This course is part of the 2024 Augsburg Summer Program and will be held by Prof. Charl Hugo (University of Johannesburg, South Africa).
Students completing the course will acquire a working knowledge of the roll, purposes and operation of guarantees in large (often international) commercial contracts.
The main focus of the course, however, falls on attempts by principal debtors attempting to block payment of a guarantee and/or by guarantors attempting to evade payment of a guarantee - that is on the main issues that lead to litigation or arbitration in this field. It is, for example, well-established law in most jurisdictions that fraud by the beneficiary of an independent guarantee will provide a valid defence for the guarantor. Less clear, however, are questions such as whether an unconscionable demand for payment of a guarantee may also provide a defence for a guarantor (or the basis for the principal debtor to block payment of the guarantee), or whether the illegality of the principal debt may provide a defence to the guarantor. Moreover, a beneficiary wishing to avail itself of a guarantee needs to demand payment in accordance with the guarantee. Such a demand must conform with the terms of the guarantee. Disputes as to whether a particular demand is indeed conforming or not are often before the courts. Interesting and demanding case law on these and similar issues from England, Germany, South Africa, the United States of America, Singapore and Australia will be considered critically against the background also of the URDG and ISP98. In this respect the law of guarantees and letters of credit overlap largely - a further aspect that will be explored briefly. Any obligation can be guaranteed. The guarantee can take the form of an accessory guarantee (suretyship) or of an independent guarantee (demand guarantee, performance bond, standby letter of credit). The latter is especially important and receives and forms the focal point of the course. Such guarantees can secure a performance other than the payment of money (for example the construction of a building) or can secure the performance of having to pay money. On this basis a distinction is sometimes drawn between performance guarantees and financial guarantees. The legal principles governing them, however, are very much the same.
Independent guarantees are common in large commercial contracts. They are often (but not necessarily) also governed by rules emanating from (or endorsed by) the International Chamber of Commerce namely the Uniform Rules of Demand Guarantees (URDG) or the International Standby Practice 1998 (ISP98). The historical development of these Rules and their main provisions will be considered.
