URDG Demand Before Expiry, Illegible Certificate and a Fraud Allegation
An Indian EPC contractor has a USD 2.5 million performance guarantee issued by a Mumbai bank in favour of a UAE employer. The guarantee is expressly subject to URDG 758, expires 30 June 2025, and is counter-guaranteed by a UAE bank. On 20 June 2025 the employer sends a demand for the full amount, alleging delay, supported by a statement of breach and a copy of the engineer's delay certificate. The demand quotes contract number 'EPC-4471-A' while the guarantee quotes 'EPC-4471'. The certificate is partly illegible. The guarantor receives the demand on 23 June and immediately asks the employer to extend the expiry to 31 December 2025 instead of paying; the employer refuses. The guarantee contains no 'extend or pay' clause. The applicant claims the demand is fraudulent because the delay was caused by the employer's late site handover, and asks the bank to refuse payment.
1. Evaluate whether the demand is compliant, focusing on the contract-number mismatch and the illegible certificate, and state the guarantor's procedural obligations.
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Under URDG 758 Article 15, a demand must be in the required form, be signed or authenticated as required, be supported by a statement of breach and any other stipulated document, and be presented before expiry. The demand here was received on 23 June, before the 30 June expiry, and was accompanied by a statement of breach and a certificate. Those are positive features.
The contract-number mismatch is a judgement call. If the guarantee requires the demand to identify the contract, a wrong number can be a facial discrepancy. But a typographical suffix difference may not create ambiguity if the contract is otherwise clearly identifiable. The guarantor should not reject on a purely trivial ground, but it must examine the documents on their face.
The illegible certificate is more serious. A document whose content cannot be read cannot be examined for compliance. If the certificate is a required supporting document, the guarantor can treat the demand as non-complying. Under Article 16, the guarantor has five business days after the day of receipt to examine the demand and must notify rejection, stating each discrepancy. If it fails to do so, it is precluded from claiming that the demand was non-complying. The guarantor must also deal with the documents as instructed.
The bank should therefore decide within five business days: either pay a compliant demand or reject with clear reasons, allowing the beneficiary time to re-present corrected documents before 30 June if possible.
2. Can the guarantor insist on extending the expiry instead of paying? What are the consequences of its request?
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No. The guarantee contains no 'extend or pay' clause. URDG 758 Article 18, which deals with extension of expiry, applies only where the guarantee itself provides for an extension or for an extend-or-pay demand. The guarantor cannot unilaterally impose an extension on the beneficiary. Its request to extend to 31 December is a commercial request, not a valid response to the demand.
If the demand is compliant, the guarantor must pay. If the demand is not compliant, the guarantor must reject it within the five-business-day examination period and state the discrepancies. Merely asking for an extension while the demand sits unanswered is dangerous: once the five business days pass without a compliant rejection, the guarantor may be precluded from relying on the discrepancies. The beneficiary could then argue that the guarantor must pay the full amount.
The counter-guarantee adds a layer of complexity, but it does not change the independence of the guarantee. The Mumbai bank should follow the terms of its counter-guarantee and any reimbursement arrangements with the UAE bank, but it cannot use those arrangements to delay its response to the beneficiary. If it rejects, it should do so promptly and preserve the beneficiary's ability to re-present before expiry.
3. How should the guarantor respond to the applicant's fraud allegation based on the employer's late site handover?
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The guarantor should apply the independence principle. Under URDG 758, the guarantee is independent of the underlying contract. The bank deals with documents, not with the merits of the employer's conduct. An allegation that the employer caused delay by late site handover is a contractual defence. It is not, without more, evidence of fraud in the demand.
The fraud exception is narrow. A bank should refuse to pay only where there is clear and convincing evidence that the beneficiary's demand is fraudulent, and typically only where a competent court has granted an injunction restraining payment. A mere assertion by the applicant, even if supported by correspondence, is generally not enough to justify a refusal. If the bank refuses without a valid documentary ground and without a court order, it risks liability for wrongful dishonour.
The bank should therefore tell the applicant that it cannot adjudicate the construction dispute, ask for any court order or independent evidence of fraud, and continue its documentary examination. If a court injunction is served before payment, the bank must comply with it. If no injunction is served, the bank should pay a compliant demand and look to the counter-guarantee and reimbursement arrangements for recovery. The applicant's remedy is against the beneficiary in the underlying contract, not by converting the bank into a judge of the construction dispute.