Autonomous guarantee finally enshrined in law

Through these new rules, the legislator not only clarifies the autonomous nature of this form of security, but also specifies the obligations of the guarantor and the limits to the application of this legal instrument.

What is an autonomous guarantee?

An autonomous guarantee is a personal security by which a third party, the guarantor (often a bank), undertakes to pay a specified amount upon a simple written demand from the beneficiary.

Suppose a contractor enters into a contract with a project owner and obtains an autonomous guarantee from its bank. If the contractor fails to fulfil its contractual obligations, the project owner may call upon the bank to pay out the guaranteed amount. In that case, the bank must pay immediately, without examining whether the underlying contract has been properly performed.

An autonomous guarantee always involves three parties: the applicant who requests the guarantee, the beneficiary who may call upon it, and the guarantor who is responsible for payment.

It is important to note that the guarantor does not guarantee performance of the underlying contract, but only payment once the conditions set out in the guarantee text have been met. This is also clear from the example: the bank does not have to verify whether the contractor is actually in default, but must pay as soon as the project owner submits a simple request.

Difference from suretyship

A major advantage is that the legislator has clearly clarified the distinction between an autonomous guarantee and a suretyship. The autonomous guarantee fundamentally differs from a suretyship (“caution”/”borgtocht”).

A suretyship is accessory in nature: it is entirely dependent on the underlying debt. The surety is only obliged to pay once it has been established that the principal debtor has defaulted. Moreover, the surety may invoke the same defenses as the debtor himself.

In the context of our example, this would mean that if the bank had acted as a surety for the contractor, the project owner could only call upon the bank after it had been sufficiently demonstrated that the contractor had failed to meet its obligations. The bank could still rely on the defense that the contractor did perform correctly or that the alleged default is disputed. Payment would therefore only follow after the underlying dispute has been resolved.

With an autonomous guarantee, matters are different. This form of security is non-accessory: the guarantor’s obligation is entirely independent of the underlying agreement. As soon as the guarantee is validly called in accordance with the guarantee text, the guarantor is obliged to pay, even if there is still a dispute between the applicant and the contractor as to whether a default exists.

Applied to the same example, this means that with an autonomous guarantee the project owner only needs to submit a simple request to the bank. The bank may not investigate the dispute between the project owner and the contractor and must proceed to immediate payment.

This far-reaching nature explains why Book 9 provides that consumers may not issue an autonomous guarantee. If a consumer nevertheless does so, the guarantee is automatically converted into a suretyship. The protective purpose of this rule is evident.

Obligations of the guarantor

The autonomous nature of the guarantee also entails specific obligations for the guarantor.

First, upon a valid demand, the guarantor is obliged to proceed to payment without delay, and expressly within a period of seven working days, or to inform the beneficiary of a refusal to pay, stating the reasons. Failure to comply with these obligations renders the guarantor liable for the resulting damage.

Once the guarantor receives a payment request, it has a clear duty to inform. It must notify the applicant for the guarantee without delay and at the same time indicate whether the request received complies with the conditions of the guarantee text. Transparency and acting without delay are essential in this regard.

Applied to the example, this means that once the project owner submits a compliant request, the bank must immediately proceed to payment, without investigating whether the contractor is actually in default. The bank must, however, inform the contractor thereof without delay.

Limitations and protection against abuse

Although the guarantor may not, in principle, invoke defenses arising from the underlying agreement, it may refuse payment where the demand is manifestly abusive or fraudulent. This threshold is high: payment may only be withheld where there is no reasonable doubt.

In our example, this could occur if the project owner submits false documents or statements to the bank in order to call the guarantee, for instance by pretending that an important deadline has been missed when this is not the case.

This anti-abuse exception constitutes an important limitation on the guarantor’s obligation to pay and further underscores the distinction from a suretyship.

Duration, transfer and recourse

An autonomous guarantee must be called within the agreed period. If no period is specified, the guarantee may be terminated subject to a reasonable notice period.

In addition, the guarantee is personal in nature: it is linked to the identity of the beneficiary and may not be transferred.

After payment, the guarantor may recover the amount paid from the applicant.

Applied to our example, this means that the project owner must call the guarantee in a timely manner (within the agreed period, or otherwise within a reasonable period). Once the bank has paid the amount, it may recover that amount from the contractor.

What is the impact for practice?

The statutory anchoring of the autonomous guarantee brings greater clarity, while at the same time leaving parties considerable contractual freedom.

Most of the new rules are of a supplementary nature, allowing parties to tailor the guarantee to their specific needs. This means that parties may exclude most of the statutory rules and, for example, opt for the application of the URDG 758.

The example used throughout the text illustrates the core functioning of an autonomous guarantee. In practice, however, matters often involve significantly more complex cases, such as large-scale construction and infrastructure projects, international trade contracts and public procurement. Given the contractual freedom involved, it is all the more important that the guarantee text is drafted in a clear and unambiguous manner.

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The team at Andersen in Belgium is ready to analyze existing clauses and contracts relating to autonomous guarantees and, where necessary, adapt them to the new statutory framework. In addition, we are happy to assist you in the correct and clear drafting of new autonomous guarantees, fully tailored to the needs of your case.
Karen De Braekeleer (Partner) & Lara Van Dyck (Associate)