Guarantees - Frequently Asked Questions

What is the difference between a demand guarantee and a conditional guarantee?

Under a guarantee payable on demand, the bank will typically pay against a declaration of breach of contract or default. Under a conditional guarantee, the bank will wait for confirmation that the condition has been satisfied before paying. UK banks are reluctant to issue conditional guarantees.

What are bid bonds and performance bonds – and why are they issued?

Bid or tender bonds are issued by the bank on behalf of an exporter to protect the importer in cases where the exporter’s bid is accepted under a tender process but the exporter fails to sign the contract.

A performance bond is also issued by the exporter’s bank and will reimburse the importer if the exporter fails to fulfil its obligations under the contract.

What is the difference between a direct guarantee and a counter-guarantee?

A direct guarantee is issued by Danske Bank and sent directly to the beneficiary or sent via their bank. By comparison, if Danske Bank asks a foreign bank to issue a guarantee on our behalf, Danske Bank issues a counter-guarantee as security.

If Danske Bank issues a counter-guarantee, it usually means that there are more expenses than would arise for a direct guarantee. Generally, the guarantee will not be subject to Northern Ireland law, which for example can mean that an expiry date might not be respected.

What is the difference between guarantees with and without an expiry date?

If a guarantee is issued with an expiry date, it means that the guarantee is no longer valid after this date provided the guarantee is subject to Northern Ireland law. If subject to foreign law, the beneficiary's country may fail to recognise this and hold the guarantee valid for claims after the expiry date.

If there is no expiry date in the guarantee, the guarantee can be cancelled only when either the original guarantee is returned to Danske Bank or when we receive notice that we are released from our obligations.

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Although Danske Bank has taken care in the preparation of these questions and answers, it cannot accept responsibility for any loss, injury, or damage (consequential or otherwise) resulting from any action taken in the information set out herein. The information and any opinions are not intended to be a complete guide to the subjects covered and do not provide specific advice. The information is intended to be general only and you should seek specific advice before taking any action.

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