Kuwait Court of Cassation principle number 407

Summary: - A letter of guarantee. Its nature. An undertaking that itself creates, on the part of the issuing bank, an original, abstract or direct obligation to pay its value to the beneficiary whenever requested within the period specified therein, disregarding any objection by the instructing party; the bank is discharged, like the beneficiary, if it receives no request for payment from the beneficiary during the validity period. Exception. Express agreement to renew the letter of guarantee before its expiry at the beneficiary's request without the consent of the customer, the "instructing party". - A letter of guarantee containing no automatic renewal or right of the beneficiary to request its renewal for a further period before its expiry. Effect. The bank may not extend it except with the customer's consent and at his request. Reason. Extension of the term is established for the benefit of the instructing customer. Extension without his consent and despite his objection. Consequence. The bank's liability. - Defective inference in a judgment. When established. Where its reasons contain a defect affecting the soundness of the deduction; this occurs where the court bases its conviction on evidence objectively unsuitable to support that conviction, a failure to understand the facts established before it, or a contradiction between their elements. Rule: The provision in Article 382 of the Commercial Code that "A letter of guarantee is an undertaking issued by a bank at the request of its customer (the instructing party) to pay a specified or ascertainable amount to another person (the beneficiary), without restriction or condition, if requested to do so within the period specified in the letter ....", and the provision in Article 386 thereof that "The bank is discharged vis-à-vis the beneficiary if it receives no request for payment from the beneficiary during the validity period of the letter of guarantee, unless its renewal is expressly agreed before the expiry of that period", indicate—as established in the case law of this Court—that a letter of guarantee is a personal and final undertaking that itself creates, on the part of the bank, an original, abstract and direct obligation to pay its value to the beneficiary whenever requested within the period specified therein, disregarding any objection by the instructing party. The bank is discharged vis-à-vis the beneficiary if it receives no request for payment from the beneficiary during the validity period of the letter of guarantee, unless it is expressly agreed that that period shall renew automatically without the need for the consent of the customer (the instructing party), or it is expressly agreed that the letter of guarantee shall be renewed before its expiry at the beneficiary's request without the consent of the customer (the instructing party). Accordingly, where the letter of guarantee contains no automatic renewal or right of the beneficiary to request its renewal for a further period before its expiry, the bank may not, in that situation, extend the letter of guarantee except with the customer's consent and at his request, since extension of the term is established for the benefit of the customer (the instructing party). If renewal occurs without his consent and despite his objection, the bank is liable for it. It is established that the reasons of a judgment are considered tainted by defective inference if they contain a defect affecting the soundness of the deduction. This occurs where the court bases its conviction on evidence objectively unsuitable to support that conviction, a failure to understand the facts established before it, or a contradiction between the elements, as where the conclusion reached by the court does not logically follow from those elements.