Home / Essays / Winning Essay from The Interleges Award 2012: in memory of Stephen Rayner

Winning Essay from The Interleges Award 2012: in memory of Stephen Rayner

International trade development between the Middle East and Western countries in the early 1970s boosted demand for independent bank guarantees as counterparties sought protection against performance risks associated with complex international projects. Bank guarantees are used for safeguarding the beneficiary (B) against the applicant’s (A) default under non-monetary obligations in contracts for sale, construction and sometimes against default under monetary obligations resulting from loans, bonds or commercial papers. Bank guarantees can be conditional or unconditional. Under conditional guarantees, the guarantor is entitled to require evidence of A’s default before paying B. Under unconditional (demand) guarantees the bank is obliged to pay B upon B’s demand. This made demand guarantees very popular and resulted in them representing around 90 percent of all guarantees issued internationally.