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Factual Summary: On 8 January 2007, Heji Huangpu Real Estate (Chengdu) Wenjiang Ltd. (Heji) and China State Construction Engineering Bureau V (CSCE) signed a construction engineering agreement (Agreement), in which Heji agreed to contract the project to the CSCE and CSCE agreed to procure an irrevocable guarantee from an insurance company or bank in line with the condition provided by the Agreement to secure performance of the Agreement by CSCE.

On 11 December 2006, CSCE submitted a Request for Bank Guarantee/Standby LC to Bank of China Hunan Branch (BOC) by which CSCE agreed to waive any objections/defenses against BOC if BOC pays a compliant claim. In addition, CSCE issued a Letter of Commitment on the same day which stated that "We fully understand the risk of on demand guarantee".

On 12 December 2006, BOC as Guarantor and CSCE as Contractor agreed to issuance of the Performance Bond (the Bond). Both promised that "[i]f the Contractor is in breach of the Agreement, the Guarantor shall compensate for the losses suffered by the Contract Recipient until the amount reaches RMB18,890,000 ... ." (Article 2 of the Bond)

On 14 February 2012, Heji sent a Notice of Claim regarding the Bond, stating that the matter that had been secured by the Bond occurred since CSCE substantially delayed progress of the construction, resulting in a huge loss for it. Consequently, Heji stated BOC as Guarantor shall compensate it for the losses in amount of RMB 18,890,000. Upon receipt of the Notice of Claim, BOC required Heji to submit evidence of the loss, e.g. documents confirmed by both CSCE and Heji regarding the amount of loss, an Arbitral Award, or Court Judgment, etc. However, Heji alleged that according to the Bond, it was not obligated to submit such documents. BOC eventually paid the claim of Heji and deducted the deposit of CSCE to reimburse the payment under the Bond.

Judgments: The Sichuan Chengdu Intermediate People's Court held that Article 2 of the Bond did not manifest the on-demand nature of the Bond, but it is clear that the condition triggering the Guarantor's obligation was "if the Contractor is in breach of the Agreement". Thus when Heji filed the claim under the Bond, it shall also provide the basic evidence to prove the fact of breach and the loss amount. Otherwise, the Guarantor shall not pay the demand.

On appeal, reversed. The Sichuan High People's Court held that in consideration of the wording of the Request for Bank Guarantee/Standby LC and the Letter of Commitment, both issued by CSCE, and the Bond itself, the Bond is of an irrevocable, on-demand independent nature, which is independent of the underlying legal relationship. The bank which issued the Bond shall honour a written demand which is in compliance with the terms and conditions of the Bond and pay the amount provided by the Bond. Heji was justified in claiming under the Bond and is entitled to payment from BOC.

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