• Korea Trade Review
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• v.47 no.5
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• pp.115-128
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• 2022

This paper reviewed "unconscionability" as an exception to the independence principle of bank guarantees. Apart from fraud which has been recognized in most international jurisdictions, Uuconscionability would also be recognized as the exception to the legal principle, the so-called "fraud rule" or "an abuse of rights." Unconscionability exception is applied in the same manner as fraud and other exceptions to the principle of independence. The exception should allow guarantor to dishonor the drawings that abuse the independence principle. However, outright or manifest facts of the unconscionability must be established in order to apply the exception. Lots of arguments or conflicts may be caused in applying the unconscionability exception. Therefore, this study aims to prevent institutional abuses or to reduce the disputes from setting up the legitimate scope and standard for application of the exception by reviewing these procedural issues and problems under bank guarantee transactions. This paper also suggested practical implications and countermeasures for the institutional application.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.72
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• pp.25-55
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• 2016

The Buyer shall demand to the Builder the repayment of the pre-delivery instalments paid in case of the Builder's default under a ship-building contract. The Buyer require a refund guarantee issued by a financial institution for a security for the repayment of the pre-delivery instalments paid. As the title of a refund guarantee, in practice, is various, we should look into the contents or the expressions in a guarantee to decide whether a guarantee is a refund guarantee. A refund guarantee, a sort of independent bank guarantee, has characteristic of abstractness, and is independent from the ship-building contract. A refund guarantee is available against the beneficiary's first written demand and signed statement certifying that the Builder failed to make the refund in accordance with the ship-building contract. The guaranteed amount of a refund guarantee will be automatically increased in accordance with the Builder's receipt of the respective instalment, which is not in the other advance payment guarantee. These characteristics of a refund guarantee are derived from the expressions in a refund guarantee rather than inherent therein. This illustrates that careful attention is required to the contents and expressions of the main clauses in a refund guarantee.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.42
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• pp.133-160
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• 2009

In International trade the buyer and seller are normally separated from on another not only by distance but also by differences in language and culture. It is rarely possible for the performance of obligations to be simultaneous and the performance of contracts therefore calls for trust in a situation in which the parties are unlikely to feel able to trust each other unless they have a longstanding and successful relationship. Thus the seller under an international contract of sale will not wish to surrender documents of title to goods to the buyer until he has at least an assurance of payment, and no buyer will wish to pay for goods until he has received them. A gap of distrust thus exists which is often bridged by the undertaking of an intermediary known and trusted by both parties who will undertake on his own liability to pay the seller the contract price in return for the documents of title and then pass the documents to the buyer in return for the reimbursement. This is a common explanation of the theory behind the documentary letter of credit in which the undertaking of a bank of international repute serves as a "guarantee" to each party that the other will perform his obligations. The independence principle, also referred to as the "autonomy principle", is at the core of letter of credit or bank guarantee law. This principle provides that the letter of credit or bank guarantee is independent of the underlying contractual commitment - that is, the transaction that the credit is intented to secure - between the applicant and the beneficiary ; the credit is also independent of the relationship between the bank and its customer, the applicant. The most important exception to the independence principle is the doctrine of fraud in the transaction. A strict interpretation of the rule that the guarantee is independent of the underlying transaction would lead to the conclusion that neither fraud nor manifest abuse of rights by the beneficiary would constitute an objection to payment. There is one major problem related to "Independent guarantees", namely abusive or unfair callings. The beneficiary may make an unfair calling under the guarantee. The countermeasure of beneficiary's unfair calling divided three cases. First, advance countermeasure namely by contract. In other words, when the formation of the contract, the parties must insert the Force Majeure Clause, Arbitration Clause to Contract, and clear statement to the condition for demand calling. Second, post countermeasure namely by court. Many countries, including the United States, authorize the courts to grant an order enjoining the issuer from paying or enjoining the beneficiary from receiving payment under the guaranty letter. Third, Export Insurance. For example, the Export Credit Guarantees Department is prepared, subject to certain conditions, to cover the risk of unfair calling. Of course, KEIC in Korea is cover the risk of the all things for guarantees. On international projects, contractor performance is usually guaranteed by either a standby letters of credit or Independent guarantee. These instruments will be care the parties.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.58
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• pp.179-213
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• 2013

While a performance type guarantee is required as a security for non-performance risk by a seller, a payment guarantee is used as a security for non-payment risk by a buyer(or a borrower in a loan agreement). A payment guarantee is a type of independent bank guarantee, bank guarantee, bond, demand guarantee, or standby letter of credit. A guarantor accepts a credit risk of a principal which is normally a buyer in a contract for sale of goods. A payment guarantee is independent of the underlying relationship between the applicant and the beneficiary. The guarantor is only empowered to examine the beneficiary's demand and determine the payment on its face to the terms of the guarantee. A payment guarantee is thus different from a suretyship. The principle of independence carries a significant advantages for a guarantor as well as for a beneficiary. While a documentary credit requires B/L, commercial invoice, packing list, inspection certificate, etc., a typical payment guarantee does not require any evidence for a seller's performance of the underlying contract other than written demand. In this respect payment guarnatee can be a more secured facility than a documentary credit. A payment guarantee normally comes into force from the issuing date and shall remain in effect until all sums guaranteed shall be paid in full by a buyer(or a borrower) or by a guarantor. Although a guarantor shall pay a demand made in accordance with the terms and conditions of the payment guarantee, a payment demand may be denied when it is determined to be abusive or unfair.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.69
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• pp.261-301
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• 2016

Recently the abusive calls on on-demand bonds have been a critical issue among many engineering and construction companies in Korea. On-demand bond is referred to as an independent guarantee in the sense that the guarantee is independent from its underlying contract although it was issued based on such underlying contract. For this reason, the issuing bank is not required to and/or entitled to look into whether there really is a breach of underlying contract in relation to the call on demand-bonds. Due to this kind of principle of independence, the applicant has to run the risk of the on demand bond being called by the beneficiary without due grounds. Only where the call proves to be fraudulent or abusive in a very clear way, the issuing bank would not be obligated to pay the bond proceeds for the call on on-demand bonds. In order to prevent the issuing bank from paying the proceeds under the on-demand bond, the applicant usually files with its competent court an application for injunction prohibiting the beneficiary from calling against the issuing bank. However, it is in practice difficult for the applicant to prove the beneficiary's call on the bond to be fraudulent since the courts in almost all the jurisdictions of advanced countries require very strict and objective evidences such as the documents which were signed by the owner (beneficiary) or any other third party like the engineer. There is another way of preventing the beneficiary from calling on the bond, which is often utilized especially in the United Kingdom or Western European countries such as Germany. Based upon the underlying contract, the contractor which is at the same time the applicant of on-demand bond requests the court to order the owner (the beneficiary) not to call on the bond. In this case, there apparently seems to be no reason why the court should apply the strict fraud rule to determine whether to grant an injunction in that the underlying legal relationship was created based on a construction contract rather than a bond. However, in most jurisdictions except for United Kingdom and Singapore, the court also applies the strict fraud rule on the ground that the parties promised to make the on-demand bond issued under the construction contract. This kind of injunction is highly unlikely to be utilized on the international level because it is very difficult in normal situations to establish the international jurisdiction towards the beneficiary which will be usually located outside the jurisdiction of the relevant court. This kind of injunction ordering the owner not to call on the bond can be rendered by the arbitrator as well even though the arbitrator has no coercive power for the owner to follow it. Normally there would be no arbitral tribunal existing at the time of the bond being called. In this case, the emergency arbitrator which most of the international arbitration rules such as ICC, LCIA and SIAC, etc. adopt can be utilized. Finally, the contractor can block the issuing bank from paying the bond proceeds by way of a provisional attachment in case where it also has rights to claim some unpaid interim payments or damages. This is the preservative measure under civil law system, which the lawyers from common law system are not familiar with. As explained in this article, it is very difficult to block the issuing bank from paying in response to the bond call by the beneficiary even if the call has no valid ground under the underlying construction contract. Therefore, it is necessary for the applicants who are normally engineering and construction companies to be prudent to make on-demand bonds issued. They need to take into account the creditability of the project owner as well as trustworthiness of the judiciary system of the country where the owner is domiciled.