While suretyship is defined by Article 2288 of the French Civil Code as the commitment by which the surety “undertakes towards the creditor to satisfy the obligation if the debtor fails to do so“, the autonomous guarantee, defined in Article 2321 of the Civil Code since Ordinance No. 2006-346 of 23 March 2006, is “the commitment by which the guarantor undertakes, in consideration of an obligation entered into by a third party, to pay a sum either on first demand or according to agreed terms“, it being specified that “The guarantor may not raise any defence relating to the guaranteed obligation“.
To prevent the execution of an international guarantee, the principal may attempt to oppose payment by applying to the interim relief judge within very short timeframes to prohibit the guarantor from paying.
This application may be made on the basis of Article 873 of the French Code of Civil Procedure, which allows the judge to prescribe any measure “to prevent imminent harm“.
However, given the very nature of the commitment made, applications to prohibit payment are granted only in very limited cases specified by Article 2321 of the Civil Code, namely “cases of manifest abuse or fraud by the beneficiary, or collusion between the beneficiary and the principal“.
Beyond these exhaustively listed cases, one sometimes encounters arguments based on challenging the very classification as an autonomous guarantee. Indeed, the terminology used by the parties in the underlying contract and in the guarantee itself (such as “guarantee“, “letter of guarantee“, “performance bonds“, “first demand guarantee“, “LCSB”) can sometimes be misleading as they may be contradicted by the actual substance of the instrument. These approximations and contradictions blur the distinction between autonomous guarantees and suretyship.
In such a situation, the principal has every interest in invoking the classification of suretyship, which allows the raising of defences, in order to prevent payment.
Faced with these ambiguities, it falls to the judge to determine whether the uncertainty regarding the classification of the guarantee is sufficiently significant to prohibit payment. On the merits, it will be for the court to ascertain and restore the classification corresponding to the parties’ intention.
Two cumulative criteria characterise the autonomous guarantee and distinguish it, in particular, from suretyship:
– on the one hand, the non-opposability of defences (Art. 2321 of the Civil Code, para. 3). The assessment of this criterion is straightforward when the instrument explicitly provides that the guarantor may not rely on any circumstance relating to the underlying contract. However, the mere phrase “on first demand” does not in itself sufficiently express the non-opposability of defences. In case of doubt, pursuant to Article 1190 of the Civil Code, the contract shall be interpreted “against the creditor and in favour of the debtor“;
– on the other hand, the autonomy of the subject matter of the guarantee. The entire question is whether the obligation to pay relates to “a sum” or “any sum” rather than what the debtor owes. Conversely, as soon as there is a question of paying “sums due” or “sums remaining due” by the debtor, the guarantee loses its autonomy (Com. 13 December 1994, 92-12.626). However, a mere reference to the underlying contract has no bearing provided that the amount and terms of the guarantee are independent (Com. 30 January 2001, 98-22.060).
A recent ruling illustrates the assessment of this latter criterion regarding an agreement designated as a “first demand guarantee“. To dismiss the classification as an autonomous guarantee, the Supreme Court reasoned as follows:
“10. In ordering JJW Limited to pay the bank the sum of EUR 22,091,922.13, the judgment, after reproducing the clause by which the company undertook to pay “any sum that the beneficiary may claim up to a maximum amount equal to the total sums due and payable as defined by the credit facility agreement at the time of the payment demand under the guarantee”, held that the parties are experienced business persons who agreed, through an unambiguous agreement excluding any judicial interpretation, on a security recognised by French law to which they had submitted, which does not distinguish according to the subject matter of the guarantee, and held that contractual freedom precluded classification as suretyship.
11. In ruling thus, whereas it was apparent from the wording of the disputed clause that the obligation of JJW Limited had the same subject matter as that of JJW Luxury Hotels, Amarante and Median, joint and several co-borrowers, the Court of Appeal violated the aforementioned provision“.
(Com. 24 March 2021, 19-14.082, Unpublished)
In the case at hand, the reference to the underlying contract was not a mere reference but defined the very subject matter of the guarantee: the guarantor was obligated to pay the sums owed by the debtor.
This decision demonstrates that drafting such guarantees is a difficult exercise where the stakes are often too high to allow for error. These regrettable errors fuel abundant litigation and are detrimental to legal certainty in business.
