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Letters of Guarantee on Demand in Qatar

By: Ribal Fattal –  Senior Associate

According to Law No. 13 of 2012 (“QCB Law”), the Qatar Central Bank (“QCB”) is the highest regulatory and supervisory body for all banks and financial institutions operating in the State of Qatar (“Qatar”). On October 31, 2019, the QCB issued Circular No. 42 of 2019 (“QCB Circular”) addressed to all banks operating in Qatar. Pursuant to the QCB Circular, banks were instructed to use the unified form of Demand Guarantee, which was drafted pursuant to the International Chamber of Commerce (“ICC”) Uniform Rules for Demand Guarantees (“URDG”). The guarantee form (“Guarantee Form”) was attached to the QCB Circular in both the English and Arabic languages.

Under Section 1 of the QCB Circular, banks must use the Guarantee Form when issuing any new letters of guarantee as of the date of the QCB Circular. Pursuant to Section 3 of the QCB Circular, if any amendments to the unified rules are issued by the ICC in relation to letters of guarantee on demand, the banks operating in Qatar must inform the QCB of the same in order to make the necessary changes to the Guarantee Form.

The Guarantee Form applies to all letters of guarantee issued in any sector and industry. Under the Guarantee Form, the relevant parties should specify the type of the guarantee, for example, whether it is a tender guarantee, advance payment guarantee, performance guarantee, payment guarantee, retention of money guarantee, warranty guarantee, etc.

The Guarantee Form is comprehensive and creates a balance between the interests of its parties following international practices. Further, the Guarantee Form is subject to the Uniform Rules for Demand Guarantees 2010 revision, ICC Publication No. 758 (“URDG 758”). Also, the Guarantee Form includes Article 5 of the URDG 758 stating the following:

A guarantee is by its nature independent of the underlying relationship and the application, and the guarantor is in no way concerned with or bound by such relationship. A reference in the guarantee to the underlying relationship for the purpose of identifying it does not change the independent nature of the guarantee. The undertaking of a guarantor to pay under the guarantee is not subject to claims or defences arising from any relationship other than a relationship between the guarantor and the beneficiary as described in the form of the guarantee.”

Under Article 219 of the QCB Law, the QCB may impose a monetary penalty up to QR 10,000,000 for each violation of the provisions of the QCB Law, executive regulations, decisions or instructions issued by the QCB for its implementation. Further, the QCB may impose a fine of up to QR 100,000 per day for each ongoing violation. The QCB has the prerogative to determine the appropriate penalty on a case-by-case basis after notifying the bank of the violation and setting a period by which the violation must be remedied.

In light of the above, all banks in Qatar must adopt the Guarantee Form to avoid penalties that may otherwise be imposed by the QCB.