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2016-10-03 08:34:11

Parent Company Guarantee

We have a Guarantee Deed included in one of our overseas contracts, which was drafted by a legal firm in that jurisdiction, for that customer. Another prospect has reviewed a copy of the same deed but has requested one addition to the actual guarantee clause, as follows:

"Any demand for payment or indemnity issued by the Client to the Guarantor, unless manifestly wrong, shall be conclusive and binding."

We have approached the legal firm who drafted the document to comment, but they have declared internal conflict, in that commenting on the work previously drafted for one of their clients may present a risk of future conflict.

I don't know the exact legal impact of this and wondered if anyone can help?
a) Should we accept it? If we do what are the implications?
b) If we should not accept this clause, why not? What are the legal / risk arguments for refusing?
Many thanks
 •   2016-10-04 10:19:13
It's not possible to give a meaningful comment without seeing the whole of the document, but I would suggest that the additional clause would SIGNIFICANTLY reduce the Parent Company's ability to defend itself against claims from the beneficiary. It may also remove any prospect of appealling / challenging the claim afterwards.

Reading between the lines - did the legal firm who wrote the document do so for your customer, not for you? If so, the whole document is likely to favour your customer, meaning it creates increased risks for you and your parent company. You would be best served by getting it independently reviewed before proposing it to future customers.

Your parent company may separately want to review its policies as to when / how a PCG will be granted.
 •  Cheniere  •   2016-10-04 12:19:18
I would suggest an alternate approach....Have a legal opinion on the enforceability of the guarantee based on verification by Contractor's in-house or outside counsel on the text in the PCG. You want to have confirmation on compliance with any formalities required by such corporate documents or applicable laws to make the guarantee a legally binding obligation.

 •  IACCM  •   2016-10-09 15:39:31
My view is that the added wording could be highly detrimental to your position. 'Unless manifestly wrong' generates substantial room for debate. For example, when does it become 'manifest'? What is the degree or extent of 'wrong'? If the event triggering the claim is 'manifestly right', but the amount claimed appears potentially wrong, does that mean you must pay?

I agree with John that the start point here is your client. If they want you to engage direct with the law firm, they should instruct them accordingly. In either case, you need to query their intent and why they consider this addition necessary.
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