VNESHPROMBANK LLC v GEORGY IVANOVICH BEDZHAMOV

When a party seeks to substitute a bank guarantee for security paid into court, the court must distinguish the legal effect of the guarantee from surrounding documents and correspondence. Under the URDG, the signed guarantee is construed according to its own terms and the rules incorporated into it. An accompanying advisory document may be admissible as context but does not necessarily alter the guarantee’s meaning. A factual recital concerning a counter-guarantee is immaterial where the guarantee remains independent and unconditional. For relief from sanctions, the Denton criteria apply. An immaterial and unprejudicial delay should not prevent substitution where refusal would impose a disproportionate sanction.

Vneshprombank LLC appealed against Master Kaye’s refusal to grant relief from sanctions and to vary consent orders governing the substitution of a bank guarantee for approximately £4 million held as security for costs. The executed guarantee was provided late and included wording referring to Credit Suisse as counter-guarantor. It was accompanied by an Advisory Note stating that Standard Chartered Bank might not be liable where sanctions affected performance.

The Master considered the Advisory Note integral to the guarantee, found a significant dilution of the agreed security, and refused relief under CPR 3.9 and Denton v White. The appeal concerned the legal effect of the Advisory Note and Credit Suisse wording, and whether relief should be granted for the timing breaches.

1. Appeal allowed. The Master’s order was set aside and the decision was remade. Vneshprombank was permitted to substitute the bank guarantee for the existing security.
2. The appeal concerned a case-management discretion. Appellate intervention was justified because the Master had made an error of principle by treating the Advisory Note as an integral part of the guarantee.
3. The guarantee was a self-standing document governed by English law and expressly subject to the URDG. Article 12 applied the four-corners rule. Article 2’s definition of a guarantee covered the signed undertaking, not the unsigned Advisory Note. The Note was admissible as evidence relevant to interpretation, but admissibility did not make it part of the guarantee or alter its clear undertaking to pay on demand.
4. The Credit Suisse wording was a factual recital concerning the counter-guarantee. Under article 5 of the URDG, Standard Chartered’s liability was independent of its relationship with Credit Suisse. The wording therefore had no legal effect and did not prevent the guarantee from being substantially in the agreed terms.
5. The consent-order authorities required caution before varying an agreed order. That principle did not prevent substitution here because the guarantee objectively complied with the bargain reached. The February order had not removed the requirement that the guarantee be substantially in the scheduled terms.
6. The timing breaches were neither serious nor significant and caused no prejudice while the funds remained in court. Applying CPR 3.9 and the three-stage Denton test, refusal of relief would be disproportionate. The delay did not materially affect efficiency or cost, Vneshprombank applied promptly, and the importance of compliance did not outweigh the disproportionate consequence.

• Chancery Appeals: Appeal from Master Kaye’s order dated 19 April 2021. The order was set aside and the decision remade.
• Master Kaye: Refused relief from sanctions and refused variation of the consent orders governing security for costs.