Legal Issues On Payment Against Demand From Bank Guarantee

The demand guarantee has become an important intermediary business of commercial banks. The issuance of direct or indirect demand guarantees for domestic and cross-border transactions has brought great amount of revenue to commercial banks. However some commercial banks or some of their employees do not have enough professional knowledge about the demand guarantee and do not clearly understand the potential legal risks of the demand guarantee. The aim of this article is to point out the potential legal risks of demand guarantee through the analysis and research about the legal characteristics, the source of law, the independent nature, the fraud claims, judicial remedies and other matters related of the demand guarantee, and to make suggestions of the legal risks’ prevention and mitigation of demand guarantee for commercial banks in accordance with current statues, laws and regulations of PRC. The structure of this article is as follows:The first part introduces and explores the function and source of law of demand guarantee. The second part explores the basic legal attributes of demand guarantee. It explores the basic legal characteristic, independent nature and comparative independency of demand guarantee through comparison with accessory guarantee. The third part analyzes the legal risks arising out of demand guarantee and explores fraud claims problem, the causes of fraud claims, legal theory of fraud exception principle, the standard and judicial remedies of fraud exception under international conventions, practices and common law systems. The fourth part analyzes the legal risk prevention and mitigation methods and judicial remedies in accordance with PRC laws and regulations. It analyzes the current statutes, laws and regulations of PRC and judicial practice in relation to the demand guarantee, judicial remedies of fraud claims, points out the legal risks of demand guarantee encounted by commercial banks and proposes legal risk prevention and mitigation methods on the basis of the current laws and regulations of PRC.