RE: Legal Opinion regarding encashment of unconditional Bank Guarantee no. 02/05 dated 14.10.2005.
We refer to your letter no. ………….. dated 17 December 2006 on the above subject.
From your letter and the provided documents it appears that at the request of Company 1 (“the Supplier”), a Client of Bank 1 (“the Bank”), the Bank issued Bank Guarantee (Performance Guarantee) no. 02/05 dated 14.02.2005 for Tk. 12,93,856/- only in favour of the Joint Secretary and Project Director, Ministry of Law, Justice & Parliamentary Affairs, …………………… (“the Beneficiary”) with validity up to 15.07.2006, against contract package Q-25/83 dated 08.02.2005 (“the Contract”). Later on this validity was enhanced up to 30.04.2007. The Contract was for supply of furniture for the consideration of Tk. 129,38,560/- only to 8 (eight) District Judge Courts premises of 1) ……………….
Now the Beneficiary vide their letters dated 21.11.2006 and 27.11.2006 have instructed the Bank to make arrangement for encashment of Bank Guarantee. The Bank informed the matter to Mr. x, proprietor of the Supplier. Mr. x has provided the Bank with copies of Certificate issued by the 8 (eight) District Judges; among these 7 certifies successful completion of supply works but the Certificate issued by the Bagherhat District Judge states that even though some of the supplied furniture are defective, payment of bill may be made, provided that the defective furniture are changed. Mr. x has also provided certificate dated 04.10.2006 signed by the project director for payment of final bill (after deduction of Income Tax & Vat) after successful completion of works against the contract package.
In these circumstances, you have requested us to give our legal opinion as to whether the Bank is bound to perform encashment of the guarantee or not.
According to the term of the Performance Guarantee no. 02/05 for Tk. 12,93,85/- dated 14.02.2005, the Bank undertook to pay the Beneficiary, upon the Beneficiary’s first written demand declaring the Supplier in default under the contract package Q-25/83 dated 08.02.2005, without call or argument, any sum or sums within limits of Tk. 12,93,856/- and without the Beneficiary needing to prove or to show grounds or reasons for their demand or the sum specified.
The term of the Bank Guarantee is very clear and unambiguous. If the beneficiary in their demand letter declares the Supplier in default and demands the encashment of the Bank Guarantee, then the Bank has to encash the said guarantee without call or argument and without the Beneficiary needing to prove or to show grounds or reasons for their demand or the sum specified. So the fact that the Supplier could show that they have in fact completed the Contract, is irrelevant.
In both the written demands sent by the Beneficiary dated 21.11.06 and 27.11.06, the Beneficiary omitted to declare the Supplier in default; the Beneficiary only stated that they have decided to encash the Bank Guarantee according to the relevant terms of the Bank Guarantee. As according to the terms of the Bank Guarantee, the Bank is only liable to encash the Bank Guarantee if the Beneficiary, in their written demand, declare the Supplier in default of the Contract; it is our legal opinion that the Bank should write a reply to the written demand to the Beneficiary, asking them to declare the Supplier in default, clearly in their written demand; otherwise the Bank will not be able to encash the Bank Guarantee.
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”