In case of a disagreement between the parties regarding the underlying conditions, payment under an accessory guarantee may be postponed pending amicable agreement, arbitration or final judgement in court.
When the beneficiary demands payment in accordance with the terms of a demand guarantee, the bank is obliged to effect payment if the claim is formally correct according to the wording of the guarantee, whether or not the applicant is in default under the underlying contract. Any disputes between the applicant and the beneficiary must be solved between the parties subsequently without the bank's involvement. The bank's obligation to pay under the guarantee is based solely on the guarantee itself and is not dependent on the underlying contract.
The Uniform Rules for Demand Guarantees (Publication No. 458 or 758), developed by the ICC are used by banks and businesses across continents and industry sectors. A demand guarantee is an independent undertaking where guarantors are assured that their commitment is subject to its own terms.
A bank guarantee request has to be approved by the bank. As a customer you must provide us with at least the following information: name and address of the beneficiary, guarantee amount, expiry date, what the guarantee is related to (the underlying contract) and type of guarantee (performance, payment or advance payment).
The pricing of a guarantee depends on: the amount and tenor of the guarantee, the type of guarantee, what kind of collateral the bank requires, the general market situation and the specific situation for your line of business.
A demand is brought against the guarantor when the beneficiary considers that the applicant has defaulted on the underlying conditions covered by the guarantee. The demand must comply with the conditions stated in the guarantee.
Such conditions may be:
• reference to the guarantee in question,
• how the applicant has defaulted on the underlying agreement,
• the amount demanded under the guarantee and to which account the money should be credited.
Payment will depend on whether the guarantee is an accessory or demand guarantee. A demand under an accessory guarantee will be paid when one of the following conditions applies: amicable agreement (the applicant accepts the demand), final judgement in court or arbitration award.
Payment under a demand guarantee will depend on the wording and the rules it is subject to, describing what must be presented and when payment should be made. Generally, the process of reviewing a correct demand and making the payment will take about 14 days.
If the guarantee is open ended (no expiry date), we need to have the original guarantee document returned to us, or the beneficiary must state in writing that Nordea is released from its obligations.