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Copyright (c) 1998 Croatian Chamber of Commerce
Croatian Arbitration Yearbook

ARBITRATION AND BANKING: Arbitral Settlement of Bank Guarantee Disputes in International Business Transactions


5 Croat. Arbit. Yearb. 167


Ljiljana Maurovic *


UDK 347.918:339.5>


Professional paper

1. Introduction

"Demand" bank guarantees are instruments of security of performance of the obligations in the basic contract. They are a reflection of the needs and interests of international commercial practice. By stipulating and obtaining bank guarantees, the contracting parties shield themselves from the occurrence of risks that may derive from the parties themselves, from their creditworthiness and suitability for to perform contractual obligations, from political, economic or legal situations of their own or other countries. 1

International business practice is highly interested to have an appropriate instrument of security, which can be activated quickly and without any complication in the complex mechanism of international business transaction. Contracting parties may choose between two types of bank guarantees: demand and conditional guarantees. By contracting a demand guarantee, the beneficiary is secured not only from the risks of non-execution or improper execution of the contract, but also from the risk of the existence of a debtor's obligation in the main contract. Conditional bank guarantees contain an accessory and dependent obligation in relation to the main contract. This distinction between bank guarantees affects deeply the interests of legal security in business transactions and practice. Consequently, international business practice has decided in favor of demand guarantees as more than 80% of bank guarantees appearing in international business practice are demand guarantees. 2

Arbitration may be defined as a way of settling disputes between two or more parties by the authority of a third person (or persons), an arbitrator, ...
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