2016 Institute of International Banking Law & Practice, Inc.

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2 Lend Lease (pg32) Subcontractor failed to provide replacement guarantee when first expired Contractor refused to pay subcontractor for failing to provide guarantee Adjudicator determined Contractor had to pay Subcontractor USD 734, once guarantee provided Contractor appealed whether Adjudicator had jurisdiction to decide amount 17

3 Fiberex (pg10) Two Guarantees/Letter of Credits which the opinion also referred to as bonds for delivery and assurance of fibreglass furnaces Buyer/Beneficiary asserted that it was entitled to CAN 854,000 under the bonds for Seller/Applicant s breach 18

4 Buyer entered installment contract to purchase ships If sale cancelled, installments repaid Seller provided Buyer with advance payment guarantees Spliethoff (pg46) Seller failed to deliver on time 19

5 Spliethoff cont. (pg46) Seller sued buyer for fraud in China and the Chinese court enjoined drawing on guarantee Arbitral tribunal found Buyer was entitled to cancel contract and demanded installments refunded Guarantor refused to honor guarantee Buyer sued Guarantor for wrongful dishonor 20

6 Spliethoff cont. (pg46) Notice of Refusal R E Y O U R D E M A N D U N D E R O U R ADVANCE PAYMENT GUARANTEE WE REGRET TO INFORM YOU THAT YOUR DEMAND FOR PAYMENT HAS NOT BEEN HONORED BY US, BECAUSE THERE ARE COURT INJUNCTION ORDERS PROHIBITING US AT HOME AND ABROAD FROM PAYING YOU UNDER THIS GUARANTEE. WE, AS THE GUARANTOR, APPLIED TO THE DOMESTIC COMPETENT COURT [QMC] FOR LIFTING THE PAYMENT INJUNCTION, HOWEVER, THE APPLICATION WAS REJECTED BY THE COURT ON , SO ALL PAYMENT UNDER THE A/M GUARANTEE SHALL NOT BE EFFECTED BY US WITHOUT LIFTING THE INJUNCTION. 21

7 JK Integrated (pg21) Contractor provided SGD 4.7 M performance bond Contractor experience financial difficulties and delays Supplemental Agreement gave Contractor funds to complete project and pay off debts Developer terminated relationship with contractor and made demand on the bond Contractor obtained injunction to prevent drawing Developer south to set aside injunction 22

8 Kristabel (pg25) Construction Performance Guarantee in favor Employer/Beneficiary requiring demand and cancellation letters Employer/Beneficiary cancelled & ed cancellation letter to Guarantor on 20 May & to Guarantor s attorneys Guarantor acknowledge reciept On 4 June, Employer/Beneficiary demanded payment, stating that a copy of the cancellation letter was attached BUT no letter/copy was attached Guarantor non compliance Q: Wrongful Dishonor? 23

9 Commercial Standby LC Commercial LC required: PHOTOCOPY OF B/L EVIDENCING SHIPMENT OF THE GOODS TO THE APPLICANT Mago (pg34) Seller/Beneficiary presented photocopy of non negotiable B/L Refusal: COPIES OF NNC B/L S PRESENTED FOR INVOICE 199 (6-7) USD 64260,000 AND 199 (1-5) USD ,000 AND PARTLY UNREADABLE Q: Wrongful Refusal? 24

10 Transfer Form sample language: The Transferor agrees to indemnify the Issuer and hold the Issuer harmless from and against any claim, liability, or expense (including reasonable attorney s fees and disbursements and other dispute resolution expenses) arising out of or in connection with the Issuer s effecting the requested transfer (including enforcement of this indemnity), and the Transferor agrees to pay the Issuer, on demand, for any such claim, liability, or expense. The Transferor represents and warrants to the Issuer that the Transferor s execution and delivery of, and performance under, this request (a) are and will remain within its power, (b) have been and will remain duly authorized, (c) do not and will not contravene any charter provision, by-law, resolution or contract or other undertaking binding on or affecting it or any of its properties, (d) do not and will not violate and laws, rules, or regulations of the United States or any other applicable jurisdiction; this request is and will remain the legal, valid, and binding obligation to the Transferor, enforceable in accordance with its terms; and the Standby is undrawn, untransferred, and unamended(except as noted on this request and shown on the enclosed Standby). 25

11 Transfer forms and indemnities Do you use a transfer form? Similar language? Do you receive push-back from Beneficiaries? Is there a benefit to using such language? Negative consequences and/or unnecessary given that they may be covered by UCC [Rev] Art. 5 and/or the ISP? Content? Formalities? 26