Analysis of Legal Nature of Bank Guarantees in the Light of the Principles of Autonomy and Strict Compliance

Abstract

The Civil Code of Georgia contains rules regulating relationship originating from the means of security of a creditor’s demand. These means are can be found in different chapters of the Code, according to their legal nature.

A bank guarantee is one of the means of demand security, where a guarantor undertakes to pay the amount and satisfy creditor’s demand if the debtor breaches his liabilities. It is regarded as one of the quick and efficient means of satisfaction of creditor’s demand. A bank guarantee, as a demand security appeared on the local market of the USA in mid-1960s, however it has been widely used in the international banking practice since 1970s.

The institute of bank guarantee is widely used both in international trade and economic relationships and at national level. It is associated with the fulfilment of both pecuniary and non-pecuniary liabilities. Guarantee is used to secure such contractual relationships, that are related to provision of goods or construction services.

The bank guarantees, together with documentary letters of credit, constitute the main elements of modern commercial relationships. Due to the intensity of its application in international trade relationships and the problems arising with regard to regulation, along domestic legal law it is regulated on the basis of the Uniform Rules of the International Chamber of Commerce and the Convention on Independent Guarantees and Stand-by Letters of Credit (hereinafter the Convention), adopted by the United National Commission on International Trade.

Despite diverse regulation, a bank guarantee has a very complex nature. Furthermore, it is both necessary and mandatory to correctly administer the demand, deriving from the bank guarantee as the existence of the rights and obligations to the parties to the relationship are directly related thereto. Such complexity of relationships gives rise to many problems in practice. The parties to an agreement are not able to fully exercise their rights, administer demands and protect their rights, what in most cases, results in a dispute.

The problems related to bank guarantee are quite abundant in Georgian reality as well. Their abundance was conditioned by the introduction of bank guarantees in public procurement relationships and their increased number.

The paper offers analysis of the legal nature of a bank guarantee and its basic principles, whose role in the administration of demands originating from bank guarantees is of paramount importance.