Banks cannot revise letters of guarantee

The duration of a letter of guarantee can be stipulated only by the owner of the letter and not the bank underwriting the same.

The bank has no right to revise the validity unless mentioned otherwise in the letter of guarantee, by the issuer.

The Dubai Court of Cassation issued this legal principle while ruling against a lawsuit filed by a company against a bank demanding payment of €1.212 million and interest.

According to the case filed, the plaintiff company entered into an agreement with a firm to buy 453 trucks by submitting five letters of guarantee.

The plaintiff argued that the bank should have released the amount only when the trucks were delivered.

The bank issued the payment without the plaintiff submitting any proof of receipt of trucks.

Hence the lawsuit, which the Court of First Instance dismissed.

The plaintiff then moved the Court of Appeal, which in turn, upheld the verdict of the lower court.

The plaintiff appealed the Court of Cassation, which rejected the appeal on the grounds that the bank had received from the beneficiary company a fax request, authorised by the plaintiff, to cash the letters of guarantee.

The bank executed the letter of guarantee in accordance with the content of the letter.

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