Course overview
Guarantees, though not being forms of securities, are usually essential elements of the lending process. Commonly used for retail and consumer lending, corporate lending, banking and finance businesses and international trade and commerce, guarantees are used globally every day. This course highlights many pertinent and current legal issues and practical aspects related to guarantees.
The general law of guarantees is discussed with specific emphasis on various important legal aspects including how guarantees are formed, drafted, executed, varied, determined, revoked, litigated upon, and enforced. The course also explores the domestic and international legal aspects involving domestic and foreign guarantees, bank guarantees and standby letters of credit. Fraud issues are also covered.
Summary of course content
- Acquire the knowledge on the legal framework applicable to guarantees
- Understand the nature and characteristics of guarantees
- Know how a guarantee contract is formed and enforced
- Be aware of the international legal aspects of guarantees
- Gain practical knowledge on bank guarantees and standby letters of credit
- Prevent and detect frauds involving guarantees and to manage fraud risks
Methodology With lectures, discussions, case-studies, workshops and group presentations methodologies employed, this course promises to engage its participants into active participation.
Who should attend this course?
- Bankers with responsibility for guarantees
- Bankers with responsibility for trade finance
- Banks’ in-house legal counsels
- Lawyers with clients in international banking, commodity trading and construction
- Executives responsible for monitoring and controlling guarantee risk
- Executives responsible for negotiating construction of supply/installation contracts
Day 1
Introduction
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Role of guarantees in banking and finance
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Nature of and types of risks in banking and finance
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Use of guarantees in risk management in lending, international trade and operations of banks
Guarantees and Related Instruments
Nature of a guarantee
Formation of the guarantee contract
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Parties – responsibilities and legal relationships
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Execution of the guarantee
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Formalities
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Use of electronic signatures
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Duty of disclosure
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In-depth legal analysis of the guarantee contract
– Primary and secondary obligations
– Formal requirements
– Consideration
– Subrogation
– Formation of contracts of guarantee
Casestudy: Investec Bank (UK) Ltd v A. Zulman and D. Zulman [2010]
– Validity of guarantees
Casestudy: Barclays Bank plc v O’Brien & Anor [1994]
– Questions of construction
Casestudy: Sunbird Plaza Pty Ltd v Maloney (1988)
– The rule in Holme v Brunskill
Casestudy: Hackney Empire Ltd v Aviva Insurance UK Ltd [2011]
Holme v Brunskill and General Steam Navigation Co v Rolt
– Characterisation of security instrument
Casestudy: IIG Capital LLC v Van Der Merwe & Anor [2008]
applied Marubeni Hong Kong and South China Ltd v Mongolian Government [2005]
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Exercise: Drafting of guarantee documentation
- Analysis of content
– Nature of liabilities and obligations
– Limits of liability and amount
– Period of liability
– Rights and obligations of parties
– Revocation, cancellation and discharge
– Governing law and jurisdiction
- Areas of potential risk
– Legal and regulatory compliance risks
– Political and international risks
– Fraud risks
– Money laundering risks
- Effective documentation techniques
– Drafting skills; drafting standardised documentation
– Vetting skills
– Records retention and safekeeping
– Advisory role
– Preventing litigation pitfalls
Day 2
Variation of guarantee
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Discharge by variation
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Legal implications
Liability of guarantors
Bank guarantees
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Types
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Use of bank guarantees in domestic banking and finance
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Use of bank guarantees in international banking and finance
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Form and use of bank guarantees in Islamic banking and finance
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Basic format of bank guarantees amount, period of liability, expiry date, claim period, assignment, etc
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Bank Autonomous Undertaking
– autonomy and conditionality
– irrevocability
– indirect guarantees and counter-guarantees
– mandate and obligations
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On-demand guarantees
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Early discharge
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Amendments
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Governing law and jurisdiction
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Backdating
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Renewals and extensions
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Documentary requirements
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Commissions
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Claims
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Cancellation
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Overdue bank guarantees
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Exercises
– Discussion on formats
– Formulating a bank’s policies on bank guarantees (writing a manual and procedure)
– Drafting of bank guarantees and standardised formats
Day 3
International legal aspects and Standby Letters of Credit
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Conflict of laws and how to deal with this
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Jurisdiction issues and choice of forum
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Applicable laws
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The Uniform Rules for Demand Guarantees 2010 - URDG 758
– background and history
– main changes
– legal implications
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ISP 98
– scope and application
– fundamental principles
– irrevocability and effectiveness
– documents
– expiry
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Enforcement of judgments
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Foreign legal opinions
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Standby letters of credit – UCP 600 and ISP 98
– Origins, nature and use
Enforcement of guarantees
Pitfalls to avoid and Protection
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Variations to underlying contract
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Insolvency – an act of default?
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Guarantees executed electronically, example, by e-mail
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Adjudication decisions
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Amount recoverable under on-demand bonds
– Casestudy: Bank Kerjasama Rakyat M Bhd v Sea Oil Mill (1979) Sdn Bhd & Anor [2010]
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Exercise: Discussion on litigation against guarantors
– Individual guarantors
– Corporate guarantors
– Guarantors for Islamic structured facilities
– Bank guarantees
Day 4
Guarantee of investment deposits
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Role of monetary authorities
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Use of guarantees of investment deposits in conventional banking
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Use of guarantees of investment deposits in Islamic banking
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Kafalah (contract of guarantee in Islamic banking)
Combating fraud in guarantees
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Types of frauds
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Frauds on bank guarantees
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Detection of fraud
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Fraud prevention techniques
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Reconstruction and recovery
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Analysis of fraud risks
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Fraud cases (forged bank guarantees, investment scams, prime bank note frauds, etc)
– Vinitec Electronics Private Ltd v HCL Infosystems Ltd (1988)
Reforming and developing the legal framework
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International regulations governing guarantees in relation to financial systems to protect depositors and shareholders; guarantees in international trade – eg. URDG 758 and ISP 98
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Protection for individual guarantors
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Code of Banking Practice
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Complaints Bureau
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Mediation
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Litigation
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Workshop:
– Incorporating fraud prevention and detection techniques and measures into one’s organisation
– Suggestions for improvements in the legal framework
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Mei Pheng Lee
Dr. Lee has over fifteen years experience as a leading consultant and lecturer for banks and financial institutions, regulators, large international corporations on many areas of banking and finance laws, frauds, regulation and compliance. For ten years, Dr. Lee worked as Head of Legal for OCBC Bank in Malaysia. Prior to that, she worked at a law firm in Kuala Lumpur, Malaysia and was a Fellow, Law Faculty, at the University of Malaya, Kuala Lumpur.
Currently, Dr. Lee is a senior partner with the Banking Law department at Detta Samen & Co Advocates, in Kuching, Borneo. She is also an adjunct associate professor of the Law Faculty, Bond University, Australia.
Dr. Lee has written a variety of publications including General Principles of Malaysian Law, 5th edition (Oxford); Forged Cheques & The Law (Oxford); Islamic Banking & Finance Law (Pearson Longman); Business Law (Oxford); Oxford Revision Series - Business Law (Oxford); and Commercial Law (Oxford).
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This course has now expired please email us to find out when the course will next be running.