The Termination of a Bank Guarantee in order to Lift an Attachment; the Importance of Careful Formulation
Bank Guarantees in General
In the Netherlands we have two main types of bank guarantees: the
“ordinary” bank guarantee and the “attachment guarantee”.
The “ordinary” bank guarantee is a guarantee that is provided at
the request of (usually) a contracting party as security for the
fulfilment of the (payment) obligations of this party towards the
beneficiary of the guarantee. In short, this guarantee entails that
a bank will act as a guarantor towards the beneficiary for the
performance of the payment up to the maximum amount mentioned in
the guarantee. As a result, the bank takes on the payment as an
independent obligation; this obligation continues to exist, even if
the client of the bank would go bankrupt.
The attachment guarantee is a guarantee that is also provided by
a bank on instructions of its client, but in this case to lift an
attachment that has been levied against that client. Whereas the
“ordinary” guarantee is provided of a party's own free will to
secure the payment of a debt that has been recognized by the client
of the bank, the attachment guarantee is often provided in
different circumstances. It is provided in cases where the client
disputes the claim of the other party, but feels compelled to have
the guarantee provided in order to have the attachment lifted.
After the guarantee has been provided, the client will often try to
have a court conclude that the attachment was levied wrongfully,
and therefore that the attaching party had no claim at all. The
question is whether the client has the option to have the guarantee
lifted before the court has ruled in a final and binding judgment
that there was no basis for the levying of the attachment. The
interest is simple: usually, the bank blocks the amount of the
guarantee, so that the client's liquidity is limited.
Lifting of Attachment without Guarantee
Under Dutch law it is rather simple to obtain leave from the Court
in preliminary relief proceedings to levy an attachment. Save for a
few exceptions, the person against whom the attachment is levied
(the “attachee”) is not heard in this respect. On the other hand,
in order not to get sidelined entirely, the attachee has the option
to claim the lifting of the attachment in preliminary relief
proceedings. Pursuant to Section 705 of the Dutch Code of Civil
Procedure (“DCCP”), the lifting will be ordered, inter alia,
if there is prima facie evidence of the invalidity of the right
invoked by the attaching party or the needlessness of the
attachment, or, if the attachment has been levied with regard to a
monetary claim, if security is provided for this claim. The
attachee often chooses to provide security for the amount claimed,
even if the claim is disputed, for instance in order not to have to
conduct preliminary relief proceedings to get the attachment
lifted.
Problems in Practice With Lifting of Attachment
Guarantee
But what happens when such a guarantee is provided, and the client
who requests the guarantee (the former attachee) wants the
guarantee to be lifted before the court has given a final opinion
on the claim of the attaching party?
First and foremost, that the law does not offer an option for
this. The above-mentioned option of Section 705 of the DCCP is
limited to the lifting of the attachment, not to the withdrawal of
a guarantee. Behold the lack of clarity. After all, it is not
possible anymore to request the lifting of the attachment because
the attachment will already have been lifted against the provision
of the bank guarantee.
If therefore the withdrawal of the bank guarantee is claimed in
preliminary relief proceedings, the court in preliminary relief
proceedings will adjudicate whether maintaining the guarantee is
indeed reasonable and will probably attach substantial importance
to the text of the guarantee and/or the intention of the parties;
does the text offer the option to withdraw the guarantee
prematurely and/or was the (apparent) intention of the parties that
the guarantee would continue to apply until the court would have
rendered a final and binding judgment in the proceedings on the
merits?
In the past years many (preliminary relief) proceedings have
been conducted in this respect. It is not possible to deduce an
unambiguous line from the judgments concerned. For this reason it
is advisable to include the following explicitly in the document in
which a bank guarantee is provided for the lifting of the
attachment: a) that premature termination/withdrawal may be
requested (in preliminary relief proceedings), and b) on which
grounds this can be done. With respect to the latter, Article 705
of the DCCP may be followed, but it may be even better to make the
testing standard that the Court (in preliminary relief proceedings)
has to use more explicit, if this is possible on the basis of the
circumstances of the case. This way the liquidity attachment
against the attachee will be restricted as much as possible,
without this being to the detriment of the security which the
attaching party intends to establish with the attachment.
A Lesson for Practice
On the basis of the above it may be clear that a “standard”
attachment guarantee should not be provided just like that.
However, other bank guarantees are never standard either. It should
always be considered what the objective of these bank guarantees
is. Is it a guarantee to cover an absolutely established payment
obligation (the “ordinary” guarantee); does the guarantee serve to
secure another obligation than the payment of a sum of money
(“performance bond”); or will the amount guaranteed not remain the
same during the term of the guarantee? In all these and similar
cases, it is better for both parties (and also for the bank) to
have clarity in advance than having to conduct proceedings about
the interpretation of (the text of) the guarantee.