High Court decision regarding compliance with the terms of an on demand Bank Guarantee

December 2016

The dispute concerned the issue of whether two demands (the “Demands”) sent shortly before the Guarantee expired, triggered the Bank’s obligation to make payment under the Guarantee.

MUR Joint Ventures BV v Compagnie Monegasque De Banque [2016] EWHC 3107 (Comm)

Lax & Co LLP acted for clients MUR Joint Ventures BV (“MUR”) in a dispute with Compagnie Monegasque de Banque, a private bank based in Monaco (the Bank).

The Guarantee provided:

”1. We, Compagnie Monegasque de Banque, ……hereby guarantee to pay to MUR (hereinafter referred to as “the beneficiary”) any and all sums up to a maximum amount of US$500,000 ….. (hereinafter referred to as the “Guaranteed Amount’) as far as these sums are due and payable by Seatrade to MUR (the Guaranteed Payments’ or as the case may be a Guaranteed Payment’) under or pursuant to the Seamur Agreement provided that the Bank’s obligation under this Guarantee to make a Guaranteed Payment shall arise forthwith upon written demand sent to the bank by way of registered mail to the above mentioned bank’s address. Such demand must be signed by duly authorised legal representatives of MUR certifying in writing that the Charterer has defaulted in its obligation to make the Guaranteed Payment concerned; that the amount claimed under this guarantee is due.

2. For the purpose of identifying the Legal authorised representatives, the Beneficiary shall provide to the Bank, together with the request for payment, certified copies of MUR’s Extract of Registry and the passport of the signatory signing the request for payment; the request of payment should be authenticate as well as representative’s powers of MUR by a notary and duly apostilled “.

The contents of the Demands were materially the same, the only relevant difference being that the August Demand was not sent by registered mail to the Bank but only by courier, email and fax. The September Demand was sent by registered mail, as well as by email and fax. The Bank admitted receiving both the August and September Demands.

The Demands were notarised and apostilled by a Dutch notary who declared that the signature on the Demands was that of the MUR Director Mr Veltema of passport number [… ] and stated:

“This statement explicitly contains no judgment as (i) to the contents of the attached document and the authority and/or (ii) the competence of the signatory of the attached document. The undersigned has not informed the signatory of the document of the contents of the attached document and the consequences which will result from the contents of the attached document. Any and all liability of the undersigned and Buren NV shall be excluded.”

Accompanying the demand was a notarised and apostilled copy of Mr Veltema’s passport. The notarisation and apostillisation followed substantially the same form as found on the Demands. There was also a notarised and apostilled Extract for MUR from the Netherlands Chamber of Commerce Commercial Register (the “Commercial Register”). The Extract stated that MUR was a private, limited Dutch company and identified four board members of MUR, including Mr Veltema. The Extract read for each director: “Powers: Authorised jointly (with other board member(s) see articles)”.

The Bank contended that the words “authenticate as well as representative’s powers of MUR by a notary and duly apostilled” meant that the demand had to be accompanied by an authentication of the powers of the signatory of the demand (Mr Veltema), to act on behalf of MUR. The Bank asserted that MUR had to provide a statement by a Dutch notary that he had undertaken a factual investigation and that Mr Veltema was, as a matter of Dutch law, authorised in fact to act on behalf of the company. The Bank further asserted that as the Extract from the Commercial Register stated that Mr Veltema was a director of MUR but was “authorised jointly (with other board members)” the Demands were defective because they were not signed by duly authorised representatives of MUR acting jointly but only by Mr Veltema.:

At a hearing in the High Court before Mr Justice Cranston, the Bank’s defences to MUR’s claim for payment under the Guarantee were dismissed. Mr Justice Cranston held that:-

Rules of strict compliance that apply when presenting documents under a Letter of Credit do not automatically apply with demand guarantees.
All the Guarantee required was that there should be a notarisation and apostillisation of the Demands, of the Extract from the Commercial Register and of the signatory’s passport.
The Guarantee did not require a legal opinion under Dutch law as to Mr Veltema’s powers to make the demand on MUR’s behalf and the reasonable reader would not have read clause 2 of the Guarantee as requiring any legal opinion as to Dutch law about the contents of any of the documents.
That Mr Veltema was authorised by MUR to make the Demands and as a matter of Dutch law his signature was binding on MUR.
The requirement in clause 1 of the Guarantee that the demand be sent by registered mail was directory, not mandatory. The guiding principle was one of effective presentation of a demand. The importance of registered mail was that the communication in question was signed for by the recipient and signature precluded any suggestion that it was not received. The August Demand was therefore, like the September Demand, effective notwithstanding that it had not been sent by registered mail.

The Bank was accordingly required to pay out under the Guarantee with interest running from the August Demand as well as pay MUR’s costs of the action.

Whilst this was a commercially sensible decision of the High Court it emphasises the importance of having clearly worded provisions in any guarantee such that all parties are aware what form any documents must be in to trigger any payment obligation.

Issued by

Stuart Dench

Partner

Lax & Co LLP

Dir: +44 (0) 20 7397 0542

stuart.dench@lax.micco.co.uk

November 22nd, 2017