Bank Guarantee Dr. Ramlan Ginting, S.H., LL.M 2012

Bank Guarantee

Dr. Ramlan Ginting, S.H., LL.M2012

Bank Guarantees, Dr. Ramlan Ginting, 2006 2

Definition of Bank Guarantee

Bank Guarantee, as a concept, means any financial obligation of a bank to a beneficiary

Bank Guarantee, as a banking product, consists of Standby L/C, Demand Guarantee and Bank Guarantee


Standby L/C

Standby L/C is an independent guaranty


Structure of Standby L/Cas independent guaranty

Issuing Bank

Applicant Beneficiary

Standby L/C

Underlying Contract

Contract to issue Standby L/C


Principles of Standby L/Cas independent guaranty

Independent Principle

(Art 4 UCP 600 & Rule 1.06 and 1.07 ISP98) Document Compliance Principle

(Art 5 UCP 600 & Rule 4.01 ISP98)

Statement of Default (Rule 4.17 ISP98)

Presentation of a claim (Art 14a UCP 600 & Rule 1.06 and 1.07 ISP98)

Primary Obligation (Art 15a UCP 600 & Rule 3.01 and 3.02 ISP98)


Legal aspects of Standby L/Cas independent guaranty

International Rules on Standby L/C

- UCP 600

- ISP98 Law on Standby L/C

- International Courts’ Decisions

- Article 5 Uniform Commercial Code Dispute Resolution: Arbitration or Court


Legal aspects of Standby L/Cas independent guaranty

Fraud in the Implementation of Standby L/C

- Fraud on underlying transaction

- Fraud on documents presented Injunction needed

- From Court

- From Arbitration

Demand Guarantee

Demand Guarantee is an independent guaranty



Structure of Demand Guaranteeas independent guaranty

direct guaranty Issuing Bank


Demand Guarantee

Underlying Contract

Contract to issue Demand Guarantee


Structure of Demand Guarantee as independent guaranty

C. Guarantor

Applicant

Issuing Bank

Beneficiary

Counter Guarantee

Underlying Contract

Contract to issue Demand Guarantee

Demand Guarantee


Principles of Demand Guaranteeas independent guaranty

Independent Principle (Art 5a URDG 758)

Document Compliance Principle (Art 6 URDG 758)

Statement of Default (Art 15a URDG 758) Presentation of a claim (Art 15a URDG 758) Primary Obligation (Art 15a and 19a URDG 758)


Legal aspects of Demand Guarantee as independent guaranty

International Rule

- URDG 758 Law on Demand Guarantee

- International Courts’ Decisions Dispute Resolution: Court or Arbitration


Legal aspects of Demand Guaranteeas independent guaranty

Fraud in the Implementation of Demand Guarantee

- Fraud on underlying transaction

- Fraud on documents presented Injunction needed

- From Court

- From Arbitration

Standby L/C and Demand Guarantee

Standby L/C and Demand Guarantee provide the similarity and difference


Similarity between Standby L/C and Demand Guarantee

Both as independent guaranty Both as international (modern) bank

guarantee Having the same principles in the

implementation (easy to claim and pay) Guaranteeing payment obligation or

performance obligation


Similarity between Standby L/C and Demand Guarantee

ISP98 or URDG 758 provides provision on applicable law (governing law) in the Standby L/C or Demand Guarantee

In general, ISP98 or URDG 758 has some provisions on legal aspects of the Standby L/C or Demand Guarantee

In general, both ISP98 and URDG 758 have the same rules of practice for Standby L/C and Demand Guarantee as well


Different Provisions on Standby L/C and Demand Guarantee

Standby L/C is paid by sight payment, deferred payment, payment by acceptance or payment by negotiation (Rule 2.01 ISP98), but, Demand Guarantee is only paid by payable on demand (Art 19a plus 20b URDG 758)



Standby L/C is issued under a direct guaranty scheme (Rule 1.09 plus 2 ISP98), but Demand Guarantee is issued under a direct guaranty or indirect guaranty scheme (Art 2, 5, 15b and 24b)



The limit of time to examine documents under ISP98 is maximum 7 banking days after the presentation of documents (Rule 5.01), and under URDG 758 the limit of time is maximum 5 banking days after the presentation of documents (Art 20a)



Examination of documents for Standby L/C based on compliance (Rule 4.01 ISP98) and inconsistency (Rule 4.03 ISP98), on the other hand, examination of documents for Demand Guarantee based on compliance (Art 19a URDG 758) and not in contradiction (19b URDG 758)


Different Coverage of Rules on Standby L/C and Demand Guarantee

ISP98 has provisions on legal aspects such as the applicable law of the Standby L/C (Rule 1), authority to issue Standby L/C (Rule 1), formal requirements to execute Standby L/C (Rule 1), fraud issues (Rule 1), force majeure (Rule 3.14) and claimed successor (Rule 6), on the other hand, URDG 758 has provisions on force majeure in details (Art 26), governing law (Art 34), and jurisdiction (Art 35)



ISP98 has provisions on confirmer (Rule 1.09 and 2.01),reimbursement in details (Rule 8) and syndicated issuer (Rule 10), on the other hand, URDG 758 has provisions on currency of payment in details (Art 21), variation of the amount (Art 13),force majeure in details (Art 26) and counter guarantee (Art 2, 5,15b,16 and 24b)



Basically, ISP98 and URDG 758 is separated each other

ISP98 is intended to be the Rule for Standby L/C, and URDG 758 is the Rule for Demand Guarantee

Standby L/C originates from USA, and Demand Guarantee originates from UK


Bank Guarantee

Bank Guarantee is a dependent guaranty



Structure of Bank Guaranteeas dependent guaranty

Issuing Bank


Bank Guarantee

Underlying Contract

Contract to issue Bank Guarantee


Principles of Bank Guaranteeas dependent guaranty

Dependent Principle (Ps 1821 KUHPerdata)

Actual Default (Ps 1831 jo 1238 KUHPerdata)

Presentation of a Claim (Ps 1831 jo 1238 KUHPerdata)

Primary Obligation vs Secondary Obligation (Ps 1831 KUHPerdata)


Law on Bank Guaranteeas dependent guaranty

National Law (Kitab Undang-Undang Hukum Perdata)

National Regulations(Surat Keputusan Direksi BI & Surat Edaran BI)


Conclusion

Standby L/C and Demand Guarantee is separated each other

ISP98 and URDG 758 as international Rules is also separated one to another

However, Standby L/C or Demand Guarantee has the same function that is to guarantee payment and performance obligation

Conclusion

Standby L/C or Demand Guarantee is independent guaranty, but Bank Guarantee is dependent guaranty

Bank Guarantee is also issued to guarantee payment and performance obligation as well

Bank Guarantee is regulated under national law



Documents

Bank Guarantee Dr. Ramlan Ginting, S.H., LL.M 2012