Bank Guarantees in International Trade

The Law and Practice of Independent (First Demand) Guarantees and

Standby Letters of Credit in Civil Law and Common Law Jurisdictions

Fourth Revised Edition

Roeland F. Bertrams

International Chamber of Commerce

The world business organization

Wolters Law & Business

DETAILED TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 1.1 General 1 1.2 Terminology. independent guarantee 4 1.3 The Origins of the American standby letter of credit 6 1.4 The American standby letter of credit is similar to the European independent guarantee 7 1.5 Issuers of guarantees 8 1.6 Countries and regions covered in this study. Practice 9 1.7 Method. Uniformity of the law 9

CHAPTER 2 OVERVIEW 2.1 Independence 11 2.2 Functions 13 2.3 Structure and terminology 15

Guarantee as a multi-party relationship. Interdependence 15 2.3.2 Direct guarantee, 'principal debtor', and 'instructing 15 2.3.3 Direct guarantee and advising bank 17 2.3.4 Indirect guarantee. bank and

Primary guarantee 19 2.3.5 The American standby letter of credit as a counter-guarantee 20 2.3.6 Confirmed guarantee 22 2.3.7 Personal security for reimbursement by the applicant or instructing party 22 2.3.8 Syndicated guarantees 25 2.3.9 guarantees 25 2.3.10 Loans and risk participation through guarantees 26

Transfer of credit risk by bank 26 2.4. Sources of law 28

2.4.1 The UNCITRAL Convention on independent guarantees and stand-by letters of credit 28 2.4.2 Developments in uniform law. URDG of the International ISP98 28

ISP98 31 2.4.4 National laws and regulations 33

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CHAPTER 3 TYPES OF GUARANTEE 3.1 General 35 3.2 Tender guarantees 36 3.3 Performance guarantees 37 3.4 Maintenance (or warranty) guarantees 38 3.5 Repayment (or advance payment) guarantees 39 3.6 Retention guarantees 40 3.7 Payment guarantees and standby letters of credit 41 3.8 Customs guarantees. EC repayment guarantees 42 3.9 Judicial guarantees 43 3.10 Other types 43

Autonomous guarantees. The German Garantievertrag. Indemnity 43

CHAPTER 4 CONDITIONS OF PAYMENT (PAYMENT MECHANISM) 4.1 Introduction. Main types. Documentary nature 45 4.2 Payment on first demand 46

4.2.1 General 46 4.2.2 'On simple Statement of default; prior notice of default and grace period 47 4.2.3 Article 15(a) URDG and statement of default 48 4.2.4 Reversal of risks 49 4.2.5 Words and phrases. Construction of the instrument 50 4.2.6 Origins 51 4.2.7 justified demand' 51 4.2.8 'In the event of default'. 52

4.3 Payment upon submission of third-party documents 52 4.3.1 Terminology and nature 52 4.3.2 Documents to be submitted by the beneficiary 53 4.3.3 Documents to be submitted by the applicant 55 4.3.4 Evaluation 55

4.4 Payment upon submission of an arbitral or court decision 56 4.4.1 General 56 4.4.2 Comparison with suretyship. Advantages for banks 57 4.4.3 Additional clauses 57

4.5 Suretyship payable on first conclusive evidence clauses 58

4.5.1 'Suretyship' payable on first demand. France, the Netherlands and Belgium 58 4.5.2 Suretyship payable on first Germany 60

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4.5.3 Germany. Differences between a suretyship payable on first demand and a first demand guarantee 62 4.5.4 Conclusive evidence clauses. United Kingdom 63

CHAPTER 5 LEGAL NATURE 5.1 Subsumptions and comparisons with traditional concepts 65 5.2 Contract sui generis 66 5.3 Independent guarantees compared with documentary credits and suretyship 67 5.4 Domestic first demand guarantees 68

CHAPTER 6 PARTIES TO THE UNDERLYING RELATIONSHIP 6.1 Allocation of risks 71

6.1.1 From the viewpoint of the beneficiary 71 6.1.2 First demand guarantee from the viewpoint of the

first, argue later' 73 6.1.3 Recovery 75

6.2 Negotiations 75 6.2.1 General 75 6.2.2 guarantees 76 6.2.3 Protective clauses in the guarantee and counter-balancing provisions in the underlying contract 78 6.2.4 of a first demand guarantee; contractual relationship as a whole 78

CHAPTER 7 ROLE AND POSITION THE BANK 7.1 Issuing guarantees as a financial service 81 7.2 The bank's interest in independence 83 7.3 The bank's interest in the terms and conditions of the guarantee; documents 85 7.4 Factors influencing (non-)acceptance the request 86

CHAPTER 8 DRAFTING AND CLAUSES 8.1 parties; nature 89 8.2 Drafting of the text, patterns and development 89

8.2.1 Drafting 89 8.2.2 Patterns and development 91

8.3 Reference to the underlying relationship; consideration 92 8.3.1 Reference to the underlying relationship 92 8.3.2 Consideration 93

8.4 Beneficiary. Creditor's bank as beneficiary 93

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8.5 Conditions Precedent 95 8.5.1 Introduction 95 8.5.2 Performance guarantees 95 8.5.3 Standby letters of credit (payment guarantees) 96 8.5.4 retention and maintenance guarantees 96

8.6 Period of validity 97 8.5.1 Introduction 97 8.5.2 Expiry date - calendar date, expiry event, or a combination 98 8.5.3 Extension clause 100 8.5.4 Commencement date 100 8.5.5 Return of the guarantee document upon expiry 101 8.5.6 Guarantees payable upon a court or arbitral decision; bifurcated system; absence of expiry date; continuing guarantee 102

8.7 currency 104 8.8 Reduction and increase of the maximum amount, revolving guarantee 105 8.9 Amendments to the secured contract 106 8.10 Grace period 106 8.11 Time of interest 107 8.12 pledge; transfer 107 8.13 Set-off 108 8.14 Non-recourse or subordination clause 108 8.15 Jurisdiction, applicable law 109

CHAPTER 9 RELATIONSHIP BETWEEN APPLICANT - FIRST INSTRUCTING BANK - SECOND ISSUING INTRODUCTION AND STRUCTURE

9.1 Direct guarantee 9.2 Direct guarantee and advising bank 9.3 Indirect guarantee 112 9.4 The American standby letter of credit as counter-guarantee 9.5 Relationship between applicant - first instructing bank -second issuing bank and the independence from mandate 114

CHAPTER 10 RELATIONSHIP BETWEEN APPLICANT AND BANK. DIRECT GUARANTEE

10.1 Introduction 115 10.2 Legal nature 116

Contents

10.2.1 Mandate 116 10.2.2 Applicant - bank and documentary credit 117 10.2.3 Main features: instructions, duty of examination, reimbursement

10.3 Counter-guarantee 118 10.3.1 Counter-guarantee by the applicant 118 10.3.2 Instructions and counter-guarantee by a party other than the principal debtor; affiliated company as instructing party 121

10.4 Security for reimbursement 122 10.4.1 Security 122 10.4.2 Release and prolongation 122

10.5 Commission 122 10.6 Incidental expenses, litigation and costs 123

10.6.1 Incidental expenses 123 10.6.2 Litigation and costs. Risks 123

10.7 Instructions by the applicant Adherence to the instructions. Review and acceptance by the bank 126

10.7.1 The principle of strict compliance, direct guarantees . 10.7.2 Indirect guarantees 128 10.7.3 Review by the bank. Duty of bank and applicant in general 129 10.7.4 Imprecise and incomplete instructions 130 10.7.5 Advice to the applicant 133 10.7.6 Acceptance and refusal by the bank 134

10.8 Bank's duty of examination with respect to compliance with the terms and conditions of the guarantee

10.8.1 Introduction. Relationship bank-beneficiary and bank-applicant 135 10.8.2 Compliance with all positive conditions, fulfilment of negative conditions, non stipulated documents 136 10.8.3 Formal compliance 138 10.8.4 Strict compliance 139 10.8.5 Relaxation of the principle of strict compliance? Substantial compliance? 10.8.6 Inconsistencies 146 10.8.7 Reasonable care, discretion 148 10.8.8 Reasonable care, discretion. Third-party documents .. 148 10.8.9 Reasonable care, discretion. Non-documentary 150 10.8.10 Limitations of liability, notification to applicant 153

10.9 Bank's duty of notification of the demand for payment 153

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10.9.1 Significance of prior notification before payment 153 10.9.2 Opinions differ, the law at notice injunctions 154 10.9.3 Arguments pro and contra a duty of prior notification 156 10.9.4 Articles 16 and 22 URDG, Rule 3.10 ISP98: notification and transmission of documents 157

10.10 Recourse of the bank against the applicant. Special risks 158 Claim for reimbursement by principal debtor ex subrogation

and unjust enrichment 159

CHAPTER RELATIONSHIP APPLICANT - FIRST INSTRUCTING BANK - SECOND ISSUING BANK INDIRECT GUARANTEE. COUNTER-GUARANTEE

Applicant-first instructing issuing bank 163 Introduction. Structure and terminology 163 First instructing bank - second issuing bank.

Legal nature. Mandate 163 11.1.3 Various aspects 164

Instructions for the issuance of the primary guarantee. Advice 165

Instructions and adherence; imprecise instructions 165

Errors in the transmission of the instructions. Issuing bank's failure to carry out the instructions 167

Advice with respect to foreign local law and practices 167

11.1.5 Second issuing bank's duty of examination with respect to compliance 168

11.2 The counter-guarantee 168 11.2.1 General 168 11.2.2 Legal nature and effect of counter-guarantees 170

11.2.2.1 Introduction. The issue of independence between the primary guarantee and counter-guarantee .. 170

The view that the counter-guarantee is independent of the primary guarantee and operates as an ordinary independent guarantee. France and Belgium 172

The view that the counter-guarantee is independent of the mandate and operates as an ordinary independent guarantee. Germany 175

The counter-guarantee is independent of the underlying relationship 176

Contents xix

The view of this study. The counter-guarantee is an independent indemnity and operates in a manner similar to an ordinary independent guarantee, subject to certain limitations. Summary 177

The independent nature of counter-guarantees and its limits case 182

Cases decided on the basis of independence. Fulfilment of the terms of the primary guarantee not considered. No evidence of fault by the issuing bank .. 182

Cases decided on the basis of independence. Fulfilment of the terms of the primary guarantee considered. No evidence of fault by issuing bank .. 185

Cases decided on the basis of independence. Terms of the primary guarantee not fulfilled. Claim under the counter-guarantee rejected 185

Other cases. Fulfilment of the terms of the primary guarantee considered. No evidence of fault by the issuing bank 187

Other cases. Terms of the primary guarantee not fulfilled. Claim under the counter-guarantee rejected 188

The limits and exception to the independence of counter-guarantees in relation to the primary guarantee. Conclusions in respect of case law 190

The instructing bank owes no general duty to the applicant to investigate fulfilment of the terms of the primary guarantee 191

11.3.1 Introduction 191 11.3.2 No general duty 191 11.3.3 Banking practice 192

Limited duty to assist the applicant 193 11.3.5 If the counter-guarantee prescribes a statement from the issuing bank and the transmission of documents. Articles 15(b) and 22 URDG 194

Clauses in the counter-guarantee 196 Clauses relating to payment 1% Validity expiry date 197 Amount and currency, transfer 199

11.4.4 Choice of law, jurisdiction 199 11.4.5 Garnishment ('Kuwaiti') clauses 199

Instructing bank's duty to inform the applicant of the content of the counter-guarantee 200

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CHAPTER 12 OTHER ASPECTS OF THE BANK GUARANTEE 12.1 203

12.1.1 Recapitulation 203 12.1.1.1 Introduction 203 12.1.1.2 Between bank and beneficiary 203

Between applicant and indirect guarantee and counter-guarantee 204 12.1.1.4 Between parties to the underlying relationship 204

12.1.2 Independence and functional interdependence 204 12.1.2.1 Synthesis instead of antithesis 204 12.1.2.2 Antithesis instead of synthesis 205

12.1.3 Independence as an abstract concept and as a matter of construction. Relativeness and evolution 208

12.2 Formation 209 12.2.1 Unilateral engagement or consensual contract. Formation 209 12.2.2 Rejection, counter-proposals 212 12.2.3 Requirements as to form 213 12.2.4 Transmission, authenticity, authority, operative instrument 214 12.2.5 taking effect 215 12.2.6 Amendments, irrevocability 215 12.2.7 Guarantees issued by private individuals. Duty to advise guarantor 216 12.2.8 Germany. Unenforceability of suretyship payable on first demand pursuant to general terms and conditions ... 217

12.3 Construction 218 12.3.1 Independent guarantee or accessory suretyship. Suggestions for some general guidelines 218

12.3.1.1 Introduction 218 12.3.1.2 Drafting technique in historical perspective, weighing of terms and phrases. (first) demand' in English law instruments. 219 12.3.1.3 Specification of the means of proof; documentary proof; statements by beneficiary 222 12.3.1.4 Reference to the underlying relationship 224 12.3.1.5 Reference to international usage 225 12.3.1.6 Resort to general (statutory) rules for construction; presumptions 227 12.3.1.7 Special rules for banks? 229

Contents

12.3.1.8 Special rules for domestic cases and for 'guarantees' issued by private individuals or non-financial institutions? 231

12.3.2 Independent guarantee or accessory suretyship. Overview of case law 233

12.3.2.1 Introduction 233 12.3.2.2 'First demand' clause. Held: suretyship 233 12.3.2.3 No 'first demand' clause. Held: first demand guarantee 235

Payment on 'first justified demand' 235 12.3.2.5 Held: independent (first demand) guarantee .... 236 12.3.2.6 Held: first suretyship. Germany 238 12.3.2.7 Held: suretyship 238

12.3.3 Construction of terms and clauses in independent guarantees and counter-indemnities (counter-guarantees) 239

12.3.3.1 Independent guarantees 239 12.3.3.2 Indemnity ('counter-guarantee') by instructing bank to issuing bank in the case of an indirect guarantee 243

12.4 Period of Validity. Law and practice 244 12.4.1 Significance of expiry date. The risk of the 'perpetual' (counter-) guarantee 244 12.4.2 Extension clauses 245

or 245 12.4.3.1 Practice and motives 245 12.4.3.2 Legal position 246 12.4.3.3 Tender guarantees, 'extend or withdraw' requests 249 12.4.3.4 Applicant and Who is to decide? Article 23 URDG 249 12.4.3.5 Indirect guarantee and 'extend or pay' requests 251

12.4.4 for value' requests 252 12.4.4.1 Practice and motives 252 12.4.4.2 Legal characterisation 252 12.4.4.3 Implications 253

12.4.5 Enforceability of expiry dates 254 enforceability 254 12.4.5.2 Enforceability of expiry date in Syria 256 12.4.5.3 Expiry date enforceable 258

12.4.6 (No) statement of discharge. (Non-)Return of the guarantee document 259

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12.4.6.1 Statement of discharge 259 12.4.6.2 Return of the guarantee document (only). Mistake. Fraudulent return 259 12.4.6.3 Non-return of the guarantee document. Legal significance 262 12.4.6.4 No statement of discharge in respect of the counter-guarantee. Primary guarantee expired 262 12.4.6.5 Initiatives by the applicant and instructing bank if the (counter-) guarantee document has not been returned or if no discharge has been given 263

Release of security furnished by the applicant, unblocking of the credit facility, release of the duty to pay commission. Discharge of the applicant's liability 264

12.4.7.1 Introduction 264 12.4.7.2 Direct guarantees 265 12.4.7.3 Indirect guarantees. Counter-guarantee contains expiry date 266 12.4.7.4 Indirect guarantees. Counter-guarantee valid until discharge. Release of security, unblocking of the credit facility 267 12.4.7.5 Indirect guarantees. Counter-guarantee valid until discharge. Release of the duty to pay commission 268 12.4.7.6 Discharge of applicant's liability 269

12.4.8 Termination as a result of payment and reduction clauses. Guarantees without expiry provisions 269

12.5 Assignment. Pledge 270 12.5.1 Meaning and significance of assignment 270 12.5.2 Contractual assignment 270 12.5.3 Effect of contractual assignment. Position of assignee 271

12.5.3.1 General 271 12.5.3.2 Case law 274

12.5.4 Assignment by operation of law 276 12.5.5 The effect of transfer of the secured contract; lease contracts 278 12.5.6 Pledge of the guarantee 280

12.6 Transfer of the guarantee 280 12.6.1 Transfer of the guarantee; back-to-back guarantees ... 280 12.6.2 Fraudulent trading schemes 282

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CHAPTER 13 THE DEMAND FOR PAYMENT 13.1 General aspects 285

13.1.1 Percentages and their significance for the applicant .. 285 13.1.2 Bank's examination with respect to compliance with the terms and conditions of the guarantee. Summary 286 13.1.3 Direct and indirect guarantees. Applicable law 287

13.2 Call on the guarantee 287 13.2.1 call 287

13.2.1.1 The guarantee must have been called 287 Who is entitled to call; identity of the person

calling the guarantee; change of status; agency and power of attorney 288 13.2.1.3 Addressee and place of call 291 13.2.1.4 Formal requirements 292 13.2.1.5 Has a proper request for payment been made? 294

13.2.2 The call must relate to the secured contract obligation 295

132.2.1 General 295 13.2.2.2 Position of beneficiary, bank and applicant 295

13.2.3 Call on a first demand guarantee 297 13.2.3.1 Simple demand guarantees 297 13.2.3.2 Statement of default and other statements by the beneficiary; prior notices to applicant 297 13.2.3.3 Inconsistencies 300 13.2.3.4 Ambiguous texts and statements;

guarantees payable on 'first justified demand' 301 13.2.3.5 Documents from the applicant 302

13.2.4 Call on a guarantee requiring submission of third-party documents 303

13.2.4.1 Documents to be tendered by the beneficiary . 303 13.2.4.2 Documents to be tendered by the applicant .... 304

13.2.5 Call on guarantee requiring submission of an arbitral or court decision 305

13.2.5.1 General 305 Validity of the arbitral or court decision 306

13.2.6 Other conditions and clauses 307 13.2.6.1 Conditions precedent 307 13.2.62 Clauses limiting or terminating the right to payment 308

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13.2.6.3 Repayment guarantees and advance payment; guarantee in favour of applicant 308 13.2.6.4 Reduction clauses 310

13.2.7 Period of validity 311 13.2.7.1 Call must be made on or before the expiry date or before the expiry event 311 13.2.7.2 Significance and effect of expiry dates; independence and relationship with underlying contract; submission of statements and documents; discharge of restraining orders 314 13.2.7.3 Special problems. 'Extend or pay' requests, 'extension' requests, ambiguous requirement as to statements by the beneficiary 317 13.2.7.4 Commencement date 320 13.2.7.5 Expiry event 320

13.2.8 Amount and currency 322 13.2.8.1 partial and multiple demands 322 13.2.8.2 Demands for incorrect amounts; formulas in relation to (maximum) amount 323 13.2.8.3 Currency 325

13.2.9 Period of examination. Time of payment 325 13.2.10 Interest and damages for late payment 326 13.2.11 Procedures on Notice of rejection. Preclusion rule 328 13.2.12 Bank's defences 330

13.2.12.1 General. Judgment in summary proceedings and other procedural aspects 330 13.2.12.2 with bank's own counter-claims 333 13.2.12.3 Set-off with the bank's own counter-claims in the case of indirect guarantees 337

Set-off with counter-claims derived from the underlying relationship; assigned 337 13.2.12.5 between banks 337

13.3 Call on the counter-guarantee 338 13.3.1 General 338 13.3.2 Statement from the issuing bank concerning the primary guarantee. Transmission of documents. Articles 15(b) and 22 URDG. Valid demand under the primary guarantee . 339 13.3.3 Period of validity 340 133.4 Is a demand or actual payment under the primary guarantee a prerequisite? 343

Contents xxv

13.3.5 Currency and date for determining the rate of exchange 345

13.4 The effect of UN embargoes 345 13.5 Non-compliance and restraining orders 347 13.6 Recovery after payment. 'Pay first, argue later'. Final settlement 347

CHAPTER 14 THE CONCEPT OF FRAUD 14.1 Introduction 353

14.1.1 Significance 353 14.1.2 Procedural background 354

14.2 Plan of discussion 354 14.3 Comparative overview 355

14.3.1 Introduction 355 14.3.2 The Netherlands 355

14.3.2.1 law 355 14.3.2.2 Legal writing 357

14.3.3 Germany 357 14.3.3.1 Legal writing 357 14.3.3.2 Case law 359

14.3.4 France 360 14.3.4.1 law 360 14.3.4.2 Legal writing 362

14.3.5 Belgium 362 14.3.5.1 law 362 14.3.5.2 Legal writing 363

14.3.6 England 364 14.3.7 United States of America 368 14.3.8. Summary of the comparative overview,

Convention 372 14.4 Fraud and evidence of fraud. Some reflections 377

14.4.1 Fraud defined in relation to the nature and purpose of first demand guarantees as opposed to the domestic law general 377 14.4.2 Evidence of fraud 379 14.4.3 The notion of 'fraud' 380

14.5 Overview of possible types of fraud 381 14.5.1 Introduction 381 14.5.2 authority 382 14.5.3 Mistake, misrepresentation, economic duress, undue influence 382 14.5.4 Conditions precedent 383

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14.5.4.1 General 383 14.5.4.2 Condition precedent and breach of contract by the beneficiary 383

14.5.5 Completion of the secured contract or obligation 384 14.5.5.1 General 384 14.5.5.2 Completion of the secured contract or obligation 385 14.5.5.3 Completion of the secured contract or obligation not established 389 14.5.5.4 Applicant not liable for defects 390 14.5.5.5 Lapse of contractual warranty period 390 14.5.5.6 Applicant complies with the terms of a documentary credit 391 14.5.5.7 Non-payment by the beneficiary 391 14.5.5.8 Completion not yet due 392

14.5.6 Material breach of contract by the beneficiary 392 14.5.6.1 General 392 14.5.6.2 Material breach of contract not established; payment guarantees 393 14.5.6.3 Material breach of contract established; payment guarantees 394

Beneficiary's failure to furnish a documentary credit 395 14.5.6.5 Beneficiary makes performance by the applicant impossible 396

14.5.7 Force majeure 397 14.5.7.1 Force majeure not established 397 14.5.7.2 Force majeure established 397 14.5.7.3 Government measures, embargoes 398 14.5.7.4 Evaluation 399

14.5.8 Violation of public order, illegality 401 14.5.9 Termination, cancellation and avoidance of the secured contract 403 14.5.10 Beneficiary's cause of action is time-barred 405

The amount claimed is excessive; damages already assessed payment already made 406 14.5.12 The call does not relate to the secured contract or obligation, or is inspired by improper motives 407 14.5.13 Liquid counterclaims against beneficiary, set-off 408 14.5.14 Court or arbitral decision 409 14.5.15 Tender guarantees 410

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14.5.16 Repayment retention and maintenance guarantees 411 14.5.17 Beneficiary's statement is false. Third-party document is forged 413 14.5.18 Conclusion 415 14.5.19 Fraud: distinction between guarantees and documentary credits? 415

14.6 Fraud and summary judgment against the Direct and indirect guarantees

CHAPTER 15 FRAUD AND THE POSITION OF THE BANK. BANK'S LIABILITY IN 'AFTER-PAYMENT' CASES

15.1 Direct guarantee 419 15.1.1 If fraud is evident to the bank, it is liable to the applicant when it pays under the guarantee 419 15.1.2 Distinction between 'before-' and 'after-payment' cases. Extent of the bank's duty and potential liability 420 15.1.3 Bank's knowledge of the beneficiary's fraud The test 423 15.1.4 Appraisal and suggestions for an alternative set of rules 424

15.2 Indirect guarantee 426 15.2.1 Issuing bank's liability 426 15.2.2 Instructing bank's liability 427

15.3 Banking practice 428

CHAPTER 16 FRAUD AND RESTRAINING ORDERS 16.1 Introduction 431

16.1.1 General 431 16.2 Applications for restraining orders against the beneficiary, direct guarantee 432

16.2.1 On the basis of fraud 432 16.2.2 On the basis of express terms in the underlying agreement between applicant and beneficiary 433

16.3 Applications for restraining orders against the bank, direct guarantee 435

16.3.1 Must the beneficiary's fraud be evident to the bank? Cause of action. Are restraining orders against the bank permissible? 435

16.3.1.1 Introduction 435 16.3.1.2 England 436 16.3.1.3 Germany 439

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16.3.1.4 The Netherlands 442 16.3.1.5 France and Belgium 443 16.3.1.6 United States of America 443 16.3.1.7 Convention 445 16.3.1.8 Summary and evaluation 445 16.3.1.9 Applications for restraining orders against beneficiary and bank is the better procedure 448

16.4 Applications for restraining orders in respect of indirect guarantees and counter-guarantees 450

16.4.1 General 450 16.4.1.1 Restraining orders against instructing issuing bank beneficiary. Cause of action 450 16.4.1.2 Beneficiary's fraud and foreign applicable law 451

16.4.2 Restraining orders against the instructing issuing bank 453

16.4.2.1 Fraud by the issuing Issuing bank's knowledge of beneficiary's fraud 453 16.4.2.2 Issuing bank's knowledge of the beneficiary's

The test 456 16.4.2.3 Identification 458

16.4.3 Restraining orders against the instructing and/or issuing bank beneficiary in 'before-payment' cases ... 458

16.4.3.1 Introduction 458 16.4.3.2 Applications for orders restraining the issuing bank from paying under the primary guarantee and orders restraining the beneficiary from demanding or receiving payment under the primary guarantee 459 16.4.3.3 Applications for orders restraining the instructing bank from paying under the counter-guarantee and for orders restraining the issuing bank from demanding or receiving payment under the counter-guarantee 461 16.4.3.4 The limited effect of restraining orders. Non-recognition and contrary decisions by the foreign court 463

16.4.4 The limited effect of restraining orders. Inter-bank relationship. Recourse against applicant 464

16.5 Other aspects concerning restraining orders 465 165.1 Restraining orders and the commercial viability of guarantees 465

Contents xxix

16.5.2 Hardship for the applicant to litigate in the beneficiary's country 466 16.5.3 Restraining orders and the reputation of the bank 466 16.5.4 Bank's duty to defer payment if the applicant applies for restraining orders? 467

CHAPTER 17 CONSERVATORY ATTACHMENT AND THE UK FREEZING (MAREVA) INJUNCTION

17.1 Introduction 471 17.2 Conservatory attachment is incompatible with the agreement between applicant and beneficiary in the event of non-established fraud 471 17.3 Conservatory attachment in the event of established fraud 473 17.4 Conservatory attachment and counterclaims ex secured contract. Set-off 476 17.5 Conservatory attachment and counterclaims ex other contracts. Set-off 477 17.6 Conservatory attachment in respect of the beneficiary's accounts 478 17.7 Conservatory attachment and indirect guarantees 479 17.8 Conservatory attachment does not prohibit the bank from paying into a blocked account and from debiting the applicant's accounts 480 17.9 The U.K freezing (Mareva) injunction 481

CHAPTER JURISDICTION, APPLICABLE LAW AND RECOGNITION OF FOREIGN JUDGMENTS

18.1 Jurisdiction 483 18.1.1 Introduction 483 18.1.2 Proceedings between the parties to the (counter-) guarantee 483 18.1.3 Proceedings initiated by the applicant. Direct guarantee 484 18.1.4 Proceedings initiated by the applicant. Indirect guarantee 485

18.2 Applicable law 486 18.2.1 (In)significance of private international law 486 18.2.2 General rules of private international law. Regulation 488 18.2.3 Relationship 488

Relationship 488

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18.2.5 Relationship instructing bank in the case of indirect guarantees. Counter-guarantee 489 18.2.6 Public mandatory law 492

18.3 Recognition of foreign judgments 492

CHAPTER 19 BANK GUARANTEES AND CONSTRUCTION CONTRACTS

First demand guarantees as financing instruments 495 19.2 Disputes revolve on the payment scheme. Call as ultimum

496 19.3 Joint ventures 497 19.4 Subguarantees from subcontractors. Subguarantees distinguished from counter-guarantees 499 19.5 Subguarantees and clauses; special risks 501