Bank guarantee or guarantee commitment is a document issued by the guarantor or counter-guarantee or the guarantee-confirming party in the form of a Letter of Guarantee or a Guarantee Contract. Thus, a letter of bank guarantee is understood as a written commitment of the bank to the guarantee recipient that the bank will perform financial obligations on behalf of the guaranteed party when the guaranteed party fails to perform or not fulfilling the obligations committed to the guarantee recipient. In case the parties choose the form of counter-guarantee or guarantee confirmation, the letter of guarantee shall include the written commitment of the counter-guarantee issuing party to the guarantee, or of the guarantee-confirmation issuing party to the obligee.

When a guarantee obligation arises, the obligee must send a written request for the performance of the guarantee obligation, enclosed with the documents agreed upon in the guarantee commitment, to the guarantee-executing bank. The request for performance of guarantee obligations is considered valid when the bank receives it within the working time of the bank and within the valid guarantee commitment period. In case the request for performance of the guarantee obligation is sent in the form of a registered letter via the public postal network, the date the guarantor receives the request is the date of signing and receiving the registered letter.

Within 5 working days from the date the guarantor bank receives a valid written request for performance of the guarantee obligation, the guarantor shall be responsible for properly and fully performing the promised guarantee obligation for the with the guarantor. In case the guarantor bank refuses to perform the guarantee obligation, within 5 working days after receiving the request to perform the guarantee obligation, the bank must reply in writing clearly stating the reason for the refusal. In case of payment in foreign currency, credit institutions, foreign bank branches shall debit that foreign-currency sum to the mandatory lending account.

Credit institutions, or foreign bank branches, shall agree on the guarantee-issuing fee amount paid to customers. In case of a counter guarantee or guarantee confirmation, the guarantee-issuing fee amount shall be agreed upon by parties on the basis of the guarantee-issuing fee amount approved by the obligor. If the guarantee currency is foreign one, parties shall agree on collecting the guarantee-issuing fee by accepting that foreign currency or converting that foreign currency into Vietnam at the sell rate defined on the fee collection or fee collection notification date.

Disputes could arise from many situations, for example, there is a case of issuing a false letter of guarantee because an individual in the bank violates the law, or the bank officer signs a letter of guarantee without proper authorization from the legal representative of the bank, or letter of guarantee is in violation of form according to the regulation of state bank. In addition, if a conditional letter of bank guarantee is applicable, a dispute may arise from an understanding of whether or not the conditions for the guarantee have been met. In many cases, there might need to be a lawsuit to determine the conditions fulfilment of the guarantee and such might be lengthy and costly. Therefore, the parties involved in the guarantee transaction might need to consult a lawyer with expertise in banking disputes to check the legitimacy and validity of the letter of bank guarantee and the possibility to be guaranteed when the conditions are met.

Source ANT Lawyers: https://antlawyers.vn/library/how-bank-guarantee-letter-could-help-secure-a-transaction-and-risks-involved.html