1. Dr. Ramlan Ginting, S.H., LL.M 2012
Bank Guarantee
Dr. Ramlan Ginting, S.H., LL.M
2012

2. Definition of Bank Guarantee
Bank Guarantee, as a concept, means any financial obligation of a bank to a beneficiary
Bank Guarantee, as a banking product, consists of Standby L/C, Demand Guarantee and Bank Guarantee
Bank Guarantees, Dr. Ramlan Ginting, 2006

3. Bank Guarantees, Dr. Ramlan Ginting, 2006
Standby L/C
Standby L/C is an independent guaranty
Bank Guarantees, Dr. Ramlan Ginting, 2006

4. Structure of Standby L/C as independent guaranty
Issuing Bank
Standby L/C
Contract to issue Standby L/C
Underlying Contract
Applicant
Beneficiary
Bank Guarantees, Dr. Ramlan Ginting, 2006

5. Principles of Standby L/C as independent guaranty
Independent Principle (Art 4 UCP 600 & Rule and 1.07 ISP98)
Document Compliance Principle (Art 5 UCP 600 & Rule 4.01 ISP98)
Statement of Default (Rule 4.17 ISP98)
Presentation of a claim (Art 14a UCP 600 & Rule 1.06 and 1.07 ISP98)
Primary Obligation (Art 15a UCP 600 & Rule 3.01 and 3.02 ISP98)
Bank Guarantees, Dr. Ramlan Ginting, 2006

6. Legal aspects of Standby L/C as independent guaranty
International Rules on Standby L/C
- UCP 600
- ISP98
Law on Standby L/C
- International Courts’ Decisions
- Article 5 Uniform Commercial Code
Dispute Resolution: Arbitration or Court
Bank Guarantees, Dr. Ramlan Ginting, 2006

7. Legal aspects of Standby L/C as independent guaranty
Fraud in the Implementation of Standby L/C
- Fraud on underlying transaction
- Fraud on documents presented
Injunction needed
- From Court
- From Arbitration
Bank Guarantees, Dr. Ramlan Ginting, 2006

8. Bank Guarantees, Dr. Ramlan Ginting, 2006
Demand Guarantee
Demand Guarantee is an independent guaranty
Bank Guarantees, Dr. Ramlan Ginting, 2006

9. Structure of Demand Guarantee as independent guaranty
direct guaranty
Issuing Bank
Demand Guarantee
Contract to issue Demand Guarantee
Underlying Contract
Applicant
Beneficiary
Bank Guarantees, Dr. Ramlan Ginting, 2006

10. Structure of Demand Guarantee as independent guaranty
Counter Guarantee
C. Guarantor
Issuing Bank
Contract to issue Demand Guarantee
Demand Guarantee
Underlying Contract
Applicant
Beneficiary
Bank Guarantees, Dr. Ramlan Ginting, 2006

11. Principles of Demand Guarantee as independent guaranty
Independent Principle (Art 5a URDG 758)
Document Compliance Principle (Art 6 URDG 758)
Statement of Default (Art 15a URDG 758)
Presentation of a claim (Art 15a URDG 758)
Primary Obligation (Art 15a and 19a URDG 758)
Bank Guarantees, Dr. Ramlan Ginting, 2006

12. Legal aspects of Demand Guarantee as independent guaranty
International Rule
- URDG 758
Law on Demand Guarantee
- International Courts’ Decisions
Dispute Resolution: Court or Arbitration
Bank Guarantees, Dr. Ramlan Ginting, 2006

13. Legal aspects of Demand Guarantee as independent guaranty
Fraud in the Implementation of Demand Guarantee
- Fraud on underlying transaction
- Fraud on documents presented
Injunction needed
- From Court
- From Arbitration
Bank Guarantees, Dr. Ramlan Ginting, 2006

14. Standby L/C and Demand Guarantee
Standby L/C and Demand Guarantee provide the similarity and difference
Bank Guarantees, Dr. Ramlan Ginting, 2006

15. Similarity between Standby L/C and Demand Guarantee
Both as independent guaranty
Both as international (modern) bank guarantee
Having the same principles in the implementation (easy to claim and pay)
Guaranteeing payment obligation or performance obligation
Bank Guarantees, Dr. Ramlan Ginting, 2006

16. Similarity between Standby L/C and Demand Guarantee
ISP98 or URDG 758 provides provision on applicable law (governing law) in the Standby L/C or Demand Guarantee
In general, ISP98 or URDG 758 has some provisions on legal aspects of the Standby L/C or Demand Guarantee
In general, both ISP98 and URDG 758 have the same rules of practice for Standby L/C and Demand Guarantee as well
Bank Guarantees, Dr. Ramlan Ginting, 2006

17. Different Provisions on Standby L/C and Demand Guarantee
Standby L/C is paid by sight payment, deferred payment, payment by acceptance or payment by negotiation (Rule 2.01 ISP98), but, Demand Guarantee is only paid by payable on demand (Art 19a plus 20b URDG 758)
Bank Guarantees, Dr. Ramlan Ginting, 2006

18. Different Provisions on Standby L/C and Demand Guarantee
Standby L/C is issued under a direct guaranty scheme (Rule 1.09 plus 2 ISP98), but Demand Guarantee is issued under a direct guaranty or indirect guaranty scheme (Art 2, 5, 15b and 24b)
Bank Guarantees, Dr. Ramlan Ginting, 2006

19. Different Provisions on Standby L/C and Demand Guarantee
The limit of time to examine documents under ISP98 is maximum 7 banking days after the presentation of documents (Rule 5.01), and under URDG 758 the limit of time is maximum 5 banking days after the presentation of documents (Art 20a)
Bank Guarantees, Dr. Ramlan Ginting, 2006

20. Different Provisions on Standby L/C and Demand Guarantee
Examination of documents for Standby L/C based on compliance (Rule 4.01 ISP98) and inconsistency (Rule 4.03 ISP98), on the other hand, examination of documents for Demand Guarantee based on compliance (Art 19a URDG 758) and not in contradiction (19b URDG 758)
Bank Guarantees, Dr. Ramlan Ginting, 2006

21. Different Coverage of Rules on Standby L/C and Demand Guarantee
ISP98 has provisions on legal aspects such as the applicable law of the Standby L/C (Rule 1), authority to issue Standby L/C (Rule 1), formal requirements to execute Standby L/C (Rule 1), fraud issues (Rule 1), force majeure (Rule 3.14) and claimed successor (Rule 6), on the other hand, URDG 758 has provisions on force majeure in details (Art 26), governing law (Art 34), and jurisdiction (Art 35)
Bank Guarantees, Dr. Ramlan Ginting, 2006

22. Different Coverage of Rules on Standby L/C and Demand Guarantee
ISP98 has provisions on confirmer (Rule 1.09 and 2.01),reimbursement in details (Rule 8) and syndicated issuer (Rule 10), on the other hand, URDG 758 has provisions on currency of payment in details (Art 21), variation of the amount (Art 13),force majeure in details (Art 26) and counter guarantee (Art 2, 5,15b,16 and 24b)
Bank Guarantees, Dr. Ramlan Ginting, 2006

23. Different Coverage of Rules on Standby L/C and Demand Guarantee
Basically, ISP98 and URDG 758 is separated each other
ISP98 is intended to be the Rule for Standby L/C, and URDG 758 is the Rule for Demand Guarantee
Standby L/C originates from USA, and Demand Guarantee originates from UK
Bank Guarantees, Dr. Ramlan Ginting, 2006

24. Bank Guarantees, Dr. Ramlan Ginting, 2006
Bank Guarantee is a dependent guaranty
Bank Guarantees, Dr. Ramlan Ginting, 2006

25. Structure of Bank Guarantee as dependent guaranty
Issuing Bank
Bank Guarantee
Contract to issue Bank Guarantee
Underlying Contract
Applicant
Beneficiary
Bank Guarantees, Dr. Ramlan Ginting, 2006

26. Principles of Bank Guarantee as dependent guaranty
Dependent Principle (Ps 1821 KUHPerdata)
Actual Default (Ps 1831 jo 1238 KUHPerdata)
Presentation of a Claim (Ps 1831 jo 1238 KUHPerdata)
Primary Obligation vs Secondary Obligation (Ps 1831 KUHPerdata)
Bank Guarantees, Dr. Ramlan Ginting, 2006

27. Law on Bank Guarantee as dependent guaranty
National Law
(Kitab Undang-Undang Hukum Perdata)
National Regulations
(Surat Keputusan Direksi BI & Surat Edaran BI)
Bank Guarantees, Dr. Ramlan Ginting, 2006

28. Bank Guarantees, Dr. Ramlan Ginting, 2006
Conclusion
Standby L/C and Demand Guarantee is separated each other
ISP98 and URDG 758 as international Rules is also separated one to another
However, Standby L/C or Demand Guarantee has the same function that is to guarantee payment and performance obligation
Bank Guarantees, Dr. Ramlan Ginting, 2006

29. Bank Guarantees, Dr. Ramlan Ginting, 2006
Conclusion
Standby L/C or Demand Guarantee is independent guaranty, but Bank Guarantee is dependent guaranty
Bank Guarantee is also issued to guarantee payment and performance obligation as well
Bank Guarantee is regulated under national law
Bank Guarantees, Dr. Ramlan Ginting, 2006

30. Bank Guarantees, Dr. Ramlan Ginting, 2006