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    First Demand Guarantees: The relevance of Fraud and Illegality in the English and Italian Jurisdictions
    First Demand Guarantees: The relevance of Fraud and Illegality in the English and Italian Jurisdictions
    First Demand Guarantees: The relevance of Fraud and Illegality in the English and Italian Jurisdictions
    Ebook114 pages1 hour

    First Demand Guarantees: The relevance of Fraud and Illegality in the English and Italian Jurisdictions

    By Fabio Valenza

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    About this ebook

    The legal principle characterising first demand guarantees, arising from international trade, is that of their independence from the underlying relationship, to meet the needs for security and fluidity of commercial transactions. Such principle can nevertheless give rise to cases of abuse and the aim and objectives of the book are to investigate these cases and the remedies offered in English and Italian law, and if such remedies are adequate, weak or excessive, with particular regard to the relevance of fraud and illegality. Finally, through the use of appropriate methodological tools, the work proposes an interpretation aimed at finding a clear point of balance between the needs involved.
    LanguageEnglish
    PublisherAracne
    Release dateJan 11, 2022
    ISBN9791259947383
    First Demand Guarantees: The relevance of Fraud and Illegality in the English and Italian Jurisdictions

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      Book preview

      First Demand Guarantees - Fabio Valenza

      FIRST DEMAND GUARANTEES

      FIRST DEMAND GUARANTEES

      THE RELEVANCE OF FRAUD AND ILLEGALITY IN THE ENGLISH AND ITALIAN JURISDICTIONS. A COMPARATIVE STUDY

      Fabio Valenza

      @racne

      Copyright © 2022

      All rights reserved.

      No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the author, except for the use of brief quotations in a book review.

      isbn 979-12-5994-738-3

      Contents

      Abstract

      List of abbreviations

      Introduction

      1. Literature Review

      1.1. Introduction

      1.2. General guarantee obligation and first demand guarantees in the English jurisdiction

      1.3. General guarantee obligation and first demand guarantees in the Italian jurisdiction

      1.4. Fraud and illegality: doctrine and case law in the English jurisdiction

      1.5. Fraud and illegality: doctrine and case law in the Italian jurisdiction

      1.6. International instruments

      1.7. Conclusion

      2. Methodology

      2.1. Introduction

      2.2. Case study method

      2.3. Comparative method

      2.4. Economic analysis of law

      2.5. Ethics and economic development

      2.6. Conclusion

      3. Discussion

      3.1. Introduction

      3.2. Discussion of the main English cases

      3.3. Discussion of the main Italian cases

      3.4. Answers to research questions

      3.5. Proposed interpretation

      3.6. Synthesis

      Afterword

      Bibliography

      Notes

      About the Author

      Abstract

      The legal principle characterising first demand guarantees arising from international trade practice is that of their independence from the underlying relationship, a principle that corresponds to the needs for security and fluidity of commercial transactions. Such principle of independence can nevertheless give rise to cases of abuse, that is, of undue advantage, and the aim and objectives of the research are to investigate what these cases of abuse can be and what the remedies offered in English and Italian law are, if any, and if they are adequate, weak or excessive, with particular regard to the relevance of fraud and illegality. In order to effectively investigate the relevance of fraud and illegality in the area of first demand guarantees and to propose an interpretation aimed at finding a clear balance point between the needs involved, the research has firstly used the case study method, aimed at tracing the ratio decidendi from the examination of the concrete facts, and the comparative method both with respect to the two jurisdictions considered and from a historical perspective; moreover the economic analysis of law method has been used as an important test, also in combination with the criterion of minimum ethical standards for the sustainability of commercial development.

      The investigation has shown a point of balance effectively achieved in the jurisdictions considered, namely that the relevance of the underlying relationship situations, as exceptions to the principle of autonomy, is subject to the existence of liquid evidence, mostly documentary and/or, in any case, self-evident of the fraud or illegality. In the English jurisdiction, however, notwithstanding a convincing identification of the concept of fraud, as the enforcement of the guarantee in the awareness of not having the right to do so, there are prohibitive requirements for the granting of payment restrictions against the guarantor bank, such as the bank’s knowledge of the beneficiary’s fraud, the existence of a cause of action between the applicant and the issuing bank and the passing of the balance of convenience test against the predominant need to protect the reliability of the banks’ promises of payment considered as the central pillar of international trade. In the Italian legal system the periculum in mora requirement appears less severe but the principle of the causa of the contract re-emerges in those judgements that do not only consider relevant the fraud but also the anomalous or abusive use of the instrument even if not clearly fraudulent. As to illegality, in the Italian jurisdiction the prevailing orientation does not consider relevant all the cases of invalidity of the main contract, but only those aimed at preventing a result absolutely prohibited by the law, as in the English jurisdiction the seriousness of the illegality and the instrumental use of the autonomous guarantee to achieve the illegal result assume decisive importance. The proposal put forward is to distinguish cases of manifest fraud, to the counterpart or to the law, as the only conclusion to be derived from liquid evidence, in which the principle fraus omnia corrumpit should prevail, deriving from the historically constant application of the principle of good faith in commercial relationships, from cases of abuse or anomalies that are not clearly fraudulent, in which the principle of autonomy must prevail. Suggested clauses are that which requires the beneficiary’s submission of a declaration specifying the debtor’s non-fulfilment and that which provides for an adequate payment term for the bank’s verification of the evidence transmitted by the debtor.

      List of abbreviations

      ICC: International Chamber of Commerce;

      ISP98: International Standby Practices, ICC Publication no. 590 (1998);

      URDG: Uniform Rules for Demand Guarantees;

      ISDGP: International Standard Demand Guarantee Practice, ICC Publication no. 814E (2021);

      BGB: Bürgerliches Gesetzbuch.

      Introduction

      Context

      This research aims to analyse the demand guarantee in international trade law and from a comparative perspective with reference to abuse (in particular fraud and illegality in the underlying relationship) and its related remedies.

      The first demand guarantee was born in the context of international trade and meets a precise need for security for those operating in this context: the security of payment of a sum of money in case of non-execution or faulty execution of the performance promised by the counterpart.

      In order for this security requirement to be satisfied, it is necessary that the obligation of the party guaranteeing the payment of such sum be independent of the underlying relationship, whose correct execution is intended to be guaranteed, or in other words be an autonomous obligation. In fact, international trade transactions are characterised by a higher risk than domestic ones, due primarily to the greater difficulty in verifying the reliability of the counterpart but also to possible conflicts of laws and/or jurisdictions and finally to the possibility of political upheaval in the country of the counterpart.

      The first demand guarantee has the purpose of providing cover against these risks and in fact it is usually issued by a bank in the country of the creditor, instructed and counter-guaranteed by a bank in the debtor’s country, which is in turn instructed and counter-guaranteed by the debtor. ¹ The autonomy of the first demand guarantee implies that the bank issuing the guarantee must pay the promised sum to the creditor on the simple written request of the latter without being able to oppose any exceptions or defences deriving from the underlying relationship between the debtor-applicant and the creditor-beneficiary, as well as from the relationships between the debtor-applicant and the instructing (or issuing) bank, or between the instructing bank and the issuing bank.

      Aim and objectives

      The autonomy of the first demand guarantee can nevertheless give rise to cases of abuse, that is, of undue advantage taken by the creditor. This research aims to investigate

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