG

Bundesgesetz über Schuldbetreibung und Konkurs vom 11.4.1889 (SR 281.1)

SJ

La Semaine Judiciaire, Genf

SJZ

Schweizerische Juristen-Zeitung (= Revue Suisse de Jurisprudence), Zürich

SR

Systematische Sammlung des Bundesrechts

SZ

Entscheidungen des österreichischen Obersten Gerichtshofes in Zivilsachen

SZW

Schweizerische Zeitschrift für Wirtschaftsrecht (= Revue suisse de droit des affaires) (bis 1989: SAG), Zürich

TC VD

Cour civile du Tribunal cantonal vaudois

u.v.m.

und viele mehr

UNCITRAL

Kommission der Vereinten Nationen für Internationales Handelsrecht

URDG

Einheitliche Richtlinien für auf Anfordern zahlbare Garantien, Publikation Nr. 758 der IHK, in Kraft getreten am 1.7.2010

v.

versus

vgl.

vergleiche

wbl

Wirtschaftsrechtliche Blätter (ab 1996)

WBl

Wirtschaftsrechtliche Blätter (bis 1995)

WuB

Entscheidungssammlung zum Wirtschafts- und Bankrecht

z.B.

zum Beispiel

ZBB

Zeitschrift für Bankrecht und Bankwirtschaft

ZfRV

Zeitschrift für Rechtsvergleichung

ZG BS

Zivilgericht Basel-Stadt

ZGB

Schweizerisches Zivilgesetzbuch vom 10.12.1907 (SR 210)

Ziff.

Ziffer(n)

ZPO

Schweizerische Zivilprozessordnung vom 19.12.2008 (SR 272)ZR

Blätter für Zürcherische Rechtsprechung, Zürich

ZSR

Zeitschrift für Schweizerisches Recht (= Revue de droit suisse), Basel

Kapitel A.
Funktion und Unterscheidungsformen der Bankgarantie

Graf von Westphalen

1

Neben dem Dokumenten-Akkreditiv als Zahlungsmittel ist die auf „erstes Anfordern“ zahlbar gestellte Bankgarantie das wichtigste Sicherungsinstrument des internationalen Handels- und Wirtschaftsverkehrs.1 Deshalb ist es geboten, zunächst ihre Funktion näher zu beleuchten, um auf diese Weise das Verständnis dieses Instruments in tatsächlicher und rechtlicher Hinsicht zu vertiefen.

Kapitel B.
Wesensmerkmal und Rechtsnatur der Bankgarantie – Abgrenzung gegenüber ähnlichen Erscheinungsformen

Graf von Westphalen

Kapitel C.
Das Rechtsverhältnis: Bank – Begünstigter bei einer Direktgarantie

Graf von Westphalen

Kapitel D.
Rechtsverhältnis: Bank-Begünstigter im Fall einer „indirekten“ Garantie

Graf von Westphalen

1

Von einer „indirekten“ Garantie ist immer dann die Rede,1 wenn die auf Veranlassung des Garantieauftraggebers zu erstellende Bankgarantie nicht unmittelbar von der Hausbank des Garantieauftraggebers (Erstbank) gegenüber dem Begünstigten hinausgelegt, sondern wenn die Garantieverpflichtung von einer – regelmäßig im Ausland domizilierenden – Bank (Zweitbank) gegenüber dem Begünstigten erstellt wird.2 Ob man hier, wie Nielsen 3 vorgeschlagen hat, zweckmäßigerweise von einer „mittelbaren Garantiestellung“ reden sollte, mag dahinstehen. Der Begriff „indirekte Garantie“ hat sich nämlich eingebürgert.4 Und der damit verknüpfte Begriffsinhalt ist ausreichend klar konturiert: Der Garantieauftraggeber – im Außenhandel regelmäßig: der deutsche Exporteur – erteilt seiner Hausbank (Erstbank) den Garantieauftrag, zugunsten seines Vertragspartners, des Begünstigten, eine Garantie zu erstellen, die – wie stets – auf dem Inhalt des Grundvertrages zwischen Garantieauftraggeber und Begünstigtem beruht. Die derart beauftragte deutsche Erstbank erteilt sodann – inhaltsgleich in den Grunddaten – einer ausländischen Zweitbank einen entsprechenden Garantieauftrag, zugunsten des Begünstigten die notwendige Direktgarantie zu erstellen.5 Dass sich auf diesem Weg das Risiko für den Garantieauftraggeber erhöht,6 sei nicht verschwiegen,7 wird aber im Lauf der nachfolgenden Darstellungen immer wieder hervorgehoben werden. Denn es findet eine Rechts- und Risikoverlagerung ins Ausland statt.8

Kapitel E.
Maßnahmen des einstweiligen Rechtsschutzes

Graf von Westphalen

Kapitel F.
Kollisionsrechtliche Problemstellungen

Graf von Westphalen

1

Bankgarantien, welche auf „erstes Anfordern“ des Begünstigten im internationalen Handelsverkehr Verwendung finden, weisen grundsätzlich einen internationalen Tatbestand auf: Problemlösungen auf Basis des internen deutschen Rechts reichen deshalb nicht aus. Vielmehr ist es stets geboten, die kollisionsrechtlich erforderlichen Antworten mitzuliefern; diese sollen nachfolgend kurz aufgezeigt werden.1

Kapitel G.
Rechtsverhältnis zwischen Garantieauftraggeber und Garantiebank

Graf von Westphalen

Kapitel H.
Versuche internationaler Vereinheitlichungen

Graf von Westphalen

1

In den vergangenen Jahren haben vor allem die ICC,1 aber auch die UNCITRAL2 den Versuch unternommen, die besonders drängenden Probleme der auf „erstes“ Anfordern zahlbaren Bankgarantie im Wege der Vereinheitlichung zu lösen. Das war bislang nicht von sonderlichem Erfolg gekrönt; die URCG 325 und URDG 458 konnten sich nicht so recht in der Praxis durchsetzen. Daher sollen hier die „Rules on Contract Guarantees“ (URDG 458) und die „Rules on International Standby Practices“3 – ISP 98 – nur kurz angesprochen, sozusagen kursorisch dargestellt werden. Das Schwergewicht der nachfolgenden Ausführungen liegt auf der Erörterung der „Uniform Rules on Demand Guarantees“ der ICC-Publikation Nr. 758 (URDG).4 Auf einige Besonderheiten dieser Richtlinie wurde im Vorstehenden an geeigneter Stelle auch immer wieder hingewiesen.

Kapitel I.
Die Bankgarantie im österreichischen Recht

Prof. Dr. Brigitta Zöchling-Jud *

Kapitel J.
Die Bankgarantie im schweizerischen Recht

Rechtsanwalt Dr. iur. Nicolas de Gottrau, LL.M., Genf *

Kapitel K.
First demand guarantees in international trade under English law

Jennifer Howitt

1

Bonds and guarantees are used in both the domestic and international contexts as a means of obtaining payment under or performance of contracts, in the event that another person fails to do so.

2

In the international trade context, often the person who has benefit of a bond is the buyer; it is the seller’s obligations under the contract which is being protected. However, it must be noted that in an international trade contract, it could be either party who gets to benefit from the bond.

1. The parties and documents involved

3

In a typical international trade context, the parties involved can be illustrated in the following example (Fig. 1):

img

Fig. 1: unconfirmed instrument

4

In this simple scenario, S and B concluded a goods sale and purchase contract between them. Under the contract, the parties would have agreed a payment method. It could range from having an open account with S (where B will not pay for anything until it has received the goods from S), to cash in advance (where B pays the price upfront, before it receives any goods from S), and the use of documentary credits somewhere in between.

5

As extra reassurance to B that S will honour the contract, S has requested that a bond be issued in B’s favour, so that if S fails to deliver the goods, B will have recourse to the bond for a sum of money which could be used to find alternative sellers, for example.

6

S therefore asks its bank (S’s Bank) to issue this bond in B’s favour. As protection against having to pay under the bond, S’s Bank requires that S gives it a counter-indemnity, which will be called upon if payment has to be made under the bond.

7

In the above simple situation, the bond is an unconfirmed instrument.

img

Fig. 2: confirmed instrument

8

Fig. 2 shows a slightly more complicated scenario, where B prefers to use its own bank in its country. This is common in international contracts, where B wants an instrument from a bank in its home country, so as to avoid having to pursue a foreign bank (with all the usual difficulties, starting with different banking hours, unfamiliar laws and possibly foreign exchange risks).

9

Therefore, in this case, S instructs S’s Bank to request B’s Bank to issue the instrument direct to B. S’s Bank becomes the “instructing bank” and B’s Bank is the “issuing bank”. Just as in the case of a normal trade letter of credit, the bond is a confirmed instrument, much like the confirmed credits in documentary credit relationship.

10

B’s Bank will of course want to be protected against any payments and losses it may suffer if B makes a call. B’s Bank therefore obtains a counter-indemnity from S’s Bank, which will contain the same obligations as in the bond to B.

11

In both of these cases, each of the relationships in the chain is independent of the others, i.e. just as the bond is independent of the underlying goods contract, so are the counter-indemnities independent of the bond. Therefore, and depending on the wording of the instrument concerned, it may be perfectly justifiable for B’s Bank to call for payment from S’s Bank under the counter-indemnity, even if B’s Bank had not yet paid under the bond. This will then trigger a call by S’s Bank for a reimbursement from S pursuant to the counter-indemnity.

12

This means that the more parties there are to the chain, the less control S has over when and what payment it has to make, apart from, perhaps, the fee payable to its own bank. Whether S is prepared to take on these extra risks will depend on its assessment of the credit-worthiness and reputation of the banks involved and, ultimately, whether B can be trusted not to submit an unjustifiable demand.

2. Situations where bonds are used

2.1 Performance Bonds

13

These ensure that if a seller fails to perform its side of the contract, the buyer can call on the bond to be paid a certain sum, typically a percentage of the contract price. It should be noted that, unlike bonds that are sometimes issued by surety companies, these bonds issued by banks are purely financial payment bonds – the bank is not promising to procure the performance of the original contract in any way. Instead the buyer has to use the sum it receives to either find an alternative seller, or at least be compensated for the loss and inconvenience it has suffered.

This is the kind of bond in the scenario described in Figs. 1 and 2 above.

2.2 Bid or Tender Bonds

14

These are given to support a seller’s tenders to supply goods or services to a buyer. They indicate that the seller will not withdraw their bid before the final decision is made, and is serious in their interest in the project. Frequently these bonds cover a certain percentage of the value of the bid, and remain valid for a few months after the bid closure date.

2.3 Advance Payment and Progress Payment Bonds

15

This protects a buyer who has made advance payment under the contract, i.e. it has paid the seller before it has received the goods. In the event that the seller does not perform its part under the contract, the money paid in advance will be refunded to the buyer.

16

It would be advisable to introduce into the bond (a) a clause to make the bond effective only if the seller receives the advance payment, and (b) another clause to reduce the amount payable under the bond in stages, corresponding to the stages of the seller’s performance of the contract.

2.4 Retention Bonds

17

If the buyer receives retention monies under the contract – for example to ensure that the seller’s performance is satisfactory – these monies would normally be held by the buyer for a certain period.

18

The alternative to having the monies locked up in this way would be to offer the buyer a retention bond, so that the retention monies can be released early. In the event that the seller did not perform the contract satisfactorily, the monies released to it can be repaid back to the buyer under the bond.

3. Terminology

19

Before we discuss the detailed rules governing these instruments, it is necessary to untangle some of the confusion that has arisen because of the lack of consistency in which certain terms have been used. Confusingly, “guarantee”, “bond”, “surety contract”, “standby letter of credit” are just a few of the terms that are often used interchangeably. However, in a legal sense they mean different things.

3.1 Guarantees

20

In its original sense, guarantees are surety contracts, where the guarantor/surety (in this chapter, for ease of reference called the “issuer”) assumes the liability to perform or pay to a person (“beneficiary”) in the event that another person (the “principal”) fails to do so under the contract between the principal and the beneficiary.

21

In this sense, the issuer’s liability is secondary in nature, since it will not be liable unless and until the principal has defaulted. A guarantee/surety contract may include wording like this:

“The Guarantor guarantees to pay [the Beneficiary] within 14 days of written demand all monies which are now or in future shall become due or owing by [the Principal] to [the Beneficiary] under or in connection with [the contract], PROVIDED THAT demand on the Guarantor can only be made at any time following [the Beneficiary’s] written demand on [the Principal] pursuant to [the contract] and such demand not being satisfied or otherwise being contested in good faith by [the Principal].”

3.2 Indemnities as primary obligations

22

Nowadays, most “guarantees” are, in truth, indemnities rather than guarantees in the true sense of the word. They state that the guarantor is a “primary obligor”, with wording such as the guarantor is a “primary obligor and not merely a surety”. These clauses are intended by the parties to create a primary undertaking on the part of the guarantor. True guarantees, on the other hand, create only secondary obligations.

23

The indemnity wording may look like this:

“The Guarantor, as a principal and as a separate and independent obligation and liability from its obligations and liabilities under clause [ ] ([the guarantee clause]), irrevocably and unconditionally agrees to indemnify the Beneficiary in full on demand against all losses, costs and expenses suffered or incurred by the Beneficiary arising from or in connection with any of:

(a) the Beneficiary entering into [the contract];

(b) any of the provisions of [the contract] being or becoming void, voidable, invalid or unenforceable; or

(c) the failure of the Principal to perform fully and promptly any of its obligations to the Beneficiary under [the contract].

The Guarantor shall also indemnify and keep indemnified the Beneficiary (to the extent not otherwise indemnified under this Guarantee) on demand by the Beneficiary against all losses, actions, claims, costs, charges, expenses and liabilities suffered or incurred by the Beneficiary in respect of this Guarantee (including the costs,

charges and expenses incurred in the enforcement of any of the provisions of this Guarantee or occasioned by any breach by the Guarantor of any of its obligations to the Beneficiary under this Guarantee).”

24

An indemnity therefore creates an independent and separate obligation, the enforceability of which does not depend in any way to the default or otherwise of the principal, nor even the validity and legality of the terms of the principal’s liabilities.

3.3 Counter-indemnities

25

Confusingly, “indemnity” can also mean a stand-alone promise to make good the losses suffered by someone. In this sense, it is also sometimes known as a “counter-indemnity”, as is shown in Figs. 1 and 2 above.

26

Banks often use their own standard form of counter-indemnity. Most will contain much more than an obligation on S’s part to reimburse. They may say, for instance, that (i) the bank shall not be responsible for anything it does or fails to do in relation to the issue and maintenance of the guarantee, (ii) the bank is authorised to pay without having to first verify with the customer whether the claim is justified, and even (iii) the bank may, without notice, deduct monies sitting in the customer’s account to reimburse itself immediately.

27

Clearly the terms of such counter-indemnities are harsh on principals, but in reality, few principals will have a choice but to accept these almost industry-wide terms. That said, one can always ask the bank to deviate from its usual practice – for instance, by giving the principal prior notice before monies are deducted from an account, so that at least the principal can plan its cash-flow. This is especially worth trying if there is an on-going relationship between the principal and the bank, which the bank will not want to jeopardise.

28

Counter-indemnities may be secured or unsecured. S’s Bank may conclude that the reputation and balance sheet of S are good enough, in which case it need not insist on extra security. On the other hand, it may conclude that there is a need for further security, be it in the form of cash cover, a personal guarantee from a director or shareholder, a charge on the company’s assets, or even security from a third party.

29

Having to arrange and provide security obviously adds to the time and cost needed to have the bank guarantee issued. It also means that assets will be tied up with this one bank, and thus not be available to support the principal’s other borrowing needs. If the security is to be given by a third party which is an English company, the issue will be further complicated by the question of whether the third party would derive any commercial benefit for itself in giving security. This is an area too complex to be dealt with here, but the bank will certainly require extra time and further legal advice to ensure that any security given will be valid.

3.4 Bonds/on demand bonds/demand guarantees

30

These three terms are often used interchangeably, to refer to a primary obligation on the issuing entity to pay; the beneficiary of the bond does not have to prove that the principal is at fault (even though it may, of course, had been), nor does it have to take action against the principal before it makes demand. Hence the phrase “on demand”.

31

This chapter only deals with on-demand instruments, i.e. instruments which create a primary obligation on the issuer. Therefore references to “bond” or “guarantee” shall equally refer to such instruments, rather than to a guarantee in the true sense of the word, which create a secondary obligation on the issuer.

32

Bonds are a relatively recent phenomenon – their use started in the 1970’s and appears to have originated from contracts with an international element, where the buyer and seller see them as a way to overcome legal and language barriers. They are now common in international contracts.

33

These on-demand documents are undertakings which are documentary in nature – in this sense, they are similar to documentary credits – payments under which are subject only to the presentation of a written demand and any other documents specified in the document itself. The issuer is not concerned with the default or otherwise of the principal.

34

Bonds and demand guarantees are usually issued by banks, insurance companies and specialist surety companies, at the request of their customers, to secure the performance or payment of the customer’s obligations under its contract with the beneficiary. Confusingly, instruments issued by banks are often called “guarantees”, even though they are in fact on-demand bonds in legal effect. On the other hand, instruments issued by surety companies are often called “bonds”, but are, in terms of legal effect, guarantees which create secondary obligations.

35

An example of a bank “guarantee” (i.e. in actual legal effect, an on-demand bond) is shown below:

To [Beneficiary]

[address]

[Date]

Dear Sirs

Performance Guarantee No.: .......

We refer to a contract reference [ ] dated [ ] (the “Contract”) made between yourself and [name and address of the principal] (the “Contractor”) in relation to [details of underlying contract] and that under the terms of the Contract a performance guarantee is required to be obtained by the Contractor for £[ ] for the due and punctual performance of the Contract.

In consideration of the above, we [name of issuing bank] HEREBY irrevocably and unconditionally guarantee as the primary obligor the payment to you on your first written demand of an amount or amounts not exceeding in aggregate £[maximum amount of the Guarantee] provided that your claim complies with the provisions of this guarantee.

This guarantee shall expire at [ ] a.m./p.m. on [date] (“Expiry”).

Your claim under this guarantee must be received at this office before Expiry and must contain your signed statement that the Contractor has failed to fulfil the terms and conditions of the Contract and as a result of such failure, the amount claimed is due to you, and must specify in what respects the Contractor has so failed and the amount claimed. We shall accept such claim and statement as evidence for the purposes of this guarantee that the amount claimed is due to you.

Upon Expiry, this guarantee shall become null and void, whether returned to us for cancellation or not, and any claim or statement received afterwards shall be ineffective.

This guarantee is not transferable or assignable. Nothing in this guarantee shall confer on any third party any benefit or the right to enforce any term of this guarantee.

This guarantee is governed by and shall be construed in accordance with English law and only English courts shall have jurisdiction over disputes in relation to this guarantee.

Yours faithfully

[Issuing Bank]

36

An example of a surety company “bond” is shown below:

THIS BOND IS MADE ON [DATE

BY US

[PRINCIPAL]

[ADDRESS]

(AS THE “PRIMARY SURETY”)

AND

[SURETY COMPANY]

[ADDRESS]

(AS THE “SECONDARY SURETY”)

IN FAVOUR OF

[BENEFICIARY]

[ADDRESS]

(AS THE “BENEFICIARY”)

IN THE MAXIMUM AMOUNT OF £      IN ANY ONE AGREEMENT OR £      IN THE AGGREGATE

This bond is in respect of [description of nature of contract].

This bond shall become effective for a period of [12] months commencing [date].

Notwithstanding anything which may be contained in this document to the contrary, the obligation of the Secondary Surety shall be limited to any amount that the Primary Surety is unable to meet due entirely to [e.g. its insolvency].

Any demand against this bond shall be made in writing to:

(1) the Primary Surety; and

(2) the Secondary Surety,

by and immediately upon [BENEFICIARY] becoming aware of any incident which they believe could give rise to a demand under this bond. The demand shall provide full details of the incident giving rise to the demand to be made, and if so requested by the Primary Surety shall allow the Secondary Surety time to remedy the loss and perform the obligations of the Primary Surety.

SIGNED as an UNDERTAKING on behalf of

[PRIMARY SURETY]

SIGNED as an UNDERTAKING on behalf of

[SECONDARY SURETY]

3.5 Differences between bonds issued by surety companies, and bank guarantees issued by banks

37

Confusingly, instruments issued by insurance and surety companies are often referred to as bonds, but are surety contracts in terms of their legal effect. On the other hand, those issued by banks are often called guarantees, but are on demand bonds in legal terms.

38

Surety companies’ bonds are often not backed by any security other than a counter-indemnity. The surety company usually does not have as close a working relationship with its customer as a bank would, so the amount and duration of the bond it is prepared to issue may be relatively limited as compared to that of a bank. The surety company will have to conduct an underwriting exercise to assess the financial and business position of its customer and determine what level of assurance it will, as a matter of prudence, issue. A fee will be payable, either as a one-off, or at regular intervals, depending on the amount of the bond, which may vary from time to time.

39

One advantage of surety bonds to the principal is that they normally contain conditions before a demand can be made, such as the beneficiary having to prove default by producing an arbitration award. Others are very restrictive and cover only certain risks, such as the one shown in the example above. It is not surprising therefore that beneficiaries do not like surety companies’ bonds. Furthermore, due to the need to conduct their underwriting exercise, the process of having one issued can take much longer.

40

Bank guarantees, on the other hand, are a lot more valuable to beneficiaries especially if they were issued by a first-class bank. It is often quicker to get a bank to issue a guarantee than a surety company to issue a bond, since a bank would have a long-running relationship with the customer and therefore a more detailed understanding of the customer’s financial health, so no long-winded underwriting would be necessary other than into the circumstances of the contract in question. The disadvantage is that banks often require supporting security from the customer, or that existing security has to be extended to cover the bank’s additional risks in issuing the guarantee. This is in addition to the counter-indemnity that any issuer will require. Another disadvantage is that the amount assured under the guarantee will reduce the amount of credit left available to the customer on its credit lines. Finally, a fee may also be payable (unless it has already been paid as part of the customer’s general credit line).

3.6 The importance of distinguishing between a bond and a guarantee (in the sense of it being a surety contract)

41

The difference between a bond and a guarantee was explained by the Court of Appeal1 in that, although the document “described itself as a guarantee, it was simply a label; it did not use the language of guarantee. Rather, the obligation which was expressed to be an ‘irrevocable and unconditional undertaking’ was that the banks ‘will pay’ on a first written demand.” Therefore, despite its name, the document is a bond with an on-demand character, so the issuing bank was obliged to pay.

42

It will be a mistake to confuse the two types of instruments, as the beneficiary in a House of Lord case2 found to its detriment. In that case, the House of Lords found that the “bond” was in fact only a surety contract, since it required proof of damage, and not just a mere assertion of damage. The issuer could, therefore, raise all the usual questions about the amount due and cross-claims, which it would not have been able to, had the instrument been truly a bond.

43

The need to distinguish between the two is a real and practical one, because the beneficiary of an on-demand bond need only submit a demand in the form required in the bond to get paid. The beneficiary will not be affected by weaknesses of the underlying contract, such as whether the principal had truly failed to perform, or whether there are any cross-claims against the beneficiary himself. The bond issuer is obliged to pay, and cannot rely on any defences available to the principal.

44

Therefore, though a document described itself as a guarantee, it also said the guarantors “as primary obligors and not merely as surety” agreed that they would “immediately upon demand unconditionally pay to the [beneficiary] the guaranteed monies”. Thus, when the guarantors did not pay, judgement was obtained against them, with the court concluding that the true construction of the document was that the guarantors took on something more than a secondary obligation, and could not dispute the underlying debt and were obliged to pay.3

45

4