How Bank Guarantee Letter Could Help Secure a Transaction and Risks Involved?
In the process of
performing civil transactions, there is a need to bind the performance of
obligations of the parties hence secured transaction is needed and guarantee is
one of the commonly used methods to secure the performance of obligations in
business and commercial activities. The
party that provides guarantee is normally a commercial bank and bank guarantee
is normally a loan service. In reality,
there are potentially many risks involved in the guarantee transaction through
issuing of bank guarantee letter which needs the attention of dispute lawyers in banking and finance to provide legal advice throughout the process.
Bank guarantee or
guarantee commitment is a document issued by the guarantor or counter-guarantee
or the guarantee-confirming party in the form of a Letter of Guarantee or a
Guarantee Contract. Thus, a letter of bank guarantee is understood as a written
commitment of the bank to the guarantee recipient that the bank will perform
financial obligations on behalf of the guaranteed party when the guaranteed
party fails to perform or not fulfilling the obligations committed to the
guarantee recipient. In case the parties choose the form of counter-guarantee
or guarantee confirmation, the letter of guarantee shall include the written
commitment of the counter-guarantee issuing party to the guarantee, or of the
guarantee-confirmation issuing party to the obligee.
When a guarantee
obligation arises, the obligee must send a written request for the performance
of the guarantee obligation, enclosed with the documents agreed upon in the
guarantee commitment, to the guarantee-executing bank. The request for
performance of guarantee obligations is considered valid when the bank receives
it within the working time of the bank and within the valid guarantee
commitment period. In case the request for performance of the guarantee
obligation is sent in the form of a registered letter via the public postal
network, the date the guarantor receives the request is the date of signing and
receiving the registered letter.
Within 5 working days
from the date the guarantor bank receives a valid written request for
performance of the guarantee obligation, the guarantor shall be responsible for
properly and fully performing the promised guarantee obligation for the with
the guarantor. In case the guarantor bank refuses to perform the guarantee
obligation, within 5 working days after receiving the request to perform the
guarantee obligation, the bank must reply in writing clearly stating the reason
for the refusal. In case of payment in foreign currency, credit institutions,
foreign bank branches shall debit that foreign-currency sum to the mandatory
lending account.
Credit institutions, or
foreign bank branches, shall agree on the guarantee-issuing fee amount paid to
customers. In case of a counter guarantee or guarantee confirmation, the
guarantee-issuing fee amount shall be agreed upon by parties on the basis of
the guarantee-issuing fee amount approved by the obligor. If the guarantee
currency is foreign one, parties shall agree on collecting the
guarantee-issuing fee by accepting that foreign currency or converting that
foreign currency into Vietnam at the sell rate defined on the fee collection or
fee collection notification date.
Disputes could arise
from many situations, for example, there is a case of issuing a false letter of
guarantee because an individual in the bank violates the law, or the bank
officer signs a letter of guarantee without proper authorization from the legal
representative of the bank, or letter of guarantee is in violation of form
according to the regulation of state bank. In addition, if a conditional letter
of bank guarantee is applicable, a dispute may arise from an understanding of
whether or not the conditions for the guarantee have been met. In many cases,
there might need to be a lawsuit to determine the conditions fulfilment of the
guarantee and such might be lengthy and costly. Therefore, the parties involved
in the guarantee transaction might need to consult a lawyer with expertise in
banking disputes to check the legitimacy and validity of the letter of bank
guarantee and the possibility to be guaranteed when the conditions are met.
ANT Lawyers – As a law firm in Vietnam will always follow up with
authorities for legal update on matters relevant to banking and finance to
update clients on regular basis.
Source ANT Lawyers: https://antlawyers.vn/library/how-bank-guarantee-letter-could-help-secure-a-transaction-and-risks-involved.html
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