Study On The Legal Issues Of Letter Of Guarantee

Letter of guarantee, which derived from international shippingpractice， has been widely used since it emerged. It attracts muchattention of theory circle and is also criticized a lot as its accordancewith the definition of “fraud” in traditional civil law theory. However,the use of L/G has been very common during the entire development processof international shipping industry, as freight both sides have no choicebut to sign a letter of guarantee to ensure international trade andshipping contract run smoothly, which can be verified by the formulationof standard form letter of guarantee by ship-owners mutual assuranceassociation. At present, only “Hamburger Rules” makes very specificprovisions on its rules of apply, legal validity and so on. From theperspective of the current judicial practice, most of countries all overthe world adopt the principle that goodwill guarantee is valid, althoughthe legislation situation never keeps up with its development of practice.Chinese courts also make judgments on similar cases, referred to the rulesin Hamburger Rules.In recent years, the study on L/G has been almost concentrated on thediscussion of its legal nature and validity. The dissertation, based onthe principle of goodwill L/G being effective, focuses on practice and gives a thorough analysis on the definition, cause of formation andvalidity of L/G by combining case analysis, and adopting empiricalanalysis method, value analysis method and so on. What’s more, somesuggestions of risk mitigation are given to both sides who sign an L/Gand other interested parties, with expectation to direct the practice andalso put forward the development and improvement of the said system. Thedissertation begins with the elaboration of its definition and structureanalysis from subject, security matters, amount of guarantee, period ofguarantee and jurisdiction clause. The second part gives a basicintroduction on the practice state and puts forward the idea of the author.The third part emphasizes on L/G for a clean bill and L/G for delivery,which are very common and also embody many controversial issues. Incurrent international shipping practice, the use of L/G is unavoidable,where all parties involved in international trade and shipping contractmay bear risks in varying degrees. Therefore, the proposal of very clearsuggestions and measures is quite meaningful and helpful to prevent fraudwith L/G and also make sure the realization of contract purpose. Last ofall, the author tries to give a macro analysis on the improvement of L/Gsystem, combining practice and legislation situation in China, and showits vision and trend of future as well.