Demand Guarantees in the People’s Republic of China and the Republic of South Africa

Guarantees play an important role in large commercial contracts internationally. Guarantees can be either independent (demand) guarantees or accessory guarantees. The legal consequences of the two differ significantly and, therefore, it is important to differentiate clearly between the two. In the case of independent (demand) guarantees – the focus of this contribution – the guarantor’s liability is independent of the underlying performance it is guaranteeing, and is accordingly to be determined, in principle, with reference only to the terms of the guarantee. However, this is not an absolute principle. Jurisdictions throughout the world recognize exceptions to this principle, the most important and prevalent being fraud on the part of the beneficiary. A Judicial Interpretation by the Supreme People’s Court of the People’s Republic of China relating to independent guarantees came into operation in December 2016. Its rules depart in some important respects from the law of guarantees in South Africa, both in relation to the determination of the nature of the guarantee (as independent or accessory) and in relation to the exceptions to the principle of independence. This article explores these issues against the background of the law of contract of both countries