Recently, two cases represented by GEN lawyers related to independent  guarantee fraud issued under two EPC contracts of power projects in Republic of Yemen, were upheld in the first trial of Chinese court in Jinan. These two cases may provide solutions for contractors who have to repeatedly extend validity of the letters of guarantee even in the situation of force majeure, such as wars, to avoid the letter of guarantee / reissuing letter of guarantee being demanded in international construction projects. 

As China contractors started playing major role in major international construction projects, disputes around independent or demand guarantees rapidly increase. Owners of international projects often require contractors to provide independent guarantees to secure the completion of the projects. However, the mechanism of independent guarantees is characterized by "payment first, argue later", with only exception of "fraud". The test of "double fraud" applied by Chinese courts in counter-guarantee disputes makes it difficult to terminate payment under reissuing guarantees.

By 2022, at least 10 countries in the world are at war. Moreover, with the COVID-19 spreading across the world, many countries are impacted by economic recession, resulting in a sharp increase in the cost of local manpower, materials and machinery, the situation has largely changed comparing with those when executing the contracts. Even so, from the other side, the owners of the host country where the international projects are located still expect the contractors to complete the projects according to the original contracts, and often take the guarantees as the threat, either to request continuous extension, or make unreasonable claims. Contractors usually have to compromise due to the risk of the guarantees and agree to all unreasonable requirements of the owners. 

In these cases, the court determined that the employer and the reissuing bank had no right of claim under the force majeure event of war, and then decided to terminate the payment under the Counter Guarantees. The judgment provides more confidence for Chinese contractors engaged in overseas projects. 

Melissa Feng

Practice Areas:Foreign-related litigation and international commercial arbitration, Trade finance & Guarantees, International trade, International construction contracts

T:010-6521 5999

Ms. Melissa Feng has nearly 20 years of experience as a lawyer and has been engaged in foreign-related dispute resolution practice for a long time, mainly focusing on finance (including letters of credit, letters of guarantee, factoring, forfaiting and other trade financing fields) and international trade, specializing in domestic and foreign-related litigation and arbitration in finance and overseas construction contracting projects. Ms. Feng is especially experienced in handling cross-border complex dispute cases, such as "parallel litigation, multiple lawsuits and arbitration" for domestic and international clients. At the same time, based on her unique experience in litigation and arbitration, Ms. Feng provides cross-border trade compliance and financial compliance services for domestic and foreign clients, and undertake special legal services and year-round legal services for banks, financial institutions, and multinational enterprises in this field.

Ms. Melissa Feng was employed as an arbitrator of several domestic arbitration institutions, Selected to train 40 senior arbitrators at the ICC International Court of Arbitration of the International Chamber of Commerce, and served as the specialist mediator of Singapore International Mediation Centre. Ms. Melissa Feng is the member of China International Legal Professionals of All China Lawyer’s Association, member of Foreign-related Lawyer Talent Pool by Ministry of Justice, council member of China Academy of Arbitration Law. Ms. Melissa Feng was recognized as 2021 LEGALBAND Client Top Choice: China's Top 15 Women Lawyers, 2022 ALB China Top 15 Litigators.

Hongxu Ding

Practice Areas

Cross-border Energy and Infrastructure, Cross-border Investment and Financing, Cross-border Commercial Litigation and Arbitration

T:010-6521 5999

Ms. Ding specializes in cross-border commercial dispute resolution, cross-border energy and infrastructure, and cross-border investment & financing. Ms. Ding is adept at handling complex cross-border construction disputes, using a combination of litigation, arbitration and other legal measures to create a connection between different cases, coordinating and facilitating negotiations, to achieve the client's business goals. Ms. Ding is familiar with issues relating to the entire industry chain of cross-border infrastructure projects, and legal risks during whole period of construction. Ms. Ding has rich experience in legal issues from front-end structure design and project investment, mid-end project implementation, and back-end dispute resolution.