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How should a bank guarantee be interpreted in the event of an unlawful claim?

Bank guarantees issued in connection with construction contracts sometimes contain ambiguous wording and do not state clearly enough the purpose for which they were issued (e.g. advance payment or performance bond).

Under Austrian law, if the wording of the guarantee is not clear, the intention of the parties must also be taken into account in accordance with section 914 of the Austrian Civil Code (ABGB). If there is no proven concordant intention of the parties that deviates from the literal meaning of the text of the guarantee, only its ordinary meaning is decisive, but not how a party subjectively understood it (Austrian Supreme Court, RS0017783).

If an unclear formulation cannot be resolved in such way, it must ultimately be interpreted in accordance with section 915 ABGB to the detriment of the party who has made use of it. If, for example, the employer has provided a specific template for the bank guarantee that he requires in the context of construction contracts, the unclear wording in his template regarding the scope of liability covered is to be interpreted to his disadvantage. In case of doubt, it can be assumed that the obligor wanted to enter into the lesser rather than the more onerous obligation, and a bank guarantee could then be regarded as a mere advance payment guarantee and not as a performance guarantee (Austrian Supreme Court, 3 Ob 97/20s).

For the difference between advance payment guarantees and performance bonds, see:

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