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First demand bank guarantee – how to challenge?

On 24, 05 2012 | No Comments | In Uncategorized | By Kadri Lensment

Jurisdiction – ESTONIA

In case of first demand bank guarantees, there are very limited possibilities for the guarantor to challenge the guarantee claim of the creditor. Namely, the law prescribes a general rule that the guarantor may only present such arguments against the guarantee claim that derive directly from the guarantee (e.g. that the guarantee term has passed and accordingly, the guarantee is no longer valid).

However, Estonian Supreme Court stated in its recent decision that in exceptional cases the guarantor may challenge the claim of the creditor also by relying on the argument that the guarantee claim can be regarded as an abuse of the creditor’s rights. This situation may, for example, rise in case the creditor submits a guarantee claim, but at the same time is aware that in reality, the secured obligation does not exist. The fact that the secured obligation does not exist can, for example, be proved by relying on a corresponding court judgment that has taken effect or on an agreement between the parties whereby the parties agree to terminate the obligation in question.