Enforcement of an on demand guarantee

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Bitumen Invest AS v Richmond Mercantile Ltd FZC [2017] BLR Plus 9, QBD Commercial Court

Facts

Bitumen owned a ship which Windrush chartered. Richmond acted as guarantor that Windrush would pay the charter fees.  Subsequently Windrush lost the ship when it was hijacked by pirates.

The guarantee document contained a promise “to pay the owners on demand all monies as may fall due from the charterers to the owners”.  Bitumen sent the demand to Richmond which Richmond refused to pay.

Held

  1. Richmond’s defence was that its obligation was to pay “all monies as may fall due” and the sums demanded by Windrush had not yet fallen due.
  2. Bitumen had certified that the money was due and Richmond was obliged to take this at face value. The intention of the document on an objective basis was that an on demand promise meant what it said.

Comment

There is a very strong policy commitment in the courts to the upholding of the convention that an on demand financial instrument will be treated in a conventional way, and in the absence of fraud or procedural irregularity, will be enforced against the bondsman.

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