The demand: what it must say, and how fast the money goes

Wednesday, 11:20

A courier hands an envelope to the trade-finance department of Corniche Commercial Bank. Inside is one page on Kerrund State Railways letterhead, signed by KSR's Director of Finance.

We hereby demand payment of the full amount of your guarantee CCB/G/27-0114. The Supplier is in breach of Contract KSR/UNI/271 in that Tranche 1 was not delivered by the Contract Delivery Date of 15 March 2027.

That is the whole document. No inspection report. No correspondence. No calculation of loss. No evidence of anything. Twenty-five minutes later the guarantee desk has finished examining it, and the bank's position is settled. Everything after that is a calendar.

The five checks, and nothing else

A guarantee desk does not ask whether Zawya was late. It runs a comparison. The two things being compared are the demand and the bank's own instrument. Nothing from the sale contract enters the room. If you have read course 13.2 on documentary credits, this will feel familiar. It is the same discipline of documents against documents, applied to a much shorter document.

1. Is it from the named beneficiary? The guarantee names Kerrund State Railways. A demand from KSR's holding ministry, or from a subsidiary, or from a successor entity nobody told the bank about, is not a demand under this instrument.
2. Is it in the form the guarantee requires? This one says "a written demand signed by your Director of Finance". Signed by the Head of Procurement, it fails. In practice this is the single commonest reason a demand is refused.
3. Is it presented at the named place, in time? The guarantee names Corniche's trade-finance department in Cairo and an expiry of 30 November 2027. Presented at a branch, or a day late, it is not presented at all.
4. Is the amount within the guarantee? USD 248,000 against a face of USD 248,000, undrawn. It is.
5. Does it carry whatever supporting statement the guarantee requires? This guarantee requires the demand to say in what respect the applicant is in breach. Most guarantees written under the ICC demand-guarantee rules do. KSR's second sentence is that statement.

All five match. The demand complies. Corniche is now obliged to pay, and its obligation runs to KSR, not to Zawya.

Seven days, and only one of them mattered

The payment came out of two places. The blocked cash margin Corniche had held since January, USD 74,400, went first. The rest, USD 173,600, was debited straight from Zawya's current account on the morning of 21 April. There was no further conversation, because the facility agreement Zawya signed in December says the bank may do this.

Notice what Zawya could not do. And be clear that none of it was incompetence.

• Instruct the bank not to pay. Zawya is the applicant, not a party to the guarantee. Its instructions have no standing under the instrument. A bank that followed them would be in breach of its own undertaking to KSR.
• Argue the merits. There is no forum in the guarantee for arguing merits. There is no forum at all. That is the design.
• Get an injunction on the strength of a dispute. Courts in most countries will stop payment only in narrow circumstances. A genuine disagreement about who caused a delay is not one of them. Lesson 5 goes into how narrow.

Zawya did the one thing that was available, and did it well. It checked compliance within the hour. The demand complied. After that, the seven days were a formality.

Act as a trade-finance lawyer advising a supplier in a hurry. A demand has been presented under an instrument my bank issued, and the bank says it intends to pay. Be blunt about what is and is not available to me. Here is the instrument's operative text: [PASTE IT]. Here is the demand exactly as received: [PASTE IT, INCLUDING WHO SIGNED IT, WHERE AND WHEN IT WAS PRESENTED, AND ANY DOCUMENTS ATTACHED]. Background: buyer [BUYER], contract [NUMBER], what actually happened [DESCRIBE IT PLAINLY, INCLUDING ANY EXTENSION OF TIME AGREED AND WITH WHOM], amount demanded [AMOUNT], my bank's stated payment date [DATE]. Do the following. First, run a compliance check of the demand against the instrument alone, item by item: beneficiary, form, signatory, place and medium of presentation, timing against expiry, amount, and any required supporting statement. For each, say match, mismatch or arguable, and quote the words on both sides. Second, if anything mismatches, draft the notice I should send my bank today. Word it in the language of the instrument, not of the contract. Third, tell me honestly whether what happened amounts to anything a court would treat as fraud or abuse rather than a contractual dispute. If it does not, say so plainly and stop. Fourth, list what I should preserve now for a later claim on the underlying contract, in the order I should collect it. Fifth, tell me what to say to my bank and my buyer today, and what not to say. Sixth, quantify the cash impact: the debit, what it does to my facility headroom, and the financing cost of being without the money for [NUMBER] months. Do not tell me the bank might be persuaded to hold payment unless the instrument's own terms give it a reason to.

The drill, for the hour you will actually have

Write this down now. The day it happens is not the day to work it out.

1. Get the guarantee text on the screen. The operative wording. Not the contract clause, and not the email from the tender team. If your bank has it and you do not, that is a filing problem you can fix this week.
2. Line the demand up against it, clause by clause, on the five checks above. Look hardest at the signatory, the place of presentation and the supporting statement.
3. If anything fails, tell the bank in writing, immediately, in the language of the instrument. Say "the demand is signed by an officer other than the one named". Do not use the language of the contract. The bank can act on the first and cannot act on the second.
4. If it complies, stop arguing and start on recovery. Tell your finance director the money is going, so the cash forecast is corrected today rather than on the day of the debit. Then open the underlying-contract file. That is now the only route back.
5. Log the amount, the date and the account it will come from. Lesson 5 shows what the missing cash costs while you get it back. It is more than the call.