ONE GUARANTEE ISSUED AGAINST TWO OR MORE COUNTER-GUARANTEES

Mr. Old Man will get back here soon!

QUESTION

Dear Mr. Old Man,

I am facing to a difficult case relating to bank guarantees subject to URDG 758. Please kindly give me your opinion.

We have received two counter-guarantees (Counter-guarantee No. 1 and Counter-guarantee No. 2) from two different counter-guarantors instructing us to issue one bid guarantee for USD 1,000,000.00 in favour of Beneficiary B in Vietnam.

Counter-guarantee No. 1 is issued on behalf of Applicant 1 covering 80% of  the bid guarantee.

Counter-guarantee No. 2 is issued on behalf of Applicant 2 covering 20% of  the bid guarantee.

(Applicant 1 and Applicant 2 are Joint Venture Bidder)

Counter-guarantee No. 1 contains a clause as follows:

We hereby instruct and request you to issue under our  responsibility in favor of Beneficiary B the bid guarantee for the total amount of USD 1,000,000.00… Our responsibility is restricted to the amount of USD 800,000.00 corresponding to 80% of our customer’s liability in the guarantee. Must be received by your bank from other counter-guarantor on behalf of Applicant 2 a counter-guarantee for its share (20%).

Quote

— Bid Guarantee —

Unquote

Counter-guarantee No. 2 contains a clause as follows:

We hereby instruct and request you to issue under our  responsibility in favor of Beneficiary B the bid guarantee for the total amount of USD 1,000,000.00… Our responsibility is restricted to the amount of USD 200,000.00 corresponding to 20% of our customer’s liability in the guarantee. Must be received by your bank from other counter-guarantor on behalf of Applicant 2 a counter-guarantee for its share (80%)

Quote

— Bid Guarantee —

Unquote

We need your expert advice for this situation: Under URDG 758, whether or not our bank can issue one guarantee for amount of USD 1,000,000.00 against the two above mentioned counter-guarantees?

If yes, is the wording in the above clause  enough or what specific wording should be inserted in Counter-guarantee No. 1 and Counter-guarantee No. 2?

I hope to receive your reply soon!

Thanks and best regards,

KHD

——

ANSWER

Hi,

It is possible for a bank to issue a guarantee against two or more counter-guarantees.

The clauses in in Counter-guarantee No. 1 and Counter-guarantee No. 2 are clear enough. You may issue one bid guarantee for USD 1,000,000 in favour of Beneficiary B. You are responsible for full amount of the bid guarantee.  In case you have paid against Beneficiary B’s demand, you shall claim reimbursement/payment from the two counter-guarantors for amounts in accordance with the percentage of liability of each counter-guarantor under its respective counter-guarantee.

Kind regards,

Mr. Old Man