Demand_Guarantees_and_Unfair_Calling_of_Guarantees.pdf

Newsletter No 62 (EN) ? Lorenz Partners 2009 Demand Guarantees and Unfair Calling of Guarantees August 2009 Newsletter No 62 (EN) Demand Guarantees and Unfair Calling of Guarantees ? Lorenz Partners 2009 Page: 2 of 6 Tel.: +66 (0) 2 287 1882 Fax: +66 (0) 2 287 1871 e-mail: info@lorenz.co.th V:\AA Sample Forms and Publications\AA Newsletters\Full_Versions\N062_EN_DE_IN_Demand Guarantees and Unfair Calling of Guarantees_08_09.doc 1. Introduction In international trade, importers are particularly exposed to the risk that the other part, the exporter, will not be able to perform its contractual duties. Be- sides the commercial risks of insolvency and protracted default, the exporter may become incapable of performing its duties due to the risks attached to selling to public or private entities in territories, where political factors may have an im- pact. Such political risks are e.g. the cancellation of import or export licenses, the imposition of embargos or frustration of contract due to war or confiscation. Importers in international trade therefore often wish to have a security that the exporter will perform his obligations. In order to secure the contract, an ex- porter may be required to provide a guarantee that takes the form of a demand guarantee. Whereas a letter of credit (L/C) would provide security for the exporter against non-payment, a demand guarantee provides protection to the importer against non-, late or defective performance by the exporter or contractor. Many contractors issue guarantees in the form of tender guarantees (also “bid guaran- tees”), advance payment or stage payment guarantees, performance or retention bonds. The following newsletter is meant to give a short overview on the chara