Independent Guarantee, The Guarantor Defense Mechanism

As an emerging and modern form of international financing security, independent guarantee has combined the functions of traditional security with the independent characteristic of letters of credit. Under the guidance of efficiency priority, independent guarantee has formed its system totally different from the one of traditional security in which the basis of claim for compensation is absolute, unconditional and documentary. Accordingly, independent guarantee are exercising powerful functions of realization of claim for compensation as well as ensurence of creditor's rights.Independent guarantee has the characteristics of independence, uncondition, irrevocability, responsibility of first payment and so on which are totally different from traditional security. However, while exercising powerful functions, these characteristics contribute to inherent limitations and defects of the system of independent guarantee and confront independent guarantor with immense risks.In order to overcome the limitations and defects of the system of independent guarantee and to reduce the risks it has imposed on the independent guarantor as well as to protect the benefits of independent guarantor effectively, it is of great importance to establish an effective system of guarantor's defenses under independent guarantee. The legal basis of the rights of defenses of independent guarantor include the guarantee contract, domestic law, international convention and international customs and practice as well as some general-accepted international rules. After analyzing the status and problems of the studies on the system of defenses of independent guarantee, the author put forward a holistic constitution of the system of guarantor's defenses under independent guarantee which includes legal defenses and stipulated defenses. Legal defenses can be divided into defenses of validity and defenses of contents. In the meanwhile, the author provided more subdivision and expatiation on the defenses of validity and the defenses of contents and demonstrated the concrete constitution and running of different systems of guarantor's defenses under independent guarantee.Considering that both of the legal and judicial practice in China show great worries on the risks of independent guarantee and take prudential attitudes towards to the systems of independent guarantee, the author finally put forward legal propositions on the system of guarantor's defenses under independent guarantee so asto overcome the limitations and defects of independent guarantee and to reduce the risks it brings to the independent guarantor as well as to protect the benefits of the independent guarantor effectively. Particularly speaking, these propositions are enacted special judicial interpretation with regard to independent guarantee and regulate the system of guarantor's defenses under independent guarantee in the form of special chapter. In addition, it is necessary to regulate the independent guarantor's rights when they are confronting with the beneficiary's wrongful claim for compensation which include the right of dishonor, the right of applying for fraud cognizance, the right of applying for court's injunction and so on in special articles. As a result, the functions of the system of guarantor's defenses under independent guarantee can work effectively and sufficiently to protect the benefits of independent guarantor.