Oil & Gas: Unwitting ‘on-demand’ bond by guarantor By Phillip Ashley , Jonathan Dames, Rob Wilson and Leontine Mathew In Rubicon Vantage International PTE Ltd v Krisenergy Ltd [2019] EWHC 2012 (Comm), the Commercial Court decided that the specific wording of a ‘charterer guarantee’ resulted in aspects of it being treated akin to an on-demand bond rather than a co-extensive guarantee. The practical implication of this was that the guarantor, in this case the parent company of the debtor, was required to make payment before the underlying dispute was resolved, whereas payment under what is sometimes called a “true guarantee” usually only falls due following a decision on the merits of any underlying dispute. The Commercial Court’s decision serves as a warning to those that use such instruments that although ‘guarantees’ are not presumed to be on-demand bonds, they are capable of being treated as having a similar effect to such instruments if that is the natural and ordinary meaning of the words used. Facts Rubicon Vantage International PTE Ltd (“Rubicon”) is a Singaporean company that owns a Floating Storage and Offloading Facility (the “FSO”) called the ‘Rubicon Vantage’. In 2014, it chartered the FSO to Kris Energy (Gulf of Thailand) Limited (“Kegot”) for use on an oil field in Southeast Asia. The Guarantee Around the same time that the charter was agreed, Kegot’s parent company Krisenergy Ltd (“Krisenergy”) executed a ‘Charterer Guarantee’ (the “Guarantee”) in favour of Rubicon. The Guarantee was governed by English law, and provided that: • Where “the amount(s) demanded under this Guarantee are not in dispute between [Kegot] and [Rubicon]”, Krisenergy, as guarantor, is obliged to pay the amounts demanded within 48 hours from receipt of a demand (clause 4). • Where there is a dispute between Kegot and Rubicon “as to [Kegot’s] liability in respect of any amount(s) demanded under this Guarantee”, Krisenergy is obliged to pay the amount demanded up to a maximum of USD 3 million “notwithstanding any dispute between [Kegot] and [Rubicon]” (clause 5). Clause 5 further stated that any sums demanded in excess of USD 3 million may be withheld or deferred by Krisenergy until a final judgment or final non-appealable award was published (or an agreement reached between Kegot and Rubicon in relation to the dispute). • A demand under this Guarantee must be in writing and must (amongst other things) be accompanied by a calculation of sums demanded together with “any supporting documentation reasonably required to assess such demand” (clause 3). The Demand In 2015, Rubicon sent Kegot four invoices totalling a little in excess of USD 1.8 million, for works Rubicon had organised on the FSO pursuant to the terms of the charter. Kegot disputed that it was liable to pay these amounts under the charter, and legal proceedings were commenced between Kegot and Rubicon in relation to the dispute.