It is “hallowed law”[1] that a bank can refuse to pay out under a letter of credit where the beneficiary’s demand contains “trivial or insignificant defects”[2]. As far as letters of credit are concerned, “[t]here is no room for documents which are almost the same, or which will do just as well.”[3]
However, the High Court recently ruled that the same strict requirements do not necessarily apply to demand guarantees. In MUR Joint Ventures BV v Compagnie Monegasque de Banque [2016] EWHC 3017 (Comm), the claimant brought an action against the defendant after it failed to pay out the sum of USD 500,000 under a demand guarantee which secured the obligations and liabilities of Monaco Seatrade SAM to the claimant pursuant to a joint operations agreement.
Monaco Seatrade SAM instructed the defendant not to pay out under the demand guarantee because the claimant’s two demand letters did not meet the requirements set out in the demand guarantee. Whereas the demand guarantee stipulated (amongst other things) that a demand letter should be sent by registered post, signed by two authorised representatives of the claimant and accompanied by a legal opinion as to the representatives’ authority to sign, the claimant’s first demand letter was sent by courier, fax and email, and both demand letters were signed by a single authorised representative and excluded any opinion as to that representative’s authority to sign.
Nonetheless, the High Court held the claimant’s demands were valid. As such, banks issuing demand guarantees should be aware that it is a matter of construction as to whether the relevant requirements have been satisfied and correctly documented.
[1] MUR Joint Ventures BV v Compagnie Monegasque de Banque [2016] EWHC 3107 (Comm)
[2] ibid
[3] Equitable Trust Co of New York v Dawson Partners Ltd [1927] 27 Lloyd’s Rep 49, 52
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.
