Fraudulent Demand for Payment of Bank Guarantee with an Emphasis on the UNCITRAL Convention on Independent Guarantees and Letter of Credit Guarantee

Bank guarantees are one of the most effective international instruments used in commercial contracts. Without bank guarantees, it would not be possible to fulfil obligations of the parties or the parties would encounter potential risks. Bank guarantees provide the beneficiary with a certain and immediate payment of a wealthy sponsor in his country. The only exception to the principle of independence is the issue of fraud, which has universally been recognised. This exception could prevent claim and payment to beneficiaries. The question addressed in this article is: What are the international rules on the issue of fraud in bank guarantees and what measures have been taken by the UN Convention on Independent Guarantees and Credit Guarantees ? International Chamber of Commerce has been silent on this issue or at least has not dealt with it expressly . However, the aforementioned Convention is the only document that contains provisions regarding fraud, even though it does not provide an exhaustive list and exact details. It nevertheless provides a useful guidance for courts.