One Rule for the Banks. Another for Guarantors.

The Commercial Court has decided that the more generous rules that apply to a bank don’t in fact apply to Guarantors when it comes to non-compliant demands for payment under an “on-demand” Guarantee.

In the recent case of MUR Joint Ventures BV v Compagnie Monegasque De Banque [2016], the Court ruled that, whilst a bank can refuse to pay out under a letter of credit that wasn’t word perfect in its form and content, a Guarantor cannot rely on this same argument when faced with a similarly imperfect demand for payment under a Guarantee.

In this case, the Guarantee demand was found to be defective for a number of reasons, including that it had only been signed by one director (not “representatives” plural), it was not sent by registered post, as the guarantee required; and the notary gave no confirmation that the signatory had the power to act on the beneficiary’s behalf.

Notwithstanding these inadequacies, the demand was deemed by the Court to be valid and the Guarantor remained liable thereunder.

Matthew Howat, Commercial & Dispute Partner, comments: “Every guarantor is looking for a loophole to avoid liability under that guarantee that they now regret signing. Whilst this loophole (or at the very least delaying tactic) may once have come in the form of alleging a non-compliant demand from the bank, the Courts have brought an end to this line of argument and are seemingly going back to basics – if you give an on-demand guarantee then you must be prepared to pay out under it – that is until the next loophole comes along”.

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Howat Avraam Solicitors provide Commercial, Employment and Contract Dispute advice to companies and business owners. As business owners ourselves, we have a pragmatic in-house approach to resolving issues before they arise by working alongside our clients, often on monthly retainers. We are commercial, practical and entrepreneurial in our approach to legal services.

To discuss any commercial or legal matter on a no obligation basis, please contact Matthew Howat, Company and Disputes Partner, on 020 7884 9700 or email Matthew at Matthew.Howat@hasolicitors.co.uk. Alternatively, visit our website at www.howatavraamsolicitors.co.uk.

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