учебный год 2023 / Drobnig, Principles of European Law of Personal Security

Chapter 3: Independent Personal Security (Indemnities/Independent Guarantees)

the security provider and the debtor is essentially regarded as a credit commitment and not as a mandate (Simler no. 965; cf. Deve`ze, Couret and Hirigoyen no. 3689).

13.In most other countries, the duty to inform is a consequence of the agency character of the relationship between the debtor and the security provider. SPANISH CC art. 1720 and Ccom art. 263 establish the obligation to render account to the mandator of the operations, which have taken place in execution of the agency. Moreover, ITALIAN CC arts. 1710 and 1176 and SPANISH CC art. 1719 establish the obligation of the agent to perform the mandate diligently. Some authors have based the duty of information on these rules (ITALY: Capo 157). Other ITALIAN authors base it on the principle of good faith in performing the contract (CC art. 1375; Tommaseo, Autonomia negoziale 423; Cassera 2768). According to the first opinion, the security provider as agent must inform the debtor (as principal) so that the latter will be able to take position as to the demand and take any action necessary as against the security provider or the creditor. This duty has been considered compulsory by SPANISH authors (Sa´nchez-Calero, El contrato aut+nomo 365). Nevertheless, some ITALIAN writers hold that there is no obligation but merely a right to inform the debtor (Calderale, Demand Guarantees 135 ss.). In banking practice this duty is usually derogated from in the contracts. The validity of such clauses has been thoroughly discussed by ITALIAN authors (cf. De Nictolis 111). In the banking practice of DENMARK and GREECE usually the debtor waives his right of information (Pedersen, Bankgarantier 68; Georgiades § 6 no. 70).

14.A duty of information in ENGLISH law may result from the underlying mandate (cf. Goode, Commercial Law 981).

VII. Objections and Defences of the Security Provider as against the Creditor

15.In all countries the security provider may invoke personal objections and defences as against the creditor arising from the personal security (BELGIUM: De Marez no. 39;

DENMARK: Pedersen, Bankgarantier 87; FRANCE: Deve`ze, Couret and Hirigoyen no. 3700; GERMANY: Staudinger/Horn no. 247 preceding §§ 765 ss.; ITALY: Bonelli, Le garanzie bancarie 78 ss.; NETHERLANDS: Pabbruwe, Bankgarantie 59 at no. 5; PORTUGAL: Castelo Branco 79; SPAIN: TS 27 Oct. 1992, RAJ 8584 no. 1992 and 30 March 2000, RAJ 2314 no. 2000; SWEDEN: Walin, Borgen 179 ss.).

16.In several countries objections and defences (set-off, etc.) arising between the security provider and the creditor from any other relationship between these two parties may

also be invoked (AUSTRIA: OGH 3 Dec. 1998, BA 1999, 558, 562, although the parties may exclude this, p. 563; Avancini/lro/Koziol no. 3/97; BELGIUM: Van Quickenborne no. 566 ss.; ENGLAND: Hong Kong and Shanghai Banking Corp v. Kloeckner & Co

AG [1990] 2 QB 514 (CFI); Goode, Commercial Law 973; GERMANY: Staudinger/Horn no. 247 preceding §§ 765 ss.; GREECE: Liakopoulos, NoB 35, 297; Gouskou 152; ITALY: Viale 190; but see with regard to set-off the conflicting decisions: allowing the defence of set-off, Cass. 24 Dec. 1992 no. 13661, Vita not. 1993, 769; contra: CA Roma 22 May 2001, GRom. 2002, 14; NETHERLANDS: Pabbruwe, Bankgarantie 59 at no. 5; SPAIN: Sa´nchez-Calero, El contrato aut+nomo 385).

17.However, for set-off restrictions are made in some countries. In GERMANY and some other countries it is common opinion that the security provider is not allowed to set off if this is contrary to the purpose of the personal security so that the security provider is especially prevented from setting off claims, which are derived from the “secured con-

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tract” and had been assigned to the security provider (Staudinger/Horn no. 248 preceding §§ 765 ss.). This point of view is also shared by some writers in other countries (AUSTRIA: Avancini/lro/Koziol no. 3/97; BELGIUM: De Marez nos. 39-44; ITALY:

Mastropaolo 371; Villanacci 101; Portale, Le garanzie bancarie 15; NETHERLANDS: Pabbruwe, Bankgarantie / borgtocht no. 5 at 59; SPAIN: Sa´nchez-Calero, El contrato aut+- nomo 395). Apart from this restriction, the overwhelming opinion in GERMANY allows set-off provided the counter-claim can be proven easily (Staudinger/Horn no. 248 preceding §§ 765 ss. with further references, also to the opposite opinion; Horn, B4rgschaften und Garantien no. 535 now even demands that the counter-claim must be rooted in the financing of the transaction secured by the independent security).

VIII. Security Provider’s Duty of Information upon Refusal of Payment

18.If the creditor’s demand is rejected, the security provider has to inform the creditor as soon as possible in ENGLAND, FRANCE and SPAIN (ENGLAND: Goode, Commercial Law 986; FRANCE: Simler no. 965; SPAIN: Sa´nchez-Calero, El contrato aut+nomo 380, 381). Otherwise it may be liable for the damage resulting from late performance. Electronic and telegraphic means may be used (SPAIN: Sa´nchez-Calero, El contrato aut+- nomo 380).

(de la Mata/Dr. Fiorentini)

Article 3:103: Independent Personal Security on First Demand

(1)An independent personal security which is expressed as being due upon first demand or which is in such terms that this can unequivocally be inferred, is subject to Article 3:102, except as provided hereafter.

(2)The security provider is obliged to perform only if the creditor’s demand is supported by a declaration in writing by the creditor which expressly confirms that any condition upon which the security becomes due is fulfilled.

(3)Article 3:102 paragraph (3) does not apply.

Comments

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A.The Special Feature of a First Demand Security

1. An independent personal security that falls due upon “first demand” enjoys a higher degree of independence than a simple independent security. Being more efficient than a simple independent security, it is also more risky to the security provider who therefore deserves a somewhat better protection. Article 3:103 provides for both these features (infra Comments C and D).

B.Applicable Rules

2. Since the independent security on “first demand” is a special type of independent security, the general rules on demand of a security, as laid down in Article 3:102, apply to it. Paragraph (1) so provides by declaring applicable the rules of preceding Article 3:102, subject to the special rules in Article 3:103 (2) and (3).

C.Restriction of Security Provider’s Defences

3.As the name of the security “on first demand” indicates, it is the special feature of this particular kind of independent security that the creditor is entitled to a fast and effective satisfaction. Therefore, the security provider’s possible defences against its liability must be restricted. The general reference to preceding Article 3:102 covers also the defences contained in that provision, cf. Comment B. In addition, para (3) of the present provision excludes defences to which the security provider in a personal capacity is entitled as against the creditor, including set-off with any counter-claim which the security provider may have against the creditor.

4.On the other hand, the defence of a manifestly abusive demand under Article 3:104 remains available to the security provider since this defence is not rooted in the person of the security provider but, to the contrary, in that of the creditor.

D.Conditions for Creditor’s Entitlement

5.As explained in preceding Comment C, a security on first demand restricts the security provider’s exceptions against the demand to the very exceptional cases of a fraudulent or abusive demand by the creditor (cf. Article 3:104). By contrast, performance on first demand does not mean that the creditor is only required to present a mere demand. There can also be a first demand guarantee if the creditor is contractually obliged to present additional documents. Such documentary securities and letters of credit are very frequent in practice.

6.In order to curb abusive demands which not infrequently have been made under “first demand” securities, recent practice sometimes requires the creditor to confirm expressly that the condition(s) upon which the security becomes due, is (are) fulfilled. Such an express confirmation must be given in writing by the creditor. While it imposes

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no real burden upon an honest creditor, such a declaration may be at least a moral warning to a dishonest person, and it may assist in bringing claims or even criminal prosecutions against a fraudulent creditor. If this declaration is not produced by the creditor, the security provider need not perform. A merely tacit implication of such a confirmation upon the model of the UN Convention on Independent Guarantees of 1995 art. 15 (3) does not appear to provide an effective assurance against fraudulent or abusive demands of performance.

E.Cross-References

7. Special rules deal with manifestly abusive or fraudulent demands under an independent security, cf. Article 3:104; and with the security provider’s right to reclaim its performance, cf. Article 3:105.

National Notes

I. Introduction

1.In all European countries, except SWEDEN, personal securities on “first demand” are known and accepted as a special type of independent personal securities, although almost no country has special statutory provisions for this kind of personal security (BELGIUM: Romain 437; DENMARK: Pedersen, Bankgarantier 140; ENGLAND: Edward Owen Engineering Ltd v. Barclays Bank International Ltd [1978] QB 159 (CA); FRANCE:

CC new art. 2321 para 1 of 2006; Deve`ze, Couret and Hirigoyen no. 3652; Simler no. 905; GERMANY: BGH 12 March 1984, BGHZ 90, 287; GREECE: Gouskou 79; ITALY: Bonelli, Le garanzie bancarie 37 ss.; Cass. 17 May 2001 no. 6757, Giust.civ. 2002 I 729; Cass. 1 July 1995 no. 7345, Giur.it. 1996 I 1 p. 620; PORTUGAL: STJ 6 April 2000, 135/00 www.dgsi.pt; SPAIN: TS 27 Oct. 1992, RAJ 1992 no. 8584, TS 17 Feb. 2000, RAJ 2000 no. 1162, TS 30 March 2000, RAJ 2000 no. 2314; Sa´nchez-Calero, El reconocimiento 541 ss.; Barres Benlloch 314 s.; Marimo´n Dura´, Garant%a independiente 479 ss.). By contrast, according to SWEDISH doctrine personal securities on first demand are considered to be dependent personal securities (Dalman 182, similar Bergstro¨m 14). According to this opinion a personal security on first demand is an irregular form of the dependent personal security.

2.An independent personal security on first demand means that the creditor is entitled to performance of the personal security by mere demand upon the security provider who, as a rule, is precluded from invoking objections against the demand. This is how BELGIAN and FRENCH authors define a simple personal security on first demand (garantie a` premie`re demande pure et simple/garantie op eerste eenvoudig verzoek); other clauses may

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however create further conditions for the personal security, e.g. presentation of specified documents can be demanded (De Marez no. 78; Malaurie and Ayn7s/Ayne`s and Crocq, Les s ret s no. 331). The same is true for other countries: according to the principle of freedom of contract, it will be necessary to interpret the clause precisely (DENMARK: Beck Thomsen 107 ss.; GERMANY: cf. Staudinger/Horn no. 231 preceding §§ 765 ss.; GREECE: Georgiades § 6 nos. 40-41; ITALY: Bonelli, Le garanzie contrattuali 208 ss.; PORTUGAL: CA Lisboa 11 Dec. 1990, CJ XV, V-134; SPAIN: Carrasco Perera, Las nuevas garant%as 688 and 716; Sa´nchez-Calero, El contrato aut+nomo 145). The basic understanding of personal securities on first demand – i.e. undertakings predominantly securing payment or performance in international trade – in ENGLISH law is that the security provider is liable on the first written demand for payment (Goode, Commercial Law 1019 s.).

II. Creditor’s Confirmation of Entitlement

3.There is no unanimity as between the member states as to whether the creditor is required to declare at the time of its call on the personal security that the condition(s) upon which the personal security becomes due, are fulfilled. Some BELGIAN authors find such an obligation to be incompatible with the nature of an independent personal security (for an overview: De Marez no. 87; contra Bertrams 79; Pru¨m no. 106). However, in all countries, parties are free to stipulate a demand clause. In BELGIUM and FRANCE, this is regarded as a personal security on first demand on justified request (BELGIUM: De Marez no. 86; FRANCE: Deve`ze, Couret and Hirigoyen no. 3653).

4.In ENGLAND a “demand guarantee” (Goode, Commercial Law 1019 ss.) is payable on a written demand upon the occurrence of a specified event; in this case the beneficiary’s demand must state that the event has occurred, see Esal (Commodities) Ltd v. Oriental Credit Ltd [1985] 2 Lloyd’s Rep 546 (CA). It has been argued in a domestic context that in spite of a demand having been expressly stipulated for in a personal security the creditor, by virtue of the primary character of the undertaking of a provider of an independent security, might be entitled to sue the latter without such an additional prior demand (cf. M.S. Fashions Ltd v. BCCI SA [1993] Ch 425 (CA); Esso Petroleum Ltd

Co v. Alstonbridge Properties Ltd [1975] 1 WLR 1474 at 1483 (CFI); Andrews and Millett no. 7-006), but this does not seem to be entirely clear (cf. O’Donovan and Phillips nos. 10-118 ss.; Halsbury/Salter para 195).

5.A DUTCH court has held, that if such a declaration is missing, the security provider

does not need to pay (CA Amsterdam 27 Feb. 1992, NJB 1992 no. 735), and in DUTCH practice, this is regularly done (Pabbruwe, Bankgarantie / borgtocht no. 1 at 58; Boll 110).

6.In GREECE the creditor must simply invite the bank to pay without any further declarations. If along with the first demand clause there is also a clause “if damage was incurred”, only then must the creditor declare (or prove or establish by prima facie evidence, depending on the contents of the letter) that the secured obligation has not been fulfilled (Georgiades § 6 no. 41). This personal security, however, is then conditional and not on first demand, despite the existence of the first demand clause (Georgiades § 6 nos. 40-41).

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III. Restriction of Security Provider’s Objections

7.In all countries, the very limited availability of defences is one of the most prominent advantages of personal securities on first demand. So the security provider cannot raise any exceptions based upon the underlying contract concluded between the beneficiary and the debtor or between the debtor and the security provider (GERMANY: BGH 22

April 1985, BGHZ 94, 167, 170 s. (including such claims if these have been assigned to the security provider); Staudinger/Horn nos. 202, 204 preceding §§ 765 ss. However, the court allows a set-off with a liquid counterclaim, p. 171 ss.; approving Staudinger/ Horn nos. 248 s. preceding §§ 765 ss., but under the additional restriction that the counterclaim must closely relate to the financing of the underlying transaction, cf. Horn, B4rgschaften und Garantien no. 535; LUXEMBOURG: CFI Luxembourg 17 June 1982, Pas luxemb XXV (1981-1983) Jur. 450; ENGLAND: Goode, Commercial Law 1026 s.). However, the security provider can invoke the invalidity of the personal security, or that the demand on the personal security is not in strict compliance with the letter of the personal security (AUSTRIA: Avancini/Iro/Koziol nos. 3/91-3/92; BELGIUM: De Marez nos. 17-25 and no. 38; DENMARK: Pedersen, Bankgarantier 148; FRANCE: Deve`ze, Couret and Hirigoyen no. 3691; GERMANY: Staudinger/Horn nos. 241-249 preceding §§ 765 ss.; M4nchKomm/Habersack no. 33 preceding § 765; GREECE: Gouskou 148149; PORTUGAL: Galva˜o Telles 289; ITALY: Bonelli, Le garanzie bancarie 79 ss.; NETHERLANDS: Bank’s refusal to honour a performance bond justified where the necessary expert opinion had not been delivered by agreed expert but by another, since agreed expert had refused to give opinion; however, Supreme Court remanded case in order to examine whether due to changed circumstances contract needed to be adapted: HR 26 March 2004, NJB 2004 no. 309 with approving note by PVS; SPAIN: Carrasco Perera, Las nuevas garant%as 687). In ENGLAND, the doctrine of strict compliance has sometimes been said to be less strictly applied to personal securities on first demand than to documentary credits. In the Esal case (supra no. 4), this question has been differently answered by the judges and remained unresolved in the end. In I. E. Contractors Ltd v. Lloyds Bank plc [1990] 2 Lloyd’s Rep 496 (CA) the question was said to be one of careful drafting and, hence, the degree of documentary compliance required may be strict or not so strict depending on the construction of the bond.

8.In AUSTRIA, BELGIUM, ITALY and PORTUGAL the security provider can also invoke the illegality of the underlying agreement. When the contract is prima facie illegal, as being contrary to public order or morality, the creditor is not allowed to sue on the contract and therefore, his call on the personal security may not be accepted by the

security provider (AUSTRIA: Avancini/Iro/Koziol no. 3/91; BELGIUM: De Marez no. 36; Wymeersch, Bank guarantees no. 4; Wymeersch, Dambre and Troch no. 57; Devos

29-32; ITALY: Cass. 7 March 2002 no. 3326, BBTC 2002 II 653; CA Milano 12 Feb. 2005, BBTC 2005 II 481 ss.; Bonelli, Escussione abusiva 522; PORTUGAL: Ferrer Correia

253; Simo˜es Patrı´cio 709).

9.In GERMANY it is disputed whether personal objections of the security provider vis- - vis the creditor, especially the right to set-off, are excluded (cf. Hadding, Ha¨user and Welter 697; Staudinger/Horn nos. 248 s. preceding §§ 765 ss.).

(Lebon/Dr. Poulsen)

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Article 3:104: Manifestly Abusive or Fraudulent Demand

(1)In the cases covered by articles 3:102 and 3:103, a security provider is obliged to comply with a demand for performance, unless it is proved by present evidence that the demand is manifestly abusive or fraudulent.

(2)If the requirements of the preceding paragraph are fulfilled, the debtor may prohibit

(a)performance by the security provider; and

(b)issuance or utilization of a demand for performance by the creditor.

Comments

A.The Issue

1.Any independent security is, due to its independence from any underlying contractual or other relationship between the creditor and the debtor, a risky undertaking both for the security provider and especially for the debtor. This risk is even higher in the case of a security on first demand. Experience in many countries has shown again and again that some creditors may call for performance by wrongfully asserting that the agreed conditions for a demand are fulfilled.

2.Such unjustified demands, if accepted and performed by the security provider, often place the debtor in a very difficult situation. It may have to reimburse the security provider and then has to seek reimbursement from the creditor. The creditor’s place of business, however, may be located in a distant country; enforcement of a judgment, whether obtained locally or abroad, may be subject to similar difficulties.

3.In order to protect debtors against extreme instances of such abuse, courts in many countries have evolved remedies against abusive or fraudulent demands for performance of independent securities. Evidence that either the creditor’s assertion about the justification of his demand is wrong or that documents presented by him are falsified, can usually only be adduced by the debtor. Exceptionally, in these cases, the principle of independence of the security is disregarded, and, in addition to the debtor, also the security provider is allowed to rely on the terms of the underlying contract between creditor and debtor.

4.In shaping any such remedies, a carefully defined balance must be struck between the interests of honest creditors and also security providers, who are interested in a smooth, speedy and reliable system of honouring independent securities, on the one

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hand; and the prevention of truly abusive or fraudulent demands by unscrupulous creditors, on the other hand. Article 3:104 is based upon the practice that has been developed by the courts of the major trading nations and which has been approved by the majority of writers. Art. 3:104 in essence corresponds to UN Convention on Independent Guarantees of 1995 art. 19.

5. In the following, first the position of the security provider (infra B) and then that of the debtor will be considered (infra C).

B.Security Provider’s Position towards Creditor

a.Basic Rule

6. The basic rule is that the security provider has to comply with a demand for performance, provided this demand strictly complies with the formal and substantive conditions for an effective demand established by the parties and by Articles 3:102 and 3:103. This basic principle is reiterated by the first part of Article 3:104 (1). This basic rule obliging the security provider to perform its promise without regard to doubts or controversies that may have arisen between the creditor and any other party is a consequence of the independence of the security provider’s undertaking to the creditor. It serves also the security provider’s protection.

b.Exceptions

7.An exception from this basic protective rule is admitted by the second half-sen- tence of Article 3:104 (1). The grounds why a demand for performance, although on its face complying with the conditions for a demand, may nevertheless be unfounded in substance, derive from the underlying relationship between the creditor and the debtor for whom the security provider acts. Such a recourse to an underlying relationship to which the security provider is not a party, must, of course, be very exceptional; its conditions are therefore very narrowly circumscribed.

8.According to para (1), two conditions must be fulfilled under Article 3:104 (1): First, in substance, there must be a manifest abuse or fraud; and secondly, procedurally, this must be proved by present evidence.

9.The strong terms “abuse” and “fraud” require that the non-compliance of the demand with the terms of the security must be unequivocal, obvious and commercially relevant for the debtor.

Illustration:

A contract for the sale of 10 000 t coffee provides for “shipment: September”. The bill of lading is dated 29 September, whereas in reality shipment took place on 3 October. This is a clear case of fraud: There is a manifest non-performance of the contract of sale since prices vary from month to month.

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10.In order to prevent unwarranted allegations of manifest abuse or fraud, the security provider must be able to rely on “present evidence”. This will usually have to be furnished by the debtor who had instructed the security provider to issue the security. All means of evidence are admissible, especially documents and witnesses. A restriction to documents only which is sometimes preferred, is difficult to justify; also, the borderline is sometimes doubtful, e.g. in the case of affidavits. The weighing of the evidence is a matter for the court which is bound by the relevant procedural rules of the law of the forum.

11.If after honouring the creditor’s demand it is found out that this demand had not been justified or was even “manifestly abusive or fraudulent”, the security provider is entitled to reclaim its performance from the creditor (cf. infra Article 3:105).

C.Security Provider’s Position towards Debtor

12.The security provider’s position vis- -vis its debtor differs, of course, from that towards the creditor. Compliance with an obviously abusive demand is a non-perform- ance of the mandate received from the debtor and exposes the security provider to the debtor’s remedies, especially a claim for damages. The debtor may set off this claim against the security provider’s claim for reimbursement of the money or other performance which the security provider had paid or furnished to the creditor.

13.On the other hand, the security provider is, in principle, obliged to perform its undertaking to the creditor. Refusing to do so by invoking Article 3:104 (1) will almost inevitably expose the security provider to a confrontation with the creditor; the latter often will not easily accept the security provider’s objection.

14.In order to extract itself from this dilemma, the security provider may be well advised to turn to the debtor and ask for clarification and instructions. Without the debtor’s assistance, the security provider will hardly be able to adduce the necessary proof of the creditor’s manifest abuse or fraud. In practice, however, often the debtor may be well aware of the true situation and press the security provider to refuse performance of the security. In such circumstances it may be the debtor who will not only be willing to support the security provider by supplying information and documents; but it will also strongly urge the security provider not to honour the creditor’s demand.

D.Debtor’s Preventive Remedies

15.According to para (2), if the conditions of para (1) are fulfilled, the debtor is entitled to remedies both against the security provider and the creditor.

16.The remedy against the security provider is in line with the security provider’s obligation towards the debtor to refrain from complying with the creditor’s demand (cf. supra no. 12).

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17. The debtor’s remedy against the creditor is rooted in the direct relationship between these two parties and the manifestly abusive or fraudulent non-performance of that contract. This rule, in essence, corresponds to the UN Convention on Independent Guarantees of 1995 art. 20. The specific form of court remedies that are available or may be fashioned by the court, is left to the procedural law of the forum state and the discretion of the court. However, three specific remedies mentioned by UN Convention art. 20 paras (1) and (2) should be mentioned here as means of achieving a balance between the contradictory interests of the creditor, on the one hand, and the security provider and/or the debtor, on the other hand:

(1)the security provider may be ordered not to transfer the amount of the creditor’s demand to the latter and to hold the amount of the security;

(2)if payment has already been effected, the court may order that the creditor may not dispose of the proceeds;

(3)or/and the person applying for a court order may have to furnish security in a form to be determined by the court.

National Notes

I. Protection against Abuse or Fraud

1.In most EUROPEAN countries the right of the creditor against the security provider under an independent personal security or a letter of credit is subject to the prohibition of abusive exercise of rights. The prohibition of abusive exercise of a right constitutes a basic principle of private law for the exercise of all private rights and is mostly based on

the duty of good faith and fair dealing (AUSTRIAN CC § 1295 para 2; GERMAN CC § 242; GREEK CC art. 281; Georgiades § 11 nos. 73 ss.; CA Thessaloniki 449/1996, DEE 2, 826; contra CFI Patras 1683/1997, DEE 3, 1184; ITALIAN CC art. 1375; Portale, Fideiussione 1072 s.; Nanni 197 ss.; see also Gambaro 5; PORTUGUESE CC art. 334; SPANISH CC art. 7 para 2). While in DENMARK and BELGIUM there is no such statutory general clause, the principle is broadly acknowledged (DENMARK: Ussing, Aftaler 27 ss.; BELGIUM: Cass. 10 Sept. 1971, Arr.Cass. 1972, 31; Van Gerven nos. 7072). This prohibition is compulsory and may not be deviated from.

2.The demand of the creditor is always exercised abusively when the secured risk has not occurred and subsequently there is no need for covering any damage caused thereby (GREECE: Georgiades § 6 no. 135; ITALY: in such a case there is a defect of causa of the

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