13.

INTERNATIONAL GUARANTEE CONTRACT

DEFINITION, NATURE, PURPOSE AND HOW IT WORKS?
An international guarantee is an insurance coverage that protects an importer or an exporter,
ensuring a compensation in case of breach of contract, and a contract can include more than one
type. Example: A supplies goods to B on C’s guaranteeing payment by B to A. This means that if
B does not pay, C would be liable to pay. This is a “Contract of Guarantee”. Here B is the principal
debtor, C is the surety and A is the creditor.

DIFFICULT CLAUSES TO NEGOTIATE:

The Guarantee becomes a ‘payment instrument’, with the trigger for payment being the
presentation of a demand and/or any other pieces of information outlined in the wording of the
Guarantee.
A party issued a guarantee in favor of another party to that contract may nevertheless be deemed
to be bound by the contract’s arbitration clause or other dispute resolution mechanism.

PARTIES (RIGHTS AND OBLIGATIONS):

A. The guarantee beneficiary B. The guarantee applicant / C. The guarantor / surety
/ creditor principal debtor
The party who has given The one who borrows or is The person who gives the
something of value to borrow liable to pay and on whose guarantee to pay in case of
and stands to receive the default the guarantee is given default of the principal debtor
payment for such a thing and
to whom the guarantee is
given.
RIGHTS AND OBLIGATIONS
1. As between A and B [A supplies goods to B on credit who promises that he would pay].
2. As between A and C [C gives guarantee the price of goods, It will pay].
3. As between C and B [B indemnifies C in case of B’s default in paying the amount to A).

APPLICABLE LAW
The guarantee agreement will apply the governing law of one of the States, is highly recommended
to apply the law where the guarantor is located.

LEX MERCATORIA
UNIDROIT PRINCIPLES

FORUM FOR DISPUTE RESOLUTION

❖ The Court of the Country of the Guarantor (is commonly a bank). It must file a request
before the competent state courts at the Guarantor domicile, before arbitration.
❖ The Court of the Country of the creditor
❖ The Court of the Country of the principal debtor

ARBITRATION (It is expensive, just if the value of the contract justifies it).
The agreement between the principal and its counterpart (beneficiary) should contain an arbitration
clause. This Clause should cover all the disputes that may arise between the two parties in relation
to call the guarantee by the beneficiary.