Tecnicas Reunidas Saudia v The Korea Development Bank: UK HC Considers Demand Guarantees


In the recent case of Tecnicas Reunidas Saudia (TRS) v The Korea Development Bank (the Bank), for which the judgment was published last week, the High Court, Queen’s Bench Division (Technology and Construction Court (the TCC)) considered a demand guarantee executed by the Bank in favor of TRS, which formed part of an agreement around certain advance payments made by TRS to a subcontractor.

It is generally recognized that calling on a demand guarantee is a serious step and is therefore not one to be taken lightly. However, as the negative economic impact of COVID-19 continues, parties who would have hesitated to make a call previously may find themselves with no option but to do so in the circumstances. The only real defense is known as the fraud exception (i.e. where there is a fraudulent claim and the issuer knows that the demand is fraudulent), which is extremely difficult to establish. Despite some other jurisdictions taking steps to gradually widen this narrow exception to include aspects of unconscionability, the English courts have yet to do so. This case reiterates the position that if a claim is made under a demand guarantee, payment will be enforced by the English courts save in very limited circumstances.


TRS was engaged by Saudi Aramco to execute two EPC contracts for the Fadhili Gas Plant in Saudi Arabia, a multibillion-U.S.-dollar project designed to process 2.5 billion cubic feet a day of gas from the Hasbah and Khursaniyah fields. TRS engaged as a subcontractor Sungchang & Abdullah Al-Shaikh Contracting Co. Ltd. (Sungchang). In October 2017 TRS paid Sungchang an advance payment, after Sungchang provided TRS with a demand guarantee executed by the Bank, by way of security. In October 2019 TRS terminated its engagement of Sungchang, and in December TRS demanded payment from the Bank under the demand guarantee.

TCC Hearing & Judgment

Before the TCC, the Bank argued that it rejected TRS’ right to be paid on the basis that it was a condition of the demand guarantee that TRS’ advance payment to Sungchang had been paid into a numbered account held with HSBC Bank (the HSBC Condition). The HSBC Condition provided that “It is a condition for any claim and payment under this guarantee … that the funds paid in advance payments subject to the terms of the subcontract must have been received by the sub-contractor on its account number … held with HSBC.”

The advance payment funds had been paid to that bank account, but it was not a HSBC bank account as such. It was a Saudi British Bank account, associated with HSBC and 40% owned by HSBC Holdings, as there was no HSBC presence as such in Saudi Arabia, using the account number provided.  

The defendant contended that even if the advance payment had been made by the claimant, it had not been made to a HSBC account with the relevant account number but rather at the Saudi British Bank, therefore the HSBC condition had not been fulfilled.

Nevertheless, the TCC found in favour of TRS and held that as a matter of interpretation, the HSBC Condition referred to an account held with a branch of HSBC or a bank associated with HSBC.  Mr. Justice Waksman held that the court would strive for an interpretation that was open to it on the words of the guarantee and that would avoid pointlessness or absurdity. Rather than limit the expanded version of the condition to a branch of a bank trading as HSBC, it should be a bank or a branch of a bank ‘trading as HSBC or associated with HSBC.’ The bank where the advance payment had been paid – the Saudi British Bank – was a bank associated with HSBC, and alternatively, that “HSBC Bank” was a misnomer for Saudi British Bank.

Additionally, Mr. Justice Waksman noted, if the position had been as contended for by the Bank, then a very odd result would occur. It would mean that the guarantee had been worthless from the moment that it had been executed. That was because, on the Bank’s case, the HSBC condition could never have been complied with, even though payment had been made to a bank account with that number and to the only domestic bank associated with HSBC in Saudi Arabia. The interpretative approach had to be one that recognized that one interpretation would not merely be commercially risky or commercially disastrous for a party, but it would also mean that there was no point in the document at all.

The TCC also proceeded to consider two alternative arguments raised by TRS based on the Uniform Rules for Demand Guarantees (URDG) (which the guarantee incorporated) – (i) non-documentary conditions and Article 7 URDG and (ii) rejection formalities and Article 24 URDG. While obiter, as the decision had already been made on interpretation grounds, the considerations are nonetheless of general relevance.

Article 7 of the URDG provides that:

  • “A guarantee should not contain a condition other than a date or the lapse of a period without specifying a document to indicate compliance with that condition. If the guarantee does not specify any such document and the fulfilment of the condition cannot be determined from the guarantor’s own records or from an index specified in the guarantee, then the guarantor will deem such condition as not stated and will disregard it except for the purpose of determining whether data may appear in a document specified in and presented under the guarantee do not conflict with data in the guarantee.”

Justice Waksman held that, as the Guarantee did not specify a document that TRS was required to submit to demonstrate that the advance payment had been paid into the correct account, the HSBC condition was a non-documentary condition that should be disapplied pursuant to Article 7 of the URDG. This is the first English judgment that considers the operation of Art. 7, which is incorporated into many of the demand guarantees.  Some doubt had previously been cast on how a provision incorporated by reference (like Art. 7) could operate so that a specifically agreed non-documentary condition should be disregarded.

Article 24 of the URDG provides that:

  • “d. When the guarantor rejects a demand it shall give a single notice to that effect to the presenter of the demand. The notice to that effect shall state:
  • i. that the guarantor is rejecting the demand, and
  • ii. each discrepancy for which the guarantor rejects the demand.
  • e. The notice required by paragraph (d) of this article shall be sent without delay but not later than the close of the fifth business day following the day of presentation.
  • f. A guarantor failing to act in accordance with paragraphs (d) or (e) of this article shall be precluded from claiming that the demand and any related documents do not constitute a complying demand.”

TRS presented its demand in person but, when the Bank rejected TRS’ demand, it did so initially by way of a SWIFT message sent to BNP (the advising bank, acting for TRS). The rejection was notified to TRS the following day, outside the five business day period allowed by Article 24. Therefore, the Bank’s notice of rejection was not sent within 5 business days of TRS’ demand to TRS as the presenter of the demand, pursuant to the time bar provision in Art. 24(d) of the URDG, and the Bank was precluded from claiming that the demand was non-compliant.

The Bank was ordered to pay the full value of an on-demand guarantee of £8.2 million, plus interest and costs.


It is likely that the COVID-19 pandemic will result in more calls being made pursuant to demand guarantees, both domestically and internationally and, as such, cases like the above may well be seen more frequently in the coming months. Parties who have provided demand guarantees, or been given them, will need to be more sensitive than ever to the circumstances in which they can be called, and the clear limitations placed on resisting their calls under English law.

The judgment also poses some interesting questions regarding whether conditions regarding payment are capable of applying where they are not stipulated within the documentary requirements of the guarantee. Previous English cases where the URGD does not apply suggest that conditions that do not expressly carry documentary requirements may give rise to an implication that the fulfilment of the condition needs to be confirmed. However, where the URDG does apply, a tension may arise between these cases and the requirement in Article 7 for operative conditions to “specify” documentary requirements. Additionally, with respect to the obiter consideration of Article 24, and in particular its strict interpretation, parties should ensure that the correct “presenter” of a demand is identified and not merely assume that a rejection sent to the notifying bank will be sufficient. 

New York Appellate Court Allows Repurchase Claims Against Nomura To Proceed

On October 13, 2015, the First Department of the Appellate Division of the Supreme Court for the State of New York decided an appeal in four actions brought by HSBC Bank as Trustee on behalf of four RMBS trusts against Nomura Credit & Capital, Inc. and related entities.  We previously covered Justice Friedman’s trial court decision in one of the actions here. In a decision written by Justice John W. Sweeney, the First Department held that the trusts can proceed with claims relating to loans that were not the subject of pre-suit breach notices or where Nomura was not given the contractual 90-days-notice of the alleged breaches before suit was filed.  The First Department distinguished its decision in Ace (previously covered here) on the basis that in Ace there were no timely claims.  The court reasoned that the untimely claims here would have related back in an amended pleading to timely claims in the complaint, and cited the trusts’ allegations that Nomura independently discovered the alleged breaches.

Affirming Justice Friedman’s decision, the court also held that the trusts are not limited by the contractual “sole remedy” of repurchase of loans breaching representations and warranties if the loans have been liquidated or foreclosed.  Instead, the trusts may seek money damages for breaching loans where specific performance of the repurchase sole remedy is impossible.  The court further affirmed the lower court’s decision that the trusts’ claims for breach of the implied covenant of good faith and fair dealing were duplicative of their breach of contract claims and affirmed the dismissal of the trusts’ claims for rescission or rescissory damages.

The court reversed Justice Friedman’s decision insofar as it dismissed the trusts’ claims that Nomura breached its representation that the deal documents did not contain any untrue statements.  The court held that alleged breaches of that provision were not subject to the contract’s sole remedy of repurchase.  The court further held that the trusts’ claims for damages for the failure to repurchase were properly dismissed, but the lower court erred in dismissing claims for damages for Nomura’s failure to give notice of breaches that it allegedly discovered.  Decision.

Trustee Brings $640 Million RMBS Suit Against Deutsche Bank

On November 27, HSBC Bank, acting as trustee for a Real Estate Mortgage Investment Conduit Trust, filed suit against DB Structured Products, Inc., a Deutsche Bank affiliate, in the federal district court for the Southern District of New York.  The complaint alleges that DB Structured Products breached its contractual duties by failing to properly review the mortgage loans underlying an RMBS securitization and by failing to buy back allegedly defective loans.  HSBC, which alleges that over 90 percent of the underlying mortgage loans did not comply with underwriting guidelines, seeks rescissory damages or alternatively compensatory damages, and failing the award of damages, specific performance requiring the repurchase of allegedly defected loans.  Complaint.