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Interpretation of an Abstract Bank Guarantee

In the Dutch Caribbean, bank guarantees are common financing arrangements and are used to obtain security for the underlying legal relationship. The parties to a bank guarantee are the principal, the beneficiary, and the bank. A particular type of bank guarantee is the so-called abstract (or independent) bank guarantee. If a payment obligation of the bank has been made independent of the (underlying) legal relationship between the beneficiary and the principal / client, and the bank has its own obligation to pay the amount stated in the bank guarantee to the beneficiary, then there is an abstract bank guarantee. With this type of bank guarantee, the ban k is required to pay the beneficiary upon first request, irrespective of the circumstances. For this reason, in the case of an abstract bank guarantee, it comes down to strict grammatical interpretation. The Supreme Court has recently confirmed the previous.

In the case at hand, the parties argued in the proceedings about the interpretation of the payment schedule in (one of) the abstract bank guarantee(s): are the payment dates stated therein strict deadlines or not. If they are not, the bank does not have to pay. The question arose which criteria apply when interpreting an abstract bank guarantee. In its ruling, the Supreme Court stated that given the nature of an abstract on-call guarantee (under the conditions stated in the guarantee) and the function that such guarantees have in commercial transactions, as well as the position of the guaranteeing bank, which must keep in mind the interests of both the party who commissioned the guarantee as well as the beneficiary of the guarantee, strict application by the bank of the conditions laid down in the guarantee is required. It also follows from the nature and function of the abstract bank guarantee that, when interpreting such a guarantee, great importance is attached to the strict meaning of the parties’ formulation of the terms thereof.