The law applicable to demand guarantees and counter-guarantees

This article examines the choice-of-law rules in Art.4 of the EEC Convention of
19 June 1980 on the law applicable to contractual obligations (Rome Convention)
and Art.4(1) and (3) of Regulation (EC) No 593/2008 of 17 June 2008 on the same subject (Rome I Regulation), in the context of demand guarantees and counterguarantees. The paper argues that the relationship between the instructing bank (counter-guarantor) and the issuing bank (guarantor) should be analysed as a single contract, made up of both the instructions and the counter-guarantee, rather than as two separate contracts. It is contended that this one-contract analysis is preferable to the two-contract approach, since, inter alia, it allows the court, in applying the Rome Convention, Art.4(2) or the Rome I Regulation, Art.4(1)(b) to reach a satisfactory choice of law outcome in the fi rst stage, thereby obviating the need to embark on a more time-consuming second stage by resorting to the Rome Convention, Art.4(5) or the Rome I Regulation, Art.4(3).