Autonomous guarantees and counter-guarantees are fundamental instruments of international trade, offering the security of payment that economic operators value. However, their complex legal nature and the multiplicity of players involved (principal, guarantor, beneficiary, counter-guarantor) create fertile ground for conflicts of law. Determining which law applies in the event of a dispute is a delicate exercise, but one that is essential if transactions are to be secure. These mechanisms constitute advanced case study in international banking law and conflict of lawswhere legal expertise prevents major financial risks.
The autonomous guarantee in private international law: definition and issues
An autonomous guarantee, often referred to as a first demand guarantee, is a payment undertaking given by a guarantor (usually a bank) at the request of a principal (its customer) in favour of a beneficiary. It is a credit by signature, a creation of international commercial practice (the *lex mercatoria*) before being enshrined in law, notably in article 2321 of the Civil Code. Its distinctive feature is its autonomous nature: the guarantor undertakes to pay the beneficiary as soon as the formal conditions set out in the guarantee deed are met, without being able to invoke exceptions based on the basic contract concluded between the principal and the beneficiary.
This independence is the cornerstone of its effectiveness. It distinguishes it from other security tools. Unlike a surety bond, which is an accessory to the principal debt, an autonomous guarantee is a principal and independent undertaking. Its implementation depends solely on the presentation of the documents stipulated in the guarantee itself. This instrument also differs from receivables financingThese are based on the transfer of an existing asset, whereas the guarantee creates a new payment obligation for the guarantor.
The role of cci ruu 758
Faced with the diversity of national practices, the International Chamber of Commerce (ICC) has played a unifying role by drawing up uniform rules. The Uniform Customs and Practice for Demand Guarantees, the most recent version of which is publication no. 758 (UCP 758), is now the worldwide reference standard. These rules do not have the force of law. Their application depends on the will of the parties, who choose to incorporate them by reference in their guarantee contract. In practice, almost all international bank guarantees are subject to these rules, which harmonise practices and provide greater predictability for operators. UCP 758 defines the obligations of the parties, the conditions for examining payment claims and even deals with the applicable law in the absence of choice by the parties.
The autonomy of the guarantee in relation to the basic contract
The principle of autonomy is the cardinal rule governing guarantees. This means that the guarantor's commitment is completely disconnected from the underlying commercial contract (sale of goods, construction contract, etc.). The guarantor cannot and must not interfere in the relationship between the principal and the beneficiary. If the beneficiary submits a demand for payment in accordance with the terms of the guarantee, the guarantor must pay, even if the principal claims to have performed his contractual obligations perfectly.
This rigour ensures the liquidity and certainty of the instrument. However, there is an important limit to this principle: manifestly abusive or fraudulent calls. If the guarantor has immediate and clear proof that the beneficiary is invoking the guarantee in bad faith, knowing full well that the principal has not committed any fault, the guarantor may refuse to pay. The assessment of this abuse is delicate and often subject to judicial review. This question raises complex issues, in particular the interaction between the law of the guarantee contract and the laws of the Member States. the mandatory rules of the forum, which can be invoked to block a fraudulent call.
The law applicable to the relationship between the principal and the first-ranking guarantor
The relationship between the company requesting the guarantee (the principal) and its bank (the guarantor) is evidenced by a signed credit agreement. The determination of the law applicable to this relationship is governed by the rules of private international contract law, principally Rome I Regulation (EC) no. 593/2008 for contracts concluded after 17 December 2009.
The first principle is freedom of contract. The parties are free to choose the law that will govern their agreement. This freedom, known as the principle of voluntary autonomyThe choice of law is fundamental in international contract law. In practice, since the contract between the principal and his bank is usually concluded in the same country, the law chosen is almost always the local law. In the absence of an express choice, the Rome I Regulation designates the law of the country with which the contract is most closely connected. In the case of a contract for the provision of services, this is the law of the country in which the service provider is habitually resident. In this case, the provider of the "characteristic service" is the guarantor. The applicable law will therefore be that of the head office of the guarantor bank.
The law applicable to the relationship between the first-ranking guarantor and the beneficiary
The relationship between the guarantor and the beneficiary is at the heart of the autonomous guarantee. It is a unilateral commitment by the guarantor to the beneficiary. Here too, the parties may choose the applicable law, but this is not very common in practice. In the absence of choice, the determination of the competent law is more debated.
The Rome I Regulation presumes that the applicable law is that of the residence of the party providing the characteristic service. In this relationship, the guarantor is the sole debtor of an obligation: the obligation to pay. The characteristic performance is therefore his own, which should lead to the application of the law of the guarantor's country. This solution offers the advantage of simplicity and predictability for the bank, which is perfectly familiar with the legal framework in which it operates.
However, another approach, often favoured by case law and practice for reasons of protecting the legitimate expectations of the beneficiary, is to retain the law of the place where the guarantee is paid. The aim is for the beneficiary to obtain funds in a place and currency with which he is familiar. The security of the transaction depends, for him, on the certainty of being paid according to rules that he masters. This solution may be adopted by the courts via the "exception clause" in the Rome I Regulation, which allows the general presumption to be set aside if the contract has "manifestly closer" links with another country, such as that of the place of payment.
Counter-guarantees: determining the law applicable to interbank relations
In international transactions, it is common for the first-ranking guarantor (the originator's bank) not to have a direct relationship with the foreign beneficiary. It then asks a bank in the beneficiary's country to issue the local guarantee. To cover itself, the first-ranking guarantor asks this local bank to provide a "counter-guarantee". We then have a chain of guarantees: a counter-guarantee linking the two banks, and a final guarantee linking the local bank to the beneficiary.
The law applicable to the counter-guarantee, which is a purely inter-bank relationship, follows the same principles. In the absence of choice, the analysis again focuses on the characteristic benefit. The counter-guarantor undertakes to reimburse the first-rank guarantor if the latter is called upon to pay. The characteristic performance is therefore that of the counter-guarantor, which argues for the application of the law of his seat. However, here again, the exception clause may play a role, with case law sometimes considering that the entire transaction is so closely linked that the law of the main guarantee should also apply to the counter-guarantee to ensure overall consistency.
The application of the exception clause in English case law
The English courts have played a major role in shaping the law applicable to autonomous guarantees, in particular by making considerable use of the exception clause. In cases such as "Samcrete Egypt Engineers and Contractors SAE v. Land Rover Exports Ltd", the judges showed their pragmatism. While the basic presumption (law of the guarantor) referred to Egyptian law, the court applied English law. It considered that factors such as the place of payment (England), the currency of the contract and the overall context of the commercial transaction created manifestly closer links with England, justifying setting aside the default rule.
Similarly, in *British Arab Commercial Bank Plc. v. Bank of Communications*, the High Court held that a counter-guarantee was governed by Syrian law, like the main guarantee it covered, and not by English law (the law of the counter-guarantor). It based its decision on the inseparable link between the two instruments and on the fact that the interpretation of the validity of the call depended on the law governing the main guarantee. These decisions illustrate that, despite the rules laid down in the texts, the determination of the applicable law remains a case-by-case analysis where the economic context and the factual links of the transaction may prevail over legal presumptions.
The complexity of these instruments and the legal uncertainty that can surround their implementation demonstrate the importance of meticulous drafting of guarantee clauses, including those relating to the applicable law and the competent court. To structure, draft and secure your international guarantees and counter-guarantees, the support of a lawyer specialising in banking and finance law is an essential precaution.
Sources
- Civil Code (in particular article 2321)
- Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I)
- Rome Convention of 19 June 1980 on the law applicable to contractual obligations
- Uniform Customs and Practice for Demand Guarantees (UCP 758) of the International Chamber of Commerce (ICC)
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