Lloyd's Maritime and Commercial Law Quarterly
The law applicable to demand guarantees and counter-guarantees
Nelson Enonchong *
This article examines the choice-of-law rules in Art.4 of the EEC Convention of 19 June 1980 on the law applicable to contractual obligations (Rome Convention) and Art.4(1) and (3) of Regulation (EC) No 593/2008 of 17 June 2008 on the same subject (Rome I Regulation), in the context of demand guarantees and counter-guarantees. The paper argues that the relationship between the instructing bank (counter-guarantor) and the issuing bank (guarantor) should be analysed as a single contract, made up of both the instructions and the counter-guarantee, rather than as two separate contracts. It is contended that this one-contract analysis is preferable to the two-contract approach, since, inter alia, it allows the court, in applying the Rome Convention, Art.4(2) or the Rome I Regulation, Art.4(1)(b) to reach a satisfactory choice of law outcome in the first stage, thereby obviating the need to embark on a more time-consuming second stage by resorting to the Rome Convention, Art.4(5) or the Rome I Regulation, Art.4(3).
I. INTRODUCTION
It has been said that in private international law the problem of ascertaining the applicable law “is more perplexing in the case of contracts than in almost any other area”.1 In a demand guarantee transaction, which normally involves a number of interconnected but autonomous contracts,2 there is perhaps an added complication. In the absence of express choice of law by the parties, the court may be faced with the issue of whether and to
* Barber Professor of Law, University of Birmingham; Barrister. Earlier versions of this paper were presented at a conference on Understanding Demand Guarantees organised by the International Chamber of Commerce United Kingdom (ICC UK) in London in May 2010 and at a Banking Law conference in Johannesburg organised by the Centre for Banking Law, University of Johannesburg, in May 2014. I am indebted to Professor Charl Hugo for his kind hospitality. I am grateful to the anonymous referees for their helpful comments. Any remaining errors are mine.
The following abbreviations are used:
Dicey, Morris & Collins: Lord Collins (ed.), Dicey, Morris & Collins: The Conflict of Laws, 15th edn (Sweet & Maxwell, London, 2012);
ECJ: Court of Justice of the European Communities (1952–2009); Court of Justice of the European Union (2009– );
Giuliano & Lagarde Report: M Giuliano and P Lagarde, Report on the Convention on the law applicable to contractual obligations [1980] OJ C282/17;
URDG: ICC Uniform Rules for Demand Guarantees.
1. J Fawcett & J Carruthers (eds), Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, 2008), 665.
2. See the discussion on the chain of contracts in a demand guarantees transaction in Part II below.
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