The self-contained nature of the guarantee of payment of the amount on first demand and unconditionally – Supreme Court ruling

Pierwszeństwo zaspokojenia

Application of bank and insurance payment guarantees

A common instrument in practice for securing claims that may arise from contractual relations are bank and insurance payment guarantees. The provision of such a guarantee, as a rule, involves the debtor from the primary relationship ordering the bank or insurer to provide a guarantee in favor of its creditor, and then a separate contract is concluded between the bank or insurer that is the guarantor and the beneficiary of the guarantee (the creditor from the primary relationship), which, as a rule, takes the form of a guarantee document transferred into the possession of the beneficiary of the guarantee. The conditions for the use of the guarantee are determined by the basic relationship, although its content is binding only between the parties to this contractual relationship.

Universality of non-accessory payment guarantees

Payment guarantees of a non-accessory nature are common in practice. Their independent nature stems from the inclusion in the content of the guarantee of such expressions as “irrevocable”, “unconditional” and creating an obligation to pay a specified amount “on first demand”.

The independent nature of the guarantee, as a rule, excludes the examination of the content of the basic relationship in a suit for payment under the guarantee

On the background of the payment guarantee shaped in this way, the Supreme Court in its judgment of March 2, 2023 ref. II CSKP 905/22 came to decide whether in a lawsuit between the beneficiary of the guarantee and the guarantor it is permissible to raise allegations concerning the basic relationship, in particular the allegation of violation of Article 5 of the Civil Code formulated as an allegation of abuse of subjective right by demanding payment of the amount under the guarantee agreement in a situation where the demand for payment of this amount under the basic relationship is a demand that does not exist or is disputed between the parties to the basic relationship.

In the aforementioned case, the Supreme Court recalled that the non-accessory nature of a payment guarantee is related to the socio-economic purpose of this type of security, which is to enable the beneficiary to obtain funds in principle immediately (“on first demand”) and without the need to prove that a claim under the basic relationship actually exists.

Given the above nature of a non-accessory guarantee, a trial for payment of the amount of the guarantee should not lead to an examination of the existence and content of the primary relationship, while the Supreme Court has not definitively ruled out the possibility of examining in such a trial the demand for payment of the amount of the guarantee through the prism of Article 5 of the Civil Code, but this examination should be reduced to determining whether the demander of the payment of the guarantee seeks to obtain an additional benefit at the expense of the guarantor, which may occur, for example, in a situation of exclusive pretence of the existence of a claim from the primary relationship.

The contentiousness of the claim is not a basis for refusing to pay the benefit of the payment guarantee

The mere fact that there is a dispute as to the existence of a claim under the basic relationship, which formed the basis for directing the demand for payment of the amount of money from the bank guarantee, cannot constitute a basis for dismissing such a demand by invoking Article 5 of the Civil Code. Consideration of the circumstance in question as a basis for dismissal of the claim for payment of funds from the bank guarantee would be a significant weakening of the intrinsic nature of the payment guarantee, which is of key importance from the point of view of trading.

Indeed, the function of the guarantee becomes apparent precisely in the event of disagreement as to whether the beneficiary of the guarantee is entitled to a claim under the basic relationship, while the use of the guarantee then not only does not contradict the purpose of the self-guarantee, but precisely realizes the socio-economic purpose of this right.

Reversed burden of proof under the primary relationship

It is also noteworthy that the Supreme Court indicated that the instrument of a payment guarantee of a non-accessory nature indeed reverses the burden of proof under the basic relationship in the event of a dispute between the parties as to the existence of a claim that is the basis for the creditor’s use of a bank or insurance guarantee granted at the request of the debtor under the basic relationship. This is because in the final analysis, it is the debtor from the basic relationship who is forced to prove the non-existence of the claim in a lawsuit against its creditor, which differs from a standard civil trial, where the creditor bears the burden of proving the existence of the claim.