Demand Guarantees in the People's Republic of China and the Republic of South Africa

• Author: Ch. Hugo
• Position: University of Johannesburg (Johannesburg, South Africa)
• Pages: 4-32

BRICS LAW JOURNAL Volume VI (2019) Issue 2

ARTICLES

DEMAND GUARANTEES IN THE PEOPLE’S REPUBLIC OF CHINA

AND THE REPUBLIC OF SOUTH AFRICA*

CHARL HUGO,

University of Johannesburg (Johannesburg, South Africa)

DOI: 10.21684/2412-2343-2019-6-2-4-32

Guarantees play an important role in large commercial contracts internationally.

Guarantees can be either independent (demand) guarantees or accessory guarantees.

The legal consequences of the two dier signicantly and, therefore, it is impor tant to

dierentiate clearly between the two. In the case of independent (demand) guarantees –

the focus of this contribution – the guarantor’s liability is independent of the underlying

performance it is guaranteeing, and is accordingly to be determined, in principle,

with reference only to the terms of the guarantee. However, this is not an absolute

principle. Jurisdictions throughout the world recognize exceptions to this principle, the

most important and prevalent being fraud on the part of the beneciary. A Judicial

Interpretation by the Supreme People’s Court of the People’s Republic of China relating

to independent guarantees came into operation in December 2016. Its rules depart in

some important respects from the law of guarantees in South Africa, both in relation to

the determination of the nature of the guarantee (as independent or accessory) and in

relation to the exceptions to the principle of independence. This article explores these

issues against the background of the law of contract of both countries.

Keywords: independent guarantee; demand guarantee; accessory guarantee; suretyship;

independence of guarantee; autonomy of guarantee; fraud; abuse of rights; Chinese

Judicial Interpretation relating to independent guarantees; Uniform Rules for Demand

Guarantees; China; South Africa.

* This article formed the basis of a paper presented by the author on kind invitation of the Centre for

Banking and Finance Law of the National University of Singapore at Amity Conference on Bank ing

Law held on 11–12 February 2019.

CHARL HUGO 5

Recommended citation: Charl Hugo, Demand Guarantees in the People’s Republic of

China and the Republic of South Africa, 6(2) BRICS Law Journal 4–32 (2019).

Table of Contents

Introduction

1. Demand Guarantees

1.1. Introductory Issues

1.2. International Rules

1.3. Denition of “Demand Guarantee”

1.4. Practical Example

2. The South African Law

2.1. Introduction

2.2. Independent (Demand) Guarantees and Accessory

Guarantees Distinguished

2.3. Independence and Exceptions to Independence

3. Chinese Law

3.1. Introduction: Sources of the Chinese Law of Contract

3.2. Independent (Demand) Guarantees and Accessory

Guarantees Distinguished

4. Comparative Analysis

4.1. Determining Whether a Guarantee Is Independent or Accessory

4.2. Independence and Exceptions to Independence

Conclusion

Introduction

BRICS is about cooperation amongst its members. In accordance with its South

African-hosted website this cooperation “is informed by the need to deepen, broaden

and intensify relations within the grouping and among the individual countries for

more sustainable, equitable and mutually benecial development,”1 and is predicated

upon three dierent tracks of interaction namely (i) formal diplomatic engagement

between governments, (ii) engagement through government-aliated institutions,

and (iii) civil society and people-to-people engagement.2

1 What is BRICS, Africa Facts (Apr. 15, 2019), available at https://africa-facts.org/what-is-brics/.

2 Id. A good example of a combination of tracks (ii) and (iii) is the collaborative reaching out by universities

in dierent BRICS countries (and researchers and teachers in them) towards one another. This should

undoubtedly act as powerful catalyst for meaningful research on BRICS issues. Such an agreement was

formally concluded on 1 November 2018 between the law faculties of the University of Johannesburg

(in South Africa) and the University of Tyumen (in Russia) respectively during the Third Siberian Forum

(which focused on BRICS issues) held in Tyumen during the period 1–3 November 2018.