FACING DEMANDS: SOME USEFUL POINTS FOR GUARANTORS

Guarantors should ensure that any guarantee document stipulates clearly the steps that a beneficiary should take to authenticate its demand for payment, according to a corporate lawyer.  “Deeds of guarantee will usually specify the requirements for valid service of a notice of demand”, says Philip Round, a partner at George Green’s Wolverhampton office.  “A recent Commercial Court case has confirmed that, unless the document expressly provides to the contrary, the beneficiary of a guarantee need not comply strictly with its terms when serving a demand for payment, making it all the more important that the document is as detailed and prescriptive as possible”.

Mr Round continues, “the case of MUR Joint Ventures B.V. v Compagnie Monegasque de Banque concerned a guarantee given by the defendant in connection with a charter of a carrier vessel.  The deed of guarantee was somewhat ambiguous regarding the requirement for a signed demand, but stipulated that the demand be served by registered post and notarised.  When the demand was served, the guarantor refused to pay on the ground that the demand had not been signed by sufficient directors, had only been couriered, faxed and e-mailed (not sent by recorded delivery) and that the notary had provided no confirmation regarding the authority of the signatories to act on behalf of the beneficiary.”

According to Mr Round, the Court held that these flaws did not invalidate the demand.  “It is accepted law that the so called doctrine of strict compliance applies to letters of credit, which means that payment is often refused because of a trivial non-compliance.  The Court held, however, that such doctrine does not apply to guarantees.  There was no suggestion that the demand had not been received, and service by courier was therefore effective.  Signature by one director sufficed and the notary was merely required to authenticate the document, not to opine on the authority of the signatory.”

Mr Round concludes, “the case demonstrates that guarantors should think carefully before rejecting a demand even if it does not strictly comply with the terms of the guarantee.  Furthermore they should ensure that their requirements for valid service and authentication of a demand are stated very clearly in the guarantee.”