The Gazette 1986

s e p t e m b e r 1986

g a z e t t e

because it is the party at the end of the chain who may have to bear the ultimate loss. 5. Where the bank pays in accordance with its obliga- tion on foot of a guarantee, the seller's only remedy may be to reclaim the moneys disbursed from the beneficiary under the sale of contract. However, if the bank pays in breach of its obligation on foot of the guarantee, the sellers may well be able to resist any demand on foot of counter-indemnities furnished by them to the bank; or, alternatively, to recover the amount involved from the bank as damages for breach of contract between customer and bank. 6. For the purpose of the fraud exception the relevant time for establishing knowledge of fraud on the part of a bank is not when the demand for payment is first made but prior to actual payment. The bank's knowledge that the demand made by the beneficiary on the first demand bond is fraudulent must be proved to exist prior to actual payment. 7. The evidence of fraud must be clearly established. Normally, the uncorroborated allegation of the plaintiff will not be sufficient. Strong corroborative evidence, usually in the form of contemporary documents, particularly those emanating from the beneficiary may be required. In general, for evidence of fraud to be clear, it may be necessary to prove that the beneficiary was afforded an opportunity to answer the allegation and that he failed to provide any or any adequate answer in circumstances where one could properly be expected. SOLICITORS WOU LD YOU LIKE THE UP-TO-DATE FACTS O N - * Charge-out rates * Salary levels and other costs * Practice profitability

case being made on behalf of the plaintiffs was (1) that except in regard to the billion egg contract, there had been no recent complaints or disputes; (2) documentary evidence before the court established that there had been full compliance with each contract; (3) Agromark had agreed that, the billion egg contract apart, they owed the plaintiffs a very large sum of money. The Court of Appeal rejected each of these points. The Court found that there was "considerable doubt" concerning the first point. They were not satisfied on the material before them that the documentary evidence established that the plaintiffs had completely complied with their obligations under the contracts. Nor was there any document recording the agreement referred to in the third point which the plaintiffs advanced. Several unsuccessful attempts were made by the plaintiffs to obtain a reply from Agromark to the charge that they were guilty of wrongful repudiation of contract and that their claim under the performance bonds was manifestly fraudulent. The court found that there was a "wholly understandable reason for Agromark not being prepared to answer in any detail the claim made against them by the plaintiffs." The court considered that it would not draw "any strong inference of guilt from Agromark's silence" in circumstances where each contract between the plaintiffs and Agromark was made and to be performed in Iraq, was subject to Iraqi law and contained an Iraqi exclusive jurisdiction clause. The Court's remarks concerning the balance of convenience are particularly worthy of noting. It held that even if they had concluded that the plaintiffs had established a good arguable case on the issue of liability and had decided the appeal purely on the issue of the balance of convenience, they would have found against the plaintiffs in the result as the bank demonstrably had assets available to meet a claim for damages. In the light of the authorities referred to above, it is difficult to see how a plaintiff will succeed in establishing that the balance of convenience lies in favour of granting interim or interlocutory injunctive relief. Summary The current legal position regarding performance bonds may be summarised as follows: 1. The contractual obligations arising under perfor- mance bonds or guarantees payable on demand are separate from and not dependent upon those existing under the sale contract between seller and buyer. This so-called principle of autonomy applies in a claim against a bank, and may also apply in a claim against a beneficiary. '2. Once the beneficiary has made a demand within the time and in the form, if any, stipulated in the bond or guarantee, the bank is, apart from clearly established fraud on the part of the beneficiary, of which the bank has notice, under a duty to pay strictly in accordance with the terms of such bond or guarantee. 3. A lack of honest belief on the part of the beneficiary when apparently giving notice of default niay be evidence of fraud. 4. All banks in the chain owe a duty of care to the party ultimately liable at the end of the chain (the customer), not to pay out on a performance bond if on the information then available to the bank there is clear evidence that the beneficiary's demand is fraudulent,

* Work-in-progress and debtor levels * Computerization in the profession * And much more. If the answer is " Y E S" then all this is available to your firm as a participator in the confidential 1986/87 INTERFIRM COMPARISON AS A PARTICIPATOR IN THE 1986/87 SCHEME - * your level of commercial success is measured * your strengths and weaknesses are identified * the results of your strengths and weaknesses are quantified. PARTICIPATION IN INTERFIRM COMPARISON * shows you those areas needing corrective action * allows you to plan ahead and set targets based on realities. Can you afford not to participate in 1986/87? Give T O M A L E X A ND ER a ring at (01) 761274 or write to — BUSINESS COMPARISON ANALYSTS LIMITED 3 FITZWILLIAM PLACE DUBLIN 2.

r r t r t r r r r r r r r t f t ft r r r r rt ft

r r t r r r r r r r 11 r t

r,

t ,

rrtrr

r 11 r r t re

201