Demanding Payment under Bank Guarantee: Trends in Russianand International Judicial Practice

Abstract

Demand of payment and the payment under bank guarantees is an integral part of legal relations relatedto securing obligations in Russia and under international practice. It is emphasized that the call onpayment occurs very seldom, but the possibility to obtain payment has an essential impact on securityfunction. The analysis of judicial practice as to securing obligations in Russia and abroad shows differenttrends and represents a variety of elements determining the possibility of payment. The possibility ofpayment is determined by the actions of beneficiary who should prepare the documents properly for thepayment. The payer on its behalf analyzes their content and studies the balance the secured and principalobligation. This is one of the key questions determining the performance of payment under bankguarantee. On the basis of Russian judicial practice, the author concluded that two opposite trends areemerging. In private law obligations, bank guarantees get more independent from secured obligation.Some courts even consider that bank guarantees secure a certain type of principal’s obligation, inparticular customs payments for a certain period independent of any specific agreement. In private law,judicial practice is opposite, i.e. judges require a strict correlation between guarantee obligations andsecured legal arrangement. In any case, the possibility to pay is determined by a correct reference tothe secured obligation. Afterwards, the paper examines relevant to payments elements such as form ofdemand, reasons to default etc. The circumstances affecting payments include: legal status of subjectclaiming the demand and the authorities of the party. The article examines the cases when during theguarantees the status changes and the authorities of the party are determined erroneously. Besides,the performance of payment depends on the documents confirming violation of the obligation by thedebtor. The problems examined in the paper include the issues of the ban on payment etc.