Ambiguous Guarantees

Ambiguity in guarantees leads to unexpected and undesirable results for the bank, the beneficiary, or the applicant/principal. The problem of ambiguous wording in guarantees was discussed at IIBLP’s recent Guarantee & Standby Forums in Asia (see Ottoway, Bitumen cases in 2017 Annual Review).

When there is no demand, there is no problem. But when there is a dispute, the outcome is highly unpredictable. Beneficiaries of guarantees want certainty. Beneficiaries demand holidng money while underlying disputes are worked out. Applicants want to delay, negotiate, and reduce the amount.

Why does this happen? It is frequently due to poor forms that junior lawyers draft or companies cobble together.

Do you agree or disagree?

For more on the topic of ambiguous guarantees, be sure to check out the upcoming double issue of Documentary Credit World due out this week.