Court Concludes Advance Payment Guarantees Were Performance Bonds

Meritz Fire and Marine Insurance Co Ltd v (1) Jan de Nul NV and(2) Codralux SA [2010] EWHC 3362 (Comm)

It is not always evident on the face of an instrument whether it is a demand guarantee imposing a primary obligation on the guarantor or whether it is a contract of suretyship that brings with it only a secondary obligation. The terminology used in an instrument is not conclusive as to its nature. Absent fraud, a demand guarantee must be honoured by the party issuing it without regard to the relations between the beneficiary and the counterparty to the underlying transaction. On the other hand, where the guarantor's liability is merely secondary in nature, it will be contingent on the liability of the debtor pursuant to the underlying transaction.