27 February 2026

Bank Guarantee Disputes: Recovery Procedures and Recourse Claims in Russia

February 27, 2026

BRACE Law Firm©

A bank guarantee is a popular method of securing obligations, allowing for the prompt protection of a party’s financial interests if a counterparty fails to perform a contract. Guarantees are particularly relevant when concluding state contracts, most of which require mandatory security by law. The high demand for guarantees is accompanied by a significant number of legal disputes related to their execution.

This article examines the most pressing issues regarding recovery under bank guarantees, common types of litigation, and the approaches developed in law enforcement practice for resolving conflicts.

General Characteristics of the Bank Guarantee Mechanism

Three participants are always present in relations involving a bank guarantee:

the person to whom the guarantee is issued and whose interests it secures (the "Beneficiary");
the person whose obligations the guarantee secures, i.e., the debtor of the Beneficiary (the "Principal");
the organization that issued the guarantee and is obligated to pay the Beneficiary funds in the event the Principal fails to perform the obligation (the "Bank", "Guarantor").

Prior to 2015, the term "bank guarantee" was used, as only banks or credit organizations issued them. In 2015, the law was amended to grant any commercial organization the right to issue such guarantees (Clause 3 of Article 368 of the Civil Code). As a result, this form of security received the official name "independent guarantee". However, in practice, Principals usually arrange guarantees through banks, and banks are the active participants in legal disputes. Therefore, for convenience in this article, an independent guarantee will be referred to as a "bank guarantee", and the Guarantor as the Bank.

The bank guarantee mechanism works as follows: if the Principal fails to perform the obligation secured by the guarantee, the Beneficiary applies to the Bank with a demand to pay the funds within the amount for which the guarantee was issued. If the event or facts cited by the Beneficiary fall under the conditions of the guarantee, the Bank transfers the security amount to the Beneficiary (i.e., it "discloses the guarantee"). After this, the Bank receives the right to a recourse claim against the Principal, who is obligated to reimburse the Bank for the payment amount.

The disclosure of a guarantee entails a chain of monetary claims: first, the Beneficiary applies to the Bank, then the Bank applies to the Principal, and subsequently, the Principal (if they so choose) applies to the Beneficiary. Therefore, legal disputes arising from a guarantee are cyclical in nature and typically represent a sequence of legal proceedings. For example, a Beneficiary seeks payment from a Bank through judicial proceedings. If the court grants the claim, the Bank files a recourse claim against the Principal. If the decision is in the Bank’s favor and the Principal disagrees with the payment, the Principal files a claim against the Beneficiary. If one of the parties voluntarily satisfies a claim at the pre-trial stage, the conflict may be limited to just one or two proceedings.

Disputes involving bank guarantees are considered under standard arbitration rules applying general norms of civil legislation. Therefore, the main trends and approaches to resolving situations are formed by judicial practice, which will be examined in this article.

Statutory Regulation of Bank Guarantees

The basic rules for working with bank guarantees are established in regulations and clarifications:

Paragraph 6 of Chapter 23 of Part One of the Civil Code of the Russian Federation (the "Civil Code");
Review of Judicial Practice on Resolving Disputes Related to the Application of Legislation on Independent Guarantees, approved by the Presidium of the Supreme Court of the Russian Federation on June 5, 2019 (the "Review");
Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 14 dated March 23, 2012, On Certain Issues of the Practice of Resolving Disputes Related to the Contesting of Bank Guarantees (the "Plenum No. 14");
Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 27 dated January 15, 1998, Review of the Practice of Resolving Disputes Related to the Application of the Norms of the Civil Code of the Russian Federation on Bank Guarantees (the "Information Letter No. 27").

Bank guarantees are very actively used in the procurement and contract system to secure contracts concluded under Federal Law No. 44-FZ dated April 5, 2013, On the Contract System in the Field of Procurement of Goods, Works, and Services for the Provision of State and Municipal Needs (the "Law No. 44-FZ"), as well as to secure contracts in procurements under Federal Law No. 18-FZ dated July 18, 2011, On Procurements of Goods, Works, and Services by Certain Types of Legal Entities (the "Law No. 223-FZ"). Special rules are established for such guarantees:

Government Decree of the Russian Federation No. 1005 dated November 8, 2013, On Independent Guarantees Used for the Purposes of the Federal Law On the Contract System in the Field of Procurement of Goods, Works, and Services for the Provision of State and Municipal Needs (the "Decree No. 1005") — establishes requirements for all guarantees that secure bids for participation in procurements and contracts under Law No. 44-FZ;
Government Decree of the Russian Federation No. 1397 dated August 9, 2022, On Independent Guarantees Provided as Security for a Bid to Participate in a Competitive Procurement of Goods, Works, and Services in Electronic Form Involving Small and Medium-Sized Enterprises, and Independent Guarantees Provided as Security for the Performance of a Contract Concluded Based on the Results of Such Procurement, as well as on Amendments to Certain Acts of the Government of the Russian Federation (the "Decree No. 1397") — establishes rules for guarantees issued to secure bids and contracts in procurements involving small businesses under Law No. 223-FZ.

Disputes Between the Beneficiary and the Guarantor under a Bank Guarantee

The fact that a Beneficiary holds a bank guarantee does not mean the Bank will automatically transfer funds upon the first demand. When deciding on payment, Banks are guided by certain rules and have the opportunity to refuse the Beneficiary. If the Beneficiary receives such a refusal and disagrees with it, they apply to the court with a statement of claim against the Bank.

It should be noted that the Bank and the Principal are not solidary or vicarious debtors for the Beneficiary, as they are not equivalent debtors.[1] This distinguishes a Bank from a surety.

The procedure for presenting a demand under a guarantee is formal in nature (Article 374 of the Civil Code):

the demand must be made in writing;
the documents specified in the guarantee must be attached to the demand. As a rule, these include the payment amount and confirmation of the authority of the person who signed the application. The Beneficiary prepares and sends other documents at their discretion (unless the guarantee conditions contain specifics). As a result, interaction with the Bank resembles judicial proof, although these procedures have fundamentally different characters;
in the demand, the Beneficiary sets out the circumstances that served as the reason for the payment. In this regard, interaction with the Bank is also similar to the process of judicial proof. Since the spectrum of situations involving a breach of obligations is quite wide, bank guarantees almost never contain a specific list of situations or circumstances that will serve as the basis for payment. Typically, the text of the guarantee contains a standard formulation stating that the ground for payment is a "breach of obligations by the Principal". This gives the Beneficiary the opportunity to decide for themselves exactly what constitutes a breach of obligation and what documents can prove it, and gives the Bank the opportunity to evaluate documents not only by formal but also by subjective criteria, interpreting the situation in its favor and refusing payment.

The lack of specificity in the description of breaches of obligations is the main cause of legal disputes between the Beneficiary and the Guarantor. It is very rare to find a guarantee that explicitly states that funds are paid to the Beneficiary if a certificate of completion of work under the contract is not signed by a certain date. Typically, the guarantee specifies the ground for payment as the "non-performance by the contractor of its contractual obligations". Such a formulation allows for a broad interpretation, as the contractor has many contractual obligations.

What the Bank must do upon receiving a demand for payment (Article 375 of the Civil Code):

immediately inform the Principal of this and send them a copy of the demand;
consider the demand within 5 days (this period may be different in the guarantee, but in any case no more than 30 days);
if the demand complies with the conditions of the guarantee, the Bank is obligated to make the payment, the terms of which are established in the guarantee. For contracts under Law No. 44-FZ and competitive contracts with small business entities under Law No. 223-FZ, this period is 10 business days after receiving the demand (clause of the standard guarantee form attached to Decree No. 1005, Clause 10 of Appendix No. 3 to Decree No. 1397).

The Bank has the opportunity to suspend payment for a period of up to 7 days in the following cases (Clause 2 of Article 376 of the Civil Code):

if at least one of the submitted documents is unreliable;
if there are no circumstances (i.e., grounds) for payment under the guarantee;
if the primary obligation secured by the guarantee is invalid;
if the Beneficiary accepted the performance of the obligation from the Principal without objections.

The payment procedure is regulated concisely in the law. Therefore, Beneficiaries sometimes attempt to abuse their right to payment, and Banks, in turn, approach the consideration of demands from positions of subjective assessment of the situation.

What Principles Does the Court Consider when Hearing Claims in which the Beneficiary Contests the Bank’s Refusal to Disclose a Guarantee?

First principle: a formal approach to the evaluation of documents. The Bank evaluates the documents submitted to it by external signs, guided only by formal requirements established in the guarantee itself or in the law (Clause 3 of Article 375 of the Civil Code). Clause 9 of the Review emphasizes external signs: if the demand corresponds to the conditions of the guarantee in terms of composition and form, the Bank is not entitled to refuse the Beneficiary.

The Review cites judicial precedents as examples. In the first case, the Bank's refusal was motivated by the fact that the copy of the payment order was not certified, although the guarantee did not specify the need to certify the payment order. В in the second example, the Bank refused due to comments on the calculation of the demand amount. The calculation is an integral part of the set of documents for bank payment. But if the text of the guarantee does not contain clear requirements for the content and formatting of the calculation, the Bank is not entitled to check it against the specified parameters, as this goes beyond the scope of a formal document check (Clause 9 of the Review). If the Beneficiary provides incorrect information during the calculation, the Bank still makes the payment and receives recourse from the Principal, and subsequently, the Beneficiary will be obligated to reimburse these funds to the Principal as compensation for damages.[2]

Sometimes Banks try to manipulate the formal approach, using it in their own interests. For example, they point to the absence of the Beneficiary’s seal on the documents. Current judicial practice states that the absence of a seal impression is not a ground for refusal. In the Moscow District, a Bank’s refusal based on the discrepancy between the seal impression in the application and the impression in the signature specimen card was successfully contested. The court recognized the refusal to pay as unlawful, as a seal is not a mandatory requirement for the form of concluding a transaction at all.[3] The absence of a seal on the demand itself is also not mandatory, especially if the Beneficiary submitted a signature and impression specimen card certified by a notary.[4]

Second principle: compliance with the guarantee’s validity period. A demand for payment may only be presented within the validity period of the guarantee (Clause 2 of Article 374, Clause 1 of Article 376 of the Civil Code). This is a rigid rule that applies regardless of other circumstances. For a bank guarantee, the period is a material condition: if it is not specified, the Bank does not incur guarantee obligations at all (Clause 2 of Information Letter No. 27).

Even if all grounds for payment exist and the documents are formatted perfectly, a Beneficiary who misses the deadline by even one day will receive a refusal. Contesting such a refusal in court is futile.[5] Moreover, if the Beneficiary submitted a demand within the guarantee period, received a justified refusal, and sent corrected documents to the Bank again already outside the guarantee period, the repeated submission will also be lawfully rejected.[6]

The moment of presenting a demand may be determined differently. By default, the Beneficiary must manage to send the documents to the Bank during the validity period of the guarantee. But this rule is dispositive: the guarantee may provide that the moment of presenting the demand is considered the date of delivery, rather than dispatch (Clause 4 of the Review).

That is, by general rule, Clause 2 of Article 194 of the Civil Code applies: applications and notices submitted to a communications organization before 24:00 on the last day of the period are considered made on time. Consequently, the Beneficiary is not obligated to send the demand in advance to ensure the Bank definitely receives it before the guarantee expires.

If the Bank wants to avoid litigation related to the calculation of periods, a special rule can be established in the guarantee. The demand must be provided (including by mail) such that the Guarantor receives it before the expiration of the guarantee’s validity period. In such a case, all documents received by the Bank outside the guarantee period will be lawfully rejected, and the court will side with the Bank.[7] In exceptional cases, courts may pay attention to the existence of force majeure circumstances that prevented the Beneficiary from making a timely dispatch. If such circumstances are absent, the judicial proceeding will conclude in favor of the Bank.[8]

Third principle: independence of the guarantee from the primary obligation (Article 370 of the Civil Code, Clause 11 of the Review, Clause 1 of Resolution No. 14, Clause 5 of Information Letter No. 27). The principle of guarantee independence consists of the following:

the Bank’s obligation to the Beneficiary does not depend on the primary obligation secured by the guarantee, on the relations between the Principal and the Guarantor, or on any other obligations, even if the guarantee contains references to them. Therefore, even if the transaction between the Bank and the Principal for the issuance of the guarantee is recognized as invalid or not concluded, this does not exempt the Bank from the obligation to make the payment to the Beneficiary. An exception is the bad faith of the Beneficiary themselves, who knew in advance that the guarantee was issued illegally (Clause 7 of the Review);
the Bank is not entitled to raise objections to the Beneficiary arising from the obligation secured by the guarantee or from the agreement with the Principal on the issuance of the guarantee. The Bank is generally not entitled to refer to circumstances that are not specified in the guarantee itself. But if the Beneficiary acted as a party to the transaction for the issuance of the guarantee and simultaneously knew that it was issued with violations, the Bank may object to the demands of such a Beneficiary (Clause 8 of the Review);
the Bank cannot present for set-off against the Beneficiary a claim assigned to it by the Principal (this prohibition is dispositive; the guarantee may provide otherwise).

The institute of the bank guarantee is aimed at enabling the Beneficiary to receive the financial equivalent of the performance they expected as quickly as possible, without fearing the Principal’s objections.[9] A bank guarantee should compensate the Beneficiary for the adverse consequences of the Principal’s breach of the contract promptly and unconditionally based on the demand.

The principle of independence is fundamental but complex in application. When deciding on the disclosure of a guarantee, the Bank is forced to establish a clear line between the facts it must evaluate and the circumstances it is not entitled to analyze. The Principal’s objections based on deep legal evaluation cannot serve as a ground for refusal of payment.[10] If the guarantee secures the performance of the primary obligation, the Beneficiary must provide information only about the very fact of such non-performance.

An important point: the Bank is by default not endowed with the right to check the correctness of the calculation of the demand amount. Clause 9 of the Review states that checking the completeness and validity of the calculation represents an analysis of the relations between the Principal and the Beneficiary, i.e., it contradicts the principle of independence.

There is an exception to the principle of independence: if the Beneficiary abuses the right to receive payment and intends to enrich themselves in bad faith at the Bank’s expense (Clause 11 of the Review, Clause 4 of Information Letter No. 27). This refers to a situation where the Principal has performed their obligations, the Beneficiary knows this, and still demands payment from the Bank. In this case, the Beneficiary’s claim will be rejected based on Clause 2 of Article 10 of the Civil Code.

For example, a guarantee is issued to a Customer-Beneficiary to secure the performance of a construction contract where the contractor is the Principal. The work was not completed on time. The guarantee specifies the ground for payment as the "non-performance of the obligation under the contract". The absence of a work completion certificate at the time the deadline for their acceptance occurs indicates that the work was not performed (or not accepted by the Customer). Consequently, the Principal did not perform the obligation.

When deciding on payment, the Bank adheres to the rules:

not to delve into the circumstances and reasons for non-performance of the contract;
not to identify the degree of fault of the Beneficiary and the Principal;
not to consider mitigating or aggravating circumstances;
not to check the calculation for correctness and legal validity;
not to object to the Beneficiary on the ground that they also breached the contract.

All these circumstances will be subject to consideration in court when the guarantee payment is presented by the Principal for reimbursement.

Thus, the Supreme Court of the Russian Federation (the "Supreme Court of the Russian Federation") evaluated a situation involving a refusal of a guarantee payment issued to secure a construction state contract. Since the contractor-Principal performed the work in bad faith, the Customer-Beneficiary unilaterally terminated the contract and demanded the return of the unearned advance. The contractor did not return the advance, and the Beneficiary presented a demand to the Bank. A refusal was received from the Bank, which the Beneficiary contested in court. The courts of the first three instances supported the Bank's position, as the contractor stated they could not perform the work due to the Customer's fault. But the Supreme Court of the Russian Federation overturned all court decisions and stated: "the Guarantor is not entitled to invade the sphere of evaluating the legal relations of the parties to the obligation". In this case, the ground for payment is the very fact of unperformed (unaccepted) work and the unearned advance that the Principal did not return to the Customer after the termination of the contract.[11]

In some situations, the principle of guarantee independence conflicts with the principle of formal document evaluation. As practice shows, the principle of independence takes priority. An example is the dispute between Sberbank and an aviation company regarding a guarantee payment in an amount exceeding 200 million rubles. The Bank refused the payment based on a formal criterion: the Beneficiary did not submit a reconciliation certificate of mutual settlements, although under the conditions of the guarantee, this document should have been in the set. The Beneficiary explained that the Principal was not signing the reconciliation certificate because its director was disqualified, and the company itself was in bankruptcy proceedings and was evading interaction. The Supreme Court of the Russian Federation noted regarding this that the Bank showed excessive formalism by demanding a document that no longer had evidentiary value, and such an approach contradicts the nature of an independent guarantee. In this case, the parties were in a state of conflict that prevented the reconciliation of settlements and the formatting of the certificate. Also, the court drew attention to the role of the reconciliation certificate in business turnover: this document is used in the performance of contracts for the purpose of reflecting debt. The Bank should have taken into account that the contract had already been terminated at the time the demand was presented. As a result, the decisions of the lower courts were overturned, and the case was sent for a new hearing.[12]

Often, a guarantee secures not only the primary obligation but also contractual penalties. If the guarantee is issued to secure a state contract under Law No. 44-FZ or a competitive contract with a small business entity under Law No. 223-FZ, it secures fines and penalties on a mandatory basis (standard bank guarantee forms under Decree No. 1005, Decree No. 1397).

When recovering penalties, the principle of independence applies: the Bank should not analyze how lawfully the penalty was presented, whether it was calculated correctly, and whether it corresponds to the contractual conditions. For payment, it is sufficient that the Beneficiary has a claim against the Principal for the payment of the penalty, which was presented to the Principal and was not satisfied by them.

For example, the Moscow District Court considered a dispute over a Bank's refusal to pay a penalty accrued under a state contract. The Bank motivated its refusal by the fact that the penalty was presented unlawfully, as the Principal performed the contract, which was confirmed by a signed certificate of completion of the performed work. Also, the Bank checked the calculation of the penalty and revealed a discrepancy between the calculation and the norms of Law No. 44-FZ. The court noted that the law does not provide the Bank with the right to check the correctness of the calculation amount, and the Bank’s refusal was made based on a legal evaluation of the relations between the Principal and the Beneficiary, which is impermissible.[13]

In addition to the primary obligation and penalties, a guarantee may secure the reimbursement of damages to the Beneficiary. The principle of independence also applies here, as the Bank is not entitled to provide a legal evaluation of the validity of the reimbursement of damages, check the size of the damage, or identify a causal link between the Principal's actions and the damages.[14]

Disputes on the Recovery of Penalties from the Bank for Delay in Payment

If the Bank unreasonably delayed payment, the Beneficiary is entitled to demand a penalty. The general norms of civil legislation do not define a single penalty rate for delay in payment; its size is specified in the conditions of the guarantee itself. A special penalty size is established at the regulatory level for guarantees in state procurements under Law No. 44-FZ, as well as in procurements involving small businesses under Law No. 223-FZ: the penalty is 0.1% of the unpaid amount for each day of delay (clauses of the standard guarantee forms attached to Decree No. 1005, Clause 12 of Appendix No. 1 and Clause 12 of Appendix No. 3 to Decree No. 1397).

Typically, in court, the penalty is presented simultaneously with the statement of claim for payment under the guarantee. At the same time, Banks actively use Article 333 of the Civil Code to reduce the size of the penalty. This norm allows for the reduction of a penalty that is disproportionate to the consequences of the breach. Since the issuance of bank guarantees is related to entrepreneurial activity, the arbitration procedure for reducing the penalty is implemented taking into account the rules established for commercial organizations (Clauses 1, 2 of Article 333 of the Civil Code):

the court considers the issue of reducing the penalty only based on the Bank's written application;[15]
the penalty is reduced only in exceptional cases if the recovery of the penalty in full would entail an unjust enrichment for the Beneficiary.

The degree of proportionality of the penalty to the consequences of the breach is an evaluative category; the court makes the decision to reduce it based on internal conviction and the circumstances of the specific case. Typically, disproportionality is expressed in the fact that the damages that arose for the Beneficiary in connection with the delay in payment are significantly lower than the amount of the penalty itself.

Under Article 333 of the Civil Code, not only contractual but also statutory penalties can be reduced. Therefore, even if a guarantee is issued to secure a state contract and the size of the Bank’s penalty for delay in payment is established at the legislative level (0.1%), the court may make a decision to reduce it.[16] Moreover, the practice of reducing penalties under guarantees for state contracts is quite common. For example, in the North-Western District, the court, in reducing the penalty, considered the following circumstances in aggregate:

during the period of delay, the Bank was objectively deprived of the opportunity to make the payment under the guarantee;
the size of the Principal's liability under the contract (interest under Article 395 of the Civil Code) is 4 times lower than the Bank's liability under the guarantee;
the delay in payment under the guarantee did not entail significant adverse consequences for the Beneficiary.[17]

When calculating the amount of the reduced penalty, the court typically applies the penalty in the size of the key rate of the Bank of Russia, but may also be guided by twice the key rate of the Bank of Russia.[18]

In refusing to reduce the penalty, courts consider the overall good faith of the Bank's actions: what motivated the delay in payment and whether the Bank has justifying circumstances.

For example, during the proceeding, it was revealed that the Bank had no grounds for refusal; the Beneficiary’s demand and set of documents fully corresponded to the conditions of the guarantee and were presented within its validity period. The Beneficiary did not abuse the right and did not permit bad-faith behavior. Under such circumstances, the court is highly likely to refuse to reduce the penalty for the Bank.[19]

Disputes Between the Bank and the Principal under a Bank Guarantee

After the Bank has paid the Beneficiary funds under the guarantee, the Principal is obligated to reimburse the Bank for the specified amount by way of recourse (Article 379 of the Civil Code). The procedure and periods for such reimbursement are established in the specific agreement between the Bank and the Principal. This may be an automatic debiting of funds from the Principal's account or a standard claim interaction. If the Principal does not reimburse the payment voluntarily, the Bank applies to the court.

When hearing recourse claims, the court examines and evaluates the following circumstances:

the existence of a guarantee issuance agreement between the Bank and the Principal;
the fact of the transfer of funds to the Beneficiary;
the lawfulness of the guarantee disclosure, i.e., the validity of the payment;
the fact of the absence of a recourse payment by the Principal;
the absence in the guarantee of conditions that refute the Principal's obligation to make a recourse payment. The point is that the obligation of recourse reimbursement is formulated in the law dispositively; therefore, the guarantee may provide for other provisions regarding the conditions and procedure for compensating the Bank for the payment amount.

Proving the validity of the payment always occurs taking into account the principle of bank guarantee independence and the formal approach. If the Principal objects to the disclosure of the guarantee, the court should limit itself to checking the formal correspondence between the Beneficiary’s demand and the conditions of the issued guarantee. The North-Western District Court stated regarding this that the Guarantor is deprived of the opportunity to refuse payment for reasons of subjective understanding of the situation related to the non-performance of the contract and is not entitled to examine evidence of such non-performance. If during the process the Principal does not prove that the Bank breached the formal grounds for disclosing the guarantee, the court will recognize the recourse claim as lawful.[20]

Another illustrative example is a precedent from the West-Siberian District. The Bank made a payment under a guarantee issued to a Customer-Beneficiary to secure a contract for repair and construction work and restoration. The ground was the contractor’s refusal to eliminate defects during the guarantee period. The Principal objected to the recourse claim, referring to the fact that the contract was terminated by agreement of the parties, the agreement recorded the termination of mutual obligations, the termination of the right to use the bank guarantee, as well as the absence of claims against the contractor. The court noted that the Bank is not entitled to examine evidence of the factual non-performance of the obligation. Therefore, the details of the relations between the Customer and the contractor did not affect the lawfulness of the payment.[21]

The court will refuse a recourse claim if the Bank does not prove the fact of the transfer of funds to the Beneficiary. An example is a claim considered by the Moscow District Court. Bankruptcy proceedings were opened against the Bank. The Beneficiary’s demand for payment under the guarantee was included in the register of creditors' claims. On this basis, the Bank filed a recourse claim against the Principal, believing that the Principal had incurred debt for the reimbursement of the guarantee payment, although in fact there was no transfer of funds to the Beneficiary. The court refused the claim, as the disclosure of the guarantee did not take place.[22]

During the proceeding, the court checks whether the Bank followed the procedure for interaction with the Principal. For example, in a Moscow District case, the Principal objected to recourse claims, pointing to the fact that the Bank did not notify them properly of the guarantee’s disclosure. Since the Bank proved that the Principal was notified, the court satisfied the claims for payment reimbursement.[23]

In addition to the amount of the primary debt (the size of the payment under the guarantee), Banks simultaneously recover remuneration and penalties for delay from Principals. The size of the remuneration, as well as the penalty rates for breach of payment deadlines, are individual in each guarantee; they depend on the financial policy and rules of the specific bank, the key rate of the Bank of Russia, and the type and volume of security.

Remuneration may be expressed as a fixed percentage of the size of the factual guarantee payment (e.g., 0.5% of the payment amount).[24] For the period from the date of the transfer of funds to the Beneficiary until the moment of the recourse payment, Banks often charge Principals interest calculated on an annual basis. This interest is not a sanction; it should be distinguished from penalties and can be regarded as remuneration. Typically, different rates and different accrual periods are established for interest as remuneration and interest as a sanction. The correct legal qualification of the amounts sought by the Bank from the Principal is important for further legal proceedings, as it affects the possibility and mechanisms for their reduction.

There are bank guarantee conditions in which remuneration can be re-qualified as a penalty depending on the situation. For example, under the guarantee conditions of the Joint-Stock Commercial Bank "Absolut Bank", the Principal pays remuneration for the payment in the size of 0.5% of the payment amount. If the reimbursement under the recourse claim is delayed, the remuneration is calculated already by a different principle: 36% per annum of the payment amount, accrued for the period from the date of payment until the day of repayment of the recourse claim. Such conditions did not raise doubts for the court, although the accrual of annual interest in connection with the delay is by its nature no longer remuneration, but a penalty.[25]

Under the conditions of a guarantee issued by the Novosibirsk PJSC "Social Commercial Bank 'Levoberezhny'", the bank accrues interest to the Principal at a rate of 28% per annum on the amount of the guarantee payment. For the delay of the recourse payment, the Principal pays a penalty in the size of 0.5% for each day of delay.[26] In another legal dispute, the bank AKB "North-Eastern Alliance" issued a guarantee on conditions of remuneration at a rate of 25% per annum of the payment amount, and for the delay of recourse, a penalty of 0.15% is charged from the Principal daily.[27] Since the validity of the payment and the Bank’s compliance with the guarantee conditions were proved in court, all amounts of remuneration and penalties were recovered from the Principals in full.

There is a complex point related to the periods for accruing annual interest. Frequently, Banks accrue annual interest by analogy with a penalty for delay of a recourse payment: from the date the delay occurs, i.e., after the expiration of the period granted to the Principal for voluntary reimbursement. But another situation is encountered where annual interest begins to be accrued from the day of the payment to the Beneficiary under the guarantee.[28]

As noted, the annual interest paid to the Bank can have a different legal character. If it is charged for the very fact of the guarantee’s disclosure, it can be qualified as remuneration. If this interest is accrued only on condition of a delay of the recourse payment, it is obvious that it represents a penalty in the form of a fine. The starting date for accruing the fine is the first day of the period of delay on the Principal's part. If annual interest is paid as remuneration, the Bank is entitled to establish any period for its calculation, but the most logical seems to be accruing interest from the day following the payment under the guarantee.

This issue was considered by the Far Eastern District Court with the issuance of a Ruling of the Supreme Court of the Russian Federation. Under the conditions of the guarantee, the Principal was obligated to pay interest on the amount of the recourse payment at a rate of 24% per annum. The Bank accrued interest from the date following the day of the transfer of funds to the Beneficiary until the day of the transfer of the recourse reimbursement to the Bank. At the same time, the Principal was granted a period of 10 days from the date the Bank presented the corresponding demand for the recourse payment. The court regarded such guarantee conditions as unfair, applying Clauses 9, 10, and 11 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 16 dated March 14, 2014, On the Freedom of Contract and Its Limits. This agreement for the issuance of a bank guarantee was concluded based on the principle of an adhesion contract: the Principal accepted the Bank’s standard conditions for the issuance of guarantees and did not have the opportunity to change them. Therefore, the Principal acts as the weaker party. If an adhesion contract is burdensome for the counterparty, breaches the balance of interests of the parties, and contains unfair contractual conditions, the court is entitled to change or terminate the agreement upon the demand of the weaker party. In this case, the conditions for accruing annual interest placed the Bank in a more favorable position and allowed it to extract an unreasonable advantage. The court indicated that interest should be calculated not from the date of the payment to the Beneficiary, but from the date of sending the demand for reimbursement to the Principal.[29]

Regarding the reduction of the penalty for delay of a recourse payment, judicial practice does not develop in favor of Principals. If the validity of the payment under the guarantee itself is proved, all fines and penalties will highly likely be recovered from the Principal in favor of the Bank in full, regardless of high rates.

Thus, the East-Siberian District Court considered a dispute over the reduction of a penalty accrued to a Principal in connection with a recourse delay. The Bank demanded from the Principal payment of a fine in the size of 0.15 percent for each day of delay, as well as a fixed fine in the amount of 50,000 rubles for non-performance of the guarantee conditions. Such penalty rates were recorded in the agreement between the Bank and the Principal. The Principal stated the sanctions were unfair and asked to apply Article 333 of the Civil Code. However, the court judged that in this case the penalty is not subject to reduction, as its size was established by the parties in the contract by mutual consent. In the event of its reduction, the contractual conditions lose all practical meaning. Therefore, all sanctions for the delay were applied to the Principal in full.[30]

It is important to note: a recourse payment received by the Bank is not considered unjust enrichment (Clause 12 of the Review). This means the following: even if the Principal does not agree with the guarantee payment, they are in any case obligated to first reimburse the funds to the Bank. The fact of the guarantee’s disclosure automatically entails the Principal’s debt. By paying the debt to the Bank, the Principal subsequently has the opportunity to recover these funds from the Beneficiary.

Disputes Between the Principal and the Beneficiary

If the Beneficiary sent an unjustified demand to the Bank or submitted unreliable documents and received a payment as a result, they are obligated to reimburse damages to the Principal or the Guarantor (Article 375.1 of the Civil Code). In this case, the bank guarantee mechanism acts "according to the boomerang principle": the Bank makes a monetary payment on a formal ground, then receives it from the Principal by way of recourse, and subsequently, the Principal can file a claim against the Beneficiary. Ultimately, the Beneficiary bears all risks arising from their bad-faith behavior.

Although Article 375.1 of the Civil Code speaks only of the reimbursement of damages, in practice, the Principal files two types of demands in one claim:[31]

for the recovery of unjust enrichment from the Beneficiary, which is understood directly as the amount of the guarantee payment;
for the recovery of damages from the Beneficiary, i.e., those funds that the Bank received from the Principal in connection with the disclosure of the guarantee. This includes remuneration, interest, as well as fines or penalties.

If necessary, during the legal process, courts can correct the legal qualification of the demands, for example, changing it from unjust enrichment to damages.

In hearing these disputes, courts examine the history of the relations between the Principal and the Beneficiary in detail and conduct a legal analysis of all circumstances of the performance of the obligations. The reasons for the breaches of the contract and the degree of fault of each of the parties are taken into account. The correctness of the Beneficiary’s application of contractual measures of liability is also evaluated: whether the fines and penalties accrued to the Principal correspond to the law, the conditions of the contract, and the factual circumstances. If it is established that the Beneficiary is themselves at fault for the non-performance, applied the penalty incorrectly, or generally concealed the fact of proper performance, the funds received under the guarantee will be recognized as unjust enrichment and returned to the Principal.

For example, the Central District Court recognized as damages to the contractor-Principal a payment that the Customer received in connection with a breach of the work deadline. The court studied the circumstances and decided that the contractor’s fault for the breach of the work deadline was absent; therefore, the Customer’s demand for the guarantee payment was stated unreasonably.[32] In another legal dispute, the Bank transferred a payment to a Customer-Beneficiary in connection with the non-performance of a construction contract. During the proceeding, it was revealed that the Customer themselves prematurely refused the contract without justified reasons, not waiting for the end of the performance period, after which they presented a demand to the Bank. The court regarded such behavior as an abuse of right.[33] If the obligation was performed by the Principal as of the date the demand was issued to the Bank, and the penalty was paid, this payment will be recognized as unjust enrichment.[34]

In some cases, a payment under a guarantee may be recognized as justified, but with a change (reduction) in the amount. For example, if the obligation is partially performed, and the payment was made based on complete non-performance. Also, the Beneficiary may incorrectly accrue the penalty, inaccurately perform the calculation, or incorrectly calculate the period. In these cases, the size of the unjust enrichment is adjusted during the judicial proceeding.[35]

Situations are encountered where bad-faith Principals try to return the amount of the recourse payment and file a claim for unjust enrichment against the Beneficiary. If it is proved that the obligation was indeed breached due to circumstances for which the Principal is responsible, the claim will be refused. For example, the Moscow District Court established that the contractor significantly breached the contract, delivered substandard goods, and refused to replace them. In this case, the Beneficiary lawfully used the bank security.[36] It should be noted that the most reliable method of proof in such disputes is a valid decision of an arbitration court in which the non-performance of the contract is already recorded or the validity of the guarantee payment is confirmed.

Thus, a legal analysis of all details and circumstances of the breach that served as the reason for the guarantee’s disclosure takes place only at the stage of the legal proceeding between the Principal and the Beneficiary, when the Principal declares the unlawfulness of the payment received by the Beneficiary. In these disputes, the interaction of the parties on the performance of the contract is examined, issues of the degree of fault are clarified, facts of breaches on the Beneficiary’s part are considered, and the correctness of the calculation and the validity of applying contractual sanctions to the Principal are checked.

Procedural Features of Hearing Disputes on Bank Guarantees

Disputes related to the application of a bank guarantee are considered according to the general rules of arbitration claim proceedings. Since three participants are involved in the relations (the Bank, the Beneficiary, and the Principal), the court necessarily joins the third participant as a third party. For example, if the Bank filed a claim against the Principal, the Beneficiary will be joined to the proceeding in any case.

The pre-trial procedure must be followed according to the general rules of the arbitration process: the court will consider the case on the condition that a claim is sent, no earlier than 30 days later. It should be taken into account: the Beneficiary’s demand to the Bank for payment under the guarantee is equated to a pre-trial claim; sending additional notices is not mandatory (Clause 17 of the Review).

The general statute of limitations applies — 3 years from the date the plaintiff knew or should have known of the breach of their rights (Clause 1 of Article 196, Article 200 of the Civil Code, Clause 15 of the Review, Clause 7 of Information Letter No. 27). The expiration of the statute of limitations is an independent ground for refusing a claim.[37] In disputes over bank guarantees, this situation is encountered very often; any participant in the guarantee (Bank, Beneficiary, or Principal) who missed the statute of limitations may receive a refusal, regardless of their status and the lawfulness of the demands.[38]

In conflicts related to bank guarantees, the institute of prejudice is very much in demand. This is due to the fact that such disputes often represent a consistent chain of legal processes: the Beneficiary files a claim against the Bank, then the Bank files a recourse claim against the Principal, and then the Principal files a claim against the Beneficiary. The court decision issued for each case will have prejudicial force for the subsequent process.[39] The principle of prejudice is that facts established by the court during the hearing of a case are not subject to repeated proof.[40] For example, if the court recognized a guarantee payment to a Beneficiary as lawful, the Principal subsequently will not be able to contest the Bank’s actions to disclose the guarantee; they can file a claim against the Beneficiary, but not against the Bank.

If a party declares a reduction of the penalty under Article 333 of the Civil Code, this can only be done in the court of first instance. An exception is a process where the appellate court considers the case according to the rules of the first instance proceeding. The cassation instance does not review decisions related to the reduction of the penalty unless the lower courts breached the norms of substantive law (e.g., the penalty size was established below the permissible limit or the decision was made by the court in the absence of an application from the interested person).[41]

Concluding Findings and Recommendations

Legal conflicts related to bank guarantees have a number of specific features.

First feature: the relations of the three participants in the guarantee represent a chain of consistent monetary payments. First, the Beneficiary applies to the Bank and receives a guarantee payment. The Bank, having disclosed the guarantee, receives reimbursement from the Principal by way of recourse. After which the Principal (if they do not agree with the payment) applies to the Beneficiary with a claim to reimburse them for unjust enrichment. Because of this, legal processes also bear a cyclical character, and prejudice is of great importance in such disputes. For example, the court satisfied the Beneficiary’s demand against the Bank. Based on this decision, a formal ground appears for the Bank to file a recourse claim against the Principal. If the court issues a decision in the Bank's favor, the Principal is obligated to pay the debt and only after this receives the opportunity to file a claim against the Beneficiary. As a result, a series of interconnected legal processes arise where the decision in the previous case is used as prejudice. Certainly, the number of legal disputes can be fewer: if one of the participants voluntarily satisfies the demand of another participant out of court and does not contest it, the conflict may be limited to just one or two processes.

Second feature: fundamentally different legal approaches are applied for the hearing of the statement of claims of the Beneficiary, the Bank, and the Principal. This difference is due to the specificity of the guarantee: it does not depend on the primary obligation, and its disclosure is of a formal character. Therefore, courts evaluate the lawfulness of the Beneficiary’s demands against the Bank (for payment) only from the position of compliance with the formal conditions of the guarantee and the presence of a set of documents. The same approach is applied in the Bank’s recourse demand against the Principal. If the Bank made the payment without breaching the formal requirements of the guarantee, the Principal is in any case obligated to reimburse the funds transferred by the Bank, even if they do not agree with the payment. A Bank that lawfully disclosed a guarantee automatically receives the right to recourse, and its claim against the Principal will be satisfied. At these stages of the conflict, the possibility of a full-scale legal analysis of the Principal’s performance of contractual obligations is limited by law: the court does not evaluate the degree of the Principal’s fault, does not delve into the circumstances and reasons for the non-performance of the contract, and does not even check the calculation for legal and mathematical correctness. The main task is reduced to establishing the fact of the Principal's non-performance of the contract and the correctness of the documents submitted by the Beneficiary to the Bank. In hearing recourse claims, the court also evaluates the compliance with the procedure for interaction between the Bank and the Principal, which is recorded in the law and in the agreement.

Only after the Bank performs its obligation to the Beneficiary, and the Principal to the Bank, does the opportunity for a full-scale legal evaluation of all circumstances of the performance of the contract that was secured by the guarantee appear. This is the last stage of the conflict: the Principal believes that there were no breaches on their part (or they are not liable for the breach) and objects to the Beneficiary having received the security. At this stage, the court is obligated to examine the legal details of the contractual interaction:

to establish the reasons for the non-performance of the contract;
to identify the degree of fault of the Beneficiary and the Principal;
to take into account mitigating and aggravating circumstances;
to check the calculation of the payment for correctness and legal and contractual validity.

If the court establishes that the Beneficiary is at fault for the non-performance of the contract, or the Principal should not be liable for the non-performance (e.g., force majeure circumstances existed), or the Beneficiary performed the calculation incorrectly, applied contractual sanctions incorrectly, or accrued a penalty — the decision should be issued in the Principal's favor, and unjust enrichment will be recovered from the Beneficiary.

Thus, if the Beneficiary’s demand is correct by formal sign but legally unjustified, they may win a legal process at the stage of the demand against the Bank, and the Bank, in turn, will receive a positive court decision on the recourse claim. But if, in the end, the Principal makes a decision to contest such actions of the Beneficiary, an analytical rather than formal approach to the evaluation of the situation will already be applied by the courts. As a result, a bad-faith Beneficiary will be forced to return all funds received under the guarantee, as well as reimburse damages.

It can be recommended that Beneficiary organizations act cautiously and attentively in a situation where the Principal's breach is not obvious or is related to breaches by the Beneficiary themselves. Even if the Bank pays the funds, they may subsequently be recovered by the Principal through judicial proceedings. In applying to the Bank, the Beneficiary must be confident in their legal position, as it is they who ultimately bear the financial risks of an unjustified or bad-faith receipt of a guarantee payment.