Cases - Meritz Fire and Marine Insurance Co Ltd v Jan De Nul NV & Another

Record details

Name

Meritz Fire and Marine Insurance Co Ltd v Jan De Nul NV & Another

Date

[2011]

Citation

EWCA Civ 827

Keywords

Advance payment guarantees are performance bonds - see to it guanrantees

Summary

In this case, the Court of Appeal confirmed that advance payment guarantees are performance bonds rather than contracts of surety (ie guarantees).

An advance payment guarantee provides that if a supplier (ie a contractor) fails to meet his contractual obligations, the issuer of the guarantee will refund advance payments made by the buyer (ie an employer).

On appeal, the guarantor (‘Meritz’) argued that advance payment guarantees were traditional ‘see to it’ guarantees – in respect of which the guarantor can say he is not liable if the principal debtor is not. As such, this kind of guarantee would be a secondary obligation unlike on-demand bonds which created a primary obligation to pay the beneficiary simply on presentation of the correct documents.

The court rejected the argument and dismissed Meritz’s appeal on the grounds that the advance payment guarantees in this case:

• incorporated the Unform Rules for Demand Guarantees, ICC Publication No 458 (URDG 458) which expressly state that the terms of the underlying contract are of no concern to the beneficiary and the guarantor;
• required that payment be made on presentation of certain documents. There was no requirement that those documents be correct in law; and
• the bond was payable simply on the basis that no refund had been made, not on the basis that the contractor had failed to make the refunds when it was obliged to do so.