The branch has closed: what do I do with my bank guarantee?
Lecturer at Master in International Business
The use of first demand bank guarantees is becoming increasingly widespread in the world of international business. Basically, because they are independent guarantees, i.e., although the contract on which they are based may be cited, their execution is independent of the underlying contract, which makes them much more agile and quicker and, therefore, more appreciated by the players in world trade.
In the event of a massive closure of bank branches, where should the beneficiary of the guarantee submit its request?
Under the current circumstances in which the closing of bank branches is becoming more and more common, one problem can begin. Because, if the office issuing the guarantee has closed, where should the beneficiary of the guarantee submit its request?
Bank guarantees regulation
The International Chamber of Commerce and, more specifically, the Banking Commission, was in charge of drafting in 1991, after ten years of intense work, the rules that regulate them - as the then Secretary General Maria Livanos wrote in the preface of publication 458 under the title Uniform Rules for Demand Guarantees,
If a demand is to be made, it seems logical that it should be sent to the guarantor at the place indicated on the guarantee or at the place where it was issued
These rules were subsequently revised and renewed and, specifically, in July 2010 the ICC publication number 758 came into force, which are the rules that are mostly used today. Article 14 of these rules specifies that a submission shall be made to the guarantor:
At the place of issue or at such other place as may be specified in the guaranty
On or before maturity
Up to this point everything seems to be correct. If a demand is to be made, it seems logical that it should be sent to the guarantor at the place indicated on the guarantee or at the place where it was issued.
Returning to the initial question, two possibilities arise:
There is another office of the guarantor at the same place of issuance
There is no guarantor's office in operation at the place of issue
In the best case, the first scenario, it is logical to think that the beneficiary would file his request at another office of the guarantor, although there is the possibility of a rejection of this filing, since it would not comply with the spirit of the rule, which provides that the filing must be made at the place of issuance.
In the English version of the URDG 758 rules, it is provided that the filing must be made "at the place of issue", thus entering into the interpretative debate as to whether the word "place" refers to an office or a city.
Common sense would seem to indicate that if the filing is made at another office in the same city, because the office issuing the guarantee has been closed, this filing should be fully accepted.
However, things are much worse for the beneficiary who must make a demand under the circumstances described in the second paragraph -when no office of the guarantor is operational at that place-, because then the provisions of Article 14(i) of the Rules for First Demand Guarantees, which provide that the presentation must be made "at the place of issue", could not be complied with.
In 2021, the Banking Commission of the International Chamber of Commerce published the International Standard Demand Guarantee Practice, which, according to its introduction, is a document that accompanies and complements the Rules.
Let us now see what this publication says in this regard, since from 2010 -the year the Rules came into force- until 2021 -the year of publication of the international standard practice- has been the period in which the closure of bank offices has begun in many countries.
If we understand that the offices of a financial institution do not have their own legal personality, the beneficiary can deliver his request at another office
Item 83 of the publication states, under the heading "To whom may submissions be made", that "the submission may only be made to the guarantor. A submission made to a notifying party or a second notifying party does not meet the requirements of Article 14(a). However, the submission may be transmitted to the guarantor through a notifying party or a second notifying party, after which it shall be deemed to have been executed upon receipt by the guarantor."
One problem solved... half solved. Publication 814 does not specifically clarify the problem of the place of presentation, although it does make it clear, as it could not be otherwise, that the presentation must be made to the guarantor.
And if we understand that the offices of a financial institution do not have their own legal personality, we could conclude that, in the event of closure of the office issuing the guarantee, the beneficiary can perfectly well deliver his request to another office, even if it is not located in the same place of issue because, in short, he is making his presentation to the legal person that is the guarantor.