Legal Issues Research On Guarantees For International Settlement

In the 21st century, when the international economic communication becomes more and more common, as one of the three carts which put the national economy forward, export trade and service has played its crucial role during the entire national economic development. And the improvement of export trade and service together with its shares of the world markets have been seen as the important symbols of the fundamental national power. Inspite of being influenced by the global financial crisis beginning from 2008, Chinese economy has gained evident recovery. Facing various risks in the international economic activities, Guarantees can assure the performance of the right of creditors in certain extent. As the major two types of guarantees, standby letters of credit and international factoring play important role in the guarantees for international economic settlement. The above two types of guarantees for international settlement have made certain progress in China since 80th last century, however, the relative legislation is parently backward comparing with international customs and practice, therefore, China has no choice but to absorb the international practice and accordingly convert them into civil laws to construct a better legal system for future economic development.Adopting historic approach, comparative approach, and positive data analysis approach, the author is trying to take the view point of standby L/C and international factoring, making a detailed study on the legal aspects concerning their operation, aiming at constructing a loose but systematic settlement guarantee framework by providing some theoretical support and operative advice for Chinese export trade.The whole dissertation can be divided into six parts. The first one is the outline of guarantees for international settlement, starting from the definition and applicable conditions of guarantees for international settlement, analysizing its character and legal framework, then comparing the two types of guarantees.Part two emphasizing the legal application and legal rights and duties of the parties of standby L/C, by analysizing the relative provisions of corresponding conventions and customs. Characterizing standby L/C as dependent guarantee, the author thinks that the standby L/C version is a quasy-contract between the issuer and the beneficiary, whose validity depends on whether the beneficiary can provide suitable documents as anticipated. As to legal application, if not belonging to the convention signatory state, agreement about legal application between the parties has prior validity, and while the law or rule the parties chosen is applicable, they also can violate some clauses of the law by bilateral agreement. As one of the major parties, the issuer is the heart during the operation of standby L/C, however, the beneficiary is the key figure whose interests should be considered in the first place. If the standby L/C permitting, the drawing right can be transferred to other party according to certain procedure.The author discusses the payable conditions for guarantor/issuer, transfer of beneficiary's drawing right and the fraud exception rule in part three. The payable conditions reflect the doctrine of independence of a standby L/C, and all current convention and customs hold that non-documentary conditions should be ignored without any hesitation. As standby L/C transaction is substantially just a transaction with documents, judging the scope and criterion of examination on the documents is the precondition of documentary examing, and the criterion of examing should be "facial compliance" instead of "strict compliance".The transfer of drawing right under a standby L/C is in fact a special type of transfer of credit, which has some unusual characters and limitations because of its special operation rule. Both the transfer of drawing right and assignment of proceeds are transfer of the future receivables, but generally, the assignment of proceeds should be regulated by a national law.Fraud exception rule is originated from civil laws of many countries, and the majority of the courts holds that if there are reliable evidences which can prove the fraudulent intent of the beneficiary, the guaranting payable obligation should be relieved by claiming his right of defence. The discrepancy of defining the fraud in different countries makes it impractical in solving the fraud issue, so considering the relative provisions in the convention, the applicator should be allowed to apply for temporary judicial injuction to avoid possible loss. In part four, the author explores the legal character of international factoring and the guaranting payable obligation of the factors. The international factoring is substantially a mode of guarantee for international settlement instead of a new mode of international settlement. The receivables are transfered twice in typical double-factoring business, and the final obligator is the import factor. But his payable obligation is opposite because as soon as the debtor declares contractual disputes, the confirmed receivables can be "dead or alive". Aside from the contractual disputes, one of the most important issues during the operation of factoring is validity of the prohibitive agreement about the assignment of receivables. As a controversial problem, there are different opinions about it in different countries. Measures should be taken to eliminate the legal obstacles in the world and meanwhile promote the economic communication throughout different countries.The author deals with the major legal problems encoutered during the operation of international factoring, including the prohibitive clause about assignment of receivables in underlying contract, assignment of future receivables, and multiple assignment of the same receivables. As to the prohibitive agreement about assignment of receivables, the convention insisits that the factors still be entitled to obtain the receivables as rightful assignee, but the supplier should take the obligation of breaching the contract to the debtor. The legislation of continental countries regarding assignment of future receivables is parently backward comparing to their practice. Refering to the attitude of corresponding convention, China could allow the assignment of specified future receivables, to accelerate the development of transfer of credit and capital market.In part six, the author makes a positive study on the legislative situation and practical experience of guarantees for international settlement in current China. By disclosing the legislative gap with developed countries and global customs, the author suggest that, establish a credit system in corporations, at the same time, carry on the national standby L/C service gradually. Consulting the American way, we can devide corporations into different grades by credit criterion, and accordingly limit the total sum of their credits. By this way, the business risk of banks can be controled efficiently. Meanwhile, we had better try to expand the utilization of ISP98 across the whole county, speed up to keep pace with global practice, to enhance the power of influence of Chinese banks. Regarding the business promotion of the international factoring, non-banking financial corporation should be permitted to participate the factoring market to assure the independent operation and professionalization of factor step by step. China should accelerate the process of law-making about assignment of receivables, future receivables, and multiple assignment, and make relative administrative measures and operating specifications about international factoring to adapt to the current booming of factoring business. Meanwhile, the government should make efforts to intensify the supervision by making international factoring under control of the supervision commitee of banking and separating factoring from other banking business.