Fraudulent Demand for Payment of Bank Guarantee with an Emphasis on the UNCITRAL Convention on Independent Guarantees and Letter of Credit Guarantee

Sarbazian, Majid; Hashemi, Seyyed Raza

doi:10.22054/jplr.2017.7405

Fraudulent Demand for Payment of Bank Guarantee with an Emphasis on the UNCITRAL Convention on Independent Guarantees and Letter of Credit Guarantee

Document Type : Research Paper

Authors

Majid Sarbazian ¹

Seyyed Raza Hashemi ²

¹ Assistant Professor of Shiraz university

² M. A in Private Law of Shiraz university

https://doi.org/10.22054/jplr.2017.7405

Abstract

Bank guarantees are one of the most effective international instruments used in
commercial contracts. Without bank guarantees, it would not be possible to fulfil
obligations of the parties or the parties would encounter potential risks. Bank
guarantees provide the beneficiary with a certain and immediate payment of a
wealthy sponsor in his country. The only exception to the principle of independence
is the issue of fraud, which has universally been recognised. This exception could
prevent claim and payment to beneficiaries. The question addressed in this article
is: What are the international rules on the issue of fraud in bank guarantees and what
measures have been taken by the UN Convention on Independent Guarantees and
Credit Guarantees ? International Chamber of Commerce has been silent on this
issue or at least has not dealt with it expressly . However, the aforementioned
Convention is the only document that contains provisions regarding fraud, even
though it does not provide an exhaustive list and exact details. It nevertheless
provides a useful guidance for courts.

Keywords

Demand for Payment

The Principle of Independence

Except for Payment Obligations

The Prohibition of Payment

Ffraud

- Barnes, James G (1994), ”Defining Good Faith Letter of Credit Practices.”Loyola of Los Angeles Law Review, vol. 28.

- Bergsten, Eric E (1993), ”A New Regime for International Independent Guarantees and Stand-by Letters of Credit:The Uncitral Draft Convention on Guaranty Letters.” The International Lawyer, Vol. 27, No.4.

- Buckley, Ross P, Xiang, Gao (2002), ”The Development of the Fraud Rule in Letter of Credit Law: the Journey So far and the Road Ahead.” International Economic Law.

- Chipashvili, Nino (2013), ”The Bank Guarantees under the Uniform International Rules.”European Scientific Journal, Vol. 1.

- Davidson, Alan (2010), ”Fraud and the UN Convention on Independent Guarantees and Standby Letters of Credit”. International Commercial Law, Vol. 1, Issue.1,.

- Davidson, Alan (2012), ” Unconscionability in Letters of Credit and Demand Guarantee Transactions.”International Journal of Technology Policy and Law, Vol. 1, Issue.2.

- De Ly, Filip (1999), ” The UN Convention on Independent Guarantees and Standby Letters ofCredit.” The International Lawyer. Vol. 33, No.3.

- Fedotov, Alexi (2008), ”Abuse, Unconscionability and Demand Guarantees:New Exception to Independence.” International Trade and Business Law Review, Vol. 11.

- Hsin Hsu, Chung (2006), ”the Independence of Demand Guarantees, Performance Bonds and Standby Letters of Credit.” National Taiwan University Law Review.

- Xiang, Gao, Buckley, Ross P (2003), ”A Comparative Analaysis of the Standard of Fraud Required under the fraud in Letter of Credit Law.”Duke Journal of Comparative & International Law, Vol. 13.