This post is also available in:
In an earlier post, we set out the bank’s obligations when faced with a first demand guarantee. A recent Belgian appellate decision, discussed below, is also a useful reminder of the rules on governing law and jurisdiction in international banking law, as applied to bank guarantees.
A decision on a manifestly abusive call on a guarantee
A Belgian court of appeal recently ruled after a call on a guarantee was found to be manifestly abusive. The beneficiary held no right under the underlying contract.
The court recalled that a call on a first demand guarantee may be rejected only where the abuse, on a limited review, leaves no apparent room for dispute. In this case, using the language customary in this field, the manifestly abusive or fraudulent character of the call was, on a prima facie assessment, glaringly obvious [1].
Governing law and jurisdiction for bank guarantees
The parties are free to state their choice of governing law in the guarantee letter. That is by far the simplest solution. Absent such a choice, the Rome I Regulation [2] settles the question where the parties are established in signatory states: relations arising from bank guarantees are treated as contractual in nature. Where foreign parties are involved, either an international instrument applies or the Belgian Code of Private International Law, whose Article 105 designates the law of the state where the guarantor had its habitual residence at the time of its commitment [3].
As to jurisdiction, absent a choice by the parties, and where the parties are established in signatory states, the Brussels I bis Regulation [4] designates the courts of the defendant’s place of establishment [5]. The summary proceedings judge, however, has jurisdiction to order urgent provisional measures, even against the parties’ stipulated choice in the guarantee letter [6]. In Belgium, that is the summary proceedings judge of the place where the guarantee was issued, meaning the registered office of the issuing bank [7]. A decision of the Hainaut Enterprise Court, sitting in summary proceedings [8], applied that principle. Proceedings had been brought before it to enjoin the issuing bank from releasing the guarantee. The bank raised a jurisdictional objection. Applying Article 624 of the Judicial Code, the court declined territorial jurisdiction and referred the case to the Brussels courts.
[1] Brussels, 25 February 2021, R.D.C., 2021/2, pp. 317 et seq., note S. Jonckheere and L. Luytten de Alvear.
[2] Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations, OJ L 177, 4.7.2008.
[3] W. David and M. Goffart, “L’appel à la garantie”, in M. Grégoire (ed.), Les sûretés, privilèges et hypothèques, vol. 1, Brussels, Bruylant, 2020, p. 394.
[4] Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 351, 20.12.2012.
[5] M. Delierneux, “Les garanties indépendantes, quinze ans de jurisprudence et de doctrine (de 1989 à 2003)”, D.B.F.-B.F.R., 2003/6, p. 351.
[6] Brussels, 22 December 1995, R.D.C., 1996, p. 1068.
[7] M. Delierneux, op. cit., p. 351; Enterprise Court Hainaut, Charleroi division, 23 December 2020, unreported, C/20/00015.
[8] Enterprise Court Charleroi, 23 December 2020, unreported, C/20/00015.
This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
Leave a Reply