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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2014 LC CASE SUMMARIES Appeal Judgment [2012] Er Zhong Min Zhong Zi No. 12956;
Second Intermediate People's Court, Beijing [China]
English Version Prepared by Saibo JIN's team
Abstracted by Haoming XI
Beijing Commerce & Finance Law Offices
Topics: The Legality of Independent Guarantee under the current PRC Laws.
Prior History: Trial Judgment [2012] Chao Min Chu Zi No. 5934, People's Court of Chaoyang District, Beijing.
Type of Lawsuit: Beneficiary sued Guarantor for refusal of payment.
Parties: Appellant/Plaintiff/Beneficiary- Tongfang Environment Co., Ltd. (China) (Hereinafter referred to as the "Tong Fang")
Appellee/Defendant/Guarantor - Sino Capital Guaranty Trust Co., Ltd. (China) (Hereinafter referred to as the "SCGT")6
Underlying Transaction: Supply of Equipment and Construction & Installation Project
Guarantee: Guarantee for RMB 2,298,000.
Rationale: The Appeal Court ruled for Appellee/Defendant/Guarantor on the grounds that the independent guarantee is not applicable for transactions between domestic parties. While the guarantee concerned is not invalid per se, the guarantor shall assume the guarantee liability in the event the Master Contract is held valid and the default is established. And the demand for payment will not be held by the Court until the resolution of the dispute arising from the Master Contract.
Article
Factual Summary: Tongfang as the project employer executed a Supply of Non-standard Equipment and Construction & Installation Project Contract with Hebei Zhongrui Construction Group Co,.Ltd (Hereinafter referred to as Zhongrui) as the contractor. SCGT issued performance guarantee for the said Contract in the amount of RMB 2,298,000, which provides that the guarantee is unconditional and irrevocable, SCGT shall make payment to Tongfang upon claim of default by Tongfang regardless of any objection raised by Zhongrui.
The performance guarantee issued by SCGT contains express independent undertaking for guarantee, such undertaking is not applicable for domestic business. Therefore, the agreement as to the independence of the guarantee is invalid. Denial of the independent guarantee means the independence and abstract nature shall not be sustained, while considering the said performance guarantee was issued for the Supply of Non-standard Equipment and Construction & Installation Project Contract between Tongfang and SCGT, which means the performance guarantee of SCGT shall not be wholly invalid, the guarantee liability of SCGT still exists, and the validity of the guarantee contract shall be determined pursuant to the Master Contract and other provisions of the performance guarantee. The guarantee liability of SCGT shall be ascertained in accordance with the determination of the validity of the Master Contract and the degree of fault. The present case involves the determination of the validity of the Master Contract, which shall be subject to arbitration, and the Court has no jurisdiction. Therefore, Tongfang shall ascertain the validity of the Master Contract and the amount payable in advance, and then claim the guarantee liability thereof against SCGT. The assertion of Tongfang against SCGT on the grounds of the independent guarantee undertaking by SCGT in the performance guarantee could not held by the Court. Appeal dismissed, affirmed.
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