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ARTICLE · 20 SEPTEMBER 2016

On-Demand Guarantees

Berwin Leighton Paisner LLP
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On the true construction of an on-demand guarantee, there was no need for the subsequent demand to recite that a certain condition had been fulfilled as it had no bearing on the bank's liability.

United KingdomEnergy and Natural Resources
Kiran Arora
Kiran Arora
Quentin Gillespie
Quentin Gillespie

Summary: On the true construction of an on-demand guarantee, there was no need for the subsequent demand to recite that a certain condition had been fulfilled as it had no bearing on the bank's liability.

Lukoil Mid-East Ltd v Barclays Bank Plc[2016] EWHC 166 (TCC) (27 January 2016)

Background

In 2011 Lukoil Mid-East Ltd ('Lukoil') engaged Baker Hughes Asia Pacific Limited ('BH'), under a contract (the 'Contract') worth $142.3m, to drill and complete 23 production wells in an Iraqi oil field. As security, BH provided Lukoil, with an irrevocable, unconditional, on-demand bank guarantee for around $7m (the 'Guarantee') issued by Barclays Bank Plc ('Barclays'). Article 23 of the Contract provided for BH to pay Lukoil liquidated damages for BH's delay in achieving any of the Key Milestones by the Key Dates set out in the Contract.

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