Introduction

Financial institutions have a strategic role to increase economic growth in a country. The economic health of a country can be seen from the health level of its financial institutions such as banks. As explained in the Elucidation to Law Number 7 of 1992 on Banking as lastly amended by Law Number 4 of 2023 on Financial Sector Development and Reinforcement (“Banking Law”), the strategic role of banks is mainly due to the main function of banks as a vehicle that can collect and distribute public funds effectively and efficiently. Apart from that, banks also have a strategic role in supporting the implementation of national development in order to increase equitable development.1

The role of banks in supporting national development and equitable development can be seen through the many construction projects or procurement of goods and/or services in Indonesia that use bank products, especially bank guarantees. Bank guarantees are often required as collateral for the implementation of a construction project or procurement of goods and/or services. A bank guarantee is a document issued by a bank which results in an obligation to pay the guarantee beneficiary if the guaranteed party defaults.2 In the context of a construction project, a bank guarantee is issued by the bank for the benefit of the project owner (project owner) in order to guarantee the contractor’s work. If the contractor defaults on its obligations under the agreed construction contract, the bank will pay the amount of money as stated in the bank guarantee to the project owner. In other words, the guarantee beneficiary (for example the project owner) has the right to liquidate the bank guarantee if the guaranteed party (for example the contractor) defaults.

Nevertheless, in practice, disbursing bank guarantees is not as easy as imagined. Some banks might refuse to disburse bank guarantees for one reason or another, resulting in disputes in court. In court disputes, many guarantee beneficiary’s claims are declared inadmissible (niet onvankelijke verklaard) due to lack of parties. The lack of parties here is caused by the guaranteed parties not included in the claim. Many judges consider that if the guaranteed party is not included in the claim, it will be difficult to determine whether the breach of contract actually occurred and what the actual circumstances were. Nevertheless, what is the actual legal relationship in a bank guarantee? Is it necessary for the guaranteed party to be included in a claim related to disbursement of the bank guarantee?

This article will discuss and answer the legal relationship in bank guarantee agreement and will analyse court decision on breach of contract claim related to disbursement of bank guarantees. Apart from that, this article will also answer the question of whether it is necessary for the guaranteed party to be sued in a lawsuit on the disbursement of the bank guarantee.

Discussion

Bank Guarantee Agremeent

Bank Guarantee is a guarantee agreement (perjanjian penanggungan) as regulated under Article 1820 of the Indonesian Civil Code (“ICC”). Article 1820 of ICC stipulates that a guarantee agreement is an agreement in which a third party [bank] for the benefit of the debtor [guaranteed beneficiary], bounds himself to fulfill the obligation of the debtor [guaranteed party] when this person himself [guaranteed party] does not fulfill it. Article 1821 of ICC regulates that there is no guarantee if there is no valid main agreement. These provisions indicate that the guarantee is a supplementary agreement (accessory) of a main agreement. Apart from being regulated in the ICC, bank guarantees are also regulated in Bank Indonesia Directors Decree No. 23/88/KEP/DIR on Providing a Guarantee by Bank (“SKBI BG”) and Bank Guarantee Directors’ Circular No. 23/7/UKU dated 18 March 1991 on the Providing a Guarantees by Bank (“SEBI BG”).

As explained in the introduction section above, a bank guarantee is a document issued by a bank as a third party which results in an obligation to pay the guarantee beneficiary if the guaranteed party defaults.3 Besides that, provision No. 4.1 SEBI BG explains that a bank guarantee is a supplementary agreement (accessory) in the form of guarantee agreement (borgtocht) where the bank acts as guarantor. From the regulations in the ICC, SEBI BG and SKBI BG, it can be concluded that a bank guarantee is a guarantee agreement which is a supplementary agreement (accessory) from the main agreement which creates an obligation to pay for the bank if the guaranteed party defaults.

A bank guarantee agreement can be made based on Article 1831 of the ICC or Article 1832 of the ICC. If a bank guarantee is issued subject to the provisions of Article 1831 of the ICC, if a breach of contract (default) arises, then before making payment, the guarantor (bank) can request that the debtor’s objects be confiscated and sold first to pay off the debt. If a bank guarantee is issued subject to the provisions of Article 1832 of the ICC, namely waiving its privilege over property belonging to the guaranteed party for prior confiscation and sale, then the bank is obliged to pay the relevant bank guarantee immediately after a breach of contract (default) arises and accept the claim.4

J. Satrio in his book, Hukum Jaminan, Hak-Hak Jaminan Pribadi Penanggungan (Borgtocht) dan Perikatan Tanggung-Menanggung explains that in the case of guarantees, there are two different agreements, namely the main guaranteed agreement and the guarantee agreement.5 J. Satrio further explained that in the main agreement the parties involved are the creditor and the debtor, whereas in the guarantee agreement the parties involved are the creditor and borg. Referring to J. Satrio’s explanation, if illustrated for example in a construction agreement, then in the construction agreement the party involved is the project owner as a creditor with the contractor as debtor. If the construction agreement is then guaranteed by a bank guarantee, then the party to the bank guarantee is the project owner as a creditor and banks as borg.

J. Satrio also explained that the guarantee agreement is an separate agreement, in a sense, different from the agreement that has been made between creditors and debtors, even if they are related to each other.6 If borg, after the debtor defaults, it is required to fulfill the debtor’s performance obligations, but refuses, so it is on his own based on the breach of contract itself, can be demanded for compensation.7 Ramlan Ginting explained that bank guarantees are issued to guarantee beneficiary in accordance with the bank guarantee issuance agreement.8 He said that a bank guarantee is a contract between the issuing bank and the guaranteed beneficiary.9 Whilst, the agreement between the guaranteed party and the bank begins with a request for the issuance of a bank guarantee in the form of an application form for the issuance of a bank guarantee. An application for issuing a bank guarantee that has been approved by the guaranteed party and the issuing bank will have its status upgraded to a bank guarantee issuance agreement.10 The bank guarantee issuance agreement is a contract between the guaranteed party and the issuing bank.11 To make it easier to see the legal relationship between the parties in a bank guarantee, the author will describe it in the following chart:

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Based on the explanation of the regulations, legal doctrines and legal relationships in the chart above, it is clear that in a bank guarantee agreement, the parties involved are the guaranteed party and the bank. The guaranteed party is not a party to the bank guarantee. The guaranteed party is a party to the main agreement and the bank guarantee issuance agreement. Thus, the guaranteed party  should be able to claim the bank to fulfill its obligations under the bank guarantee, without involving the guaranteed party. To make it clearer, the author will analyse 2 (two) relevant court decisions.

Case Analysis

  1. Palembang District Court Decision No. 99/Pdt.G/2013/PN Plg jo. Supreme Court Decision No. 115 K/Pdt/2017
    A case between a Singaporean company as Plaintiff and a regional bank in South Sumatra as Defendant. The basis of the Plaintiff’s lawsuit is the Defendant’s breach of contract as a bank, since the Defendant did not pay the bank guarantee which was used as collateral for the implementation of the agreement for the procurement and operation of drilling equipment with a capacity of at least 1,500 HP between the Plaintiff and PT Energi Tata Persada (“Agreement”). In implementing the Agreement, PT Energi Tata Persada has defaulted since it was unable to complete the work in accordance with the time specified in the contract, namely 90 days for the mobilization of drilling equipment. The Plaintiff at the trial had proven that PT Energi Tata Persada was in default through several warning letters from the Plaintiff to PT Energi Tata Persada to immediately fulfill its obligations. During the trial, the Defendant filed an objection that the Plaintiff’s claim was lacking party to the dispute since PT Energi Tata Persada was not included in the claim.
    The Panel of Judges in the exception basically considered several points:12
    • A bank guarantee is an agreement that arises from guaranteeing a debt under Article 1820 of the ICC.
    • The bank’s obligation from the issuance of bank guarantee is to make payments as agreed in the bank guarantee if the customer has defaulted on the main agreement.
    • The bank’s obligation from the issuance of bank guarantee is simply to prove that there is a breach of contract in the main agreement, which used as the basis for the issuance of bank guarantee.
    • Based on the arguments and relief sought, the Plaintiff’s claim does not seek relief on any obligation from PT Energi Tata Persada and the claim filed by the Plaintiff is solely regarding the issuance of a bank guarantee.
    • Therefore, PT Energi Tata Persada does not need to be included in implementing the bank guarantee.

At the cassation level, Judex Juris affirmed the decision made by the Judex Facti and considering in essence that the legal relationship between the Plaintiff and the Defendant is the legal relationship of providing a bank guarantee. Since the time agreed in the contract has been lapsed by PT Energi Tata Persada, PT Energi Tata Persada has defaulted, and the Plaintiff is entitled to payment of the bank guarantee.13

  1. Supreme Court Decision No. 135/PK/Pdt/2018
    Unlike the previous case, this case is not between a company and a bank. It is a case between a mining contractor in Indonesia as the Plaintiff and an entrepreneur as the Defendant. In this case, the Plaintiff and a third party, namely PT Cahaya Energi Mandiri (“PT CEM”) has agreed in a coal mining work contract, where the Plaintiff is the coal mining work contractor appointed by PT CEM. The Plaintiff and PT CEM also then agreed to sign an agreement for coal transportation and road maintenance (“Agreement”). Entering March 2012, PT CEM was in arrears in payment of services to the Plaintiff.

    After an agreement was reached to calculate the coal sales proceeds, there is the fact that the coal sales result had not covered all of PT CEM’s obligations to the Plaintiff and PT CEM still had a debt of USD 11,205,155.35. The Defendant, on his own behalf, provided a guarantee for the fulfillment of PT CEM’s obligations to the Plaintiff as agreed by the Defendant and Plaintiff in the Guarantee Agreement dated 27 March 27. In the Guarantee Agreement, it was agreed that the Defendant would replace PT CEM’s position and guarantee PT CEM’s payment obligations up to a maximum amount of USD. 11,205,155.35 and Rp. 2,112,646,994 plus interest and costs, if PT CEM, after being reprimanded, fails to carry out its obligations or goes bankrupt.When the Plaintiff asked for payment from the Defendant, the Defendant tried to escape from his obligations by transferring shares in PT CEM to another party and sending a letter to the Defendant which basically stated that he was no longer in the management of PT CEM, so the Guarantee Agreement is no longer relevant.

    In a quo case, The Defendant filed an objection that the Plaintiff’s claim was lacking party since PT CEM was not included in the claim. The judge at the appeal level considered that since PT CEM was not included as a party in the a quo case, then the Plaintiff’s claim lacks parties.14

    Judex Juris  at the cassation level affirmed the Judex Facti’s consideration at the Appeal Level, since PT CEM was the debtor in this case, it was not included, but its participation in the case was important to know the real situation on the debt guaranteed by the Defendant, therefore the Plaintiff’s claim contains formal defects due to lack of parties (plurium litis consortium).15

    The Plaintiff further filed for Review. In the review level, the panel of judges cancelled the decision at the cassation level by considering that Judex Juris at the Cassation Level and Judex Facti at the appeal level, has misapplied the law since it states that a claim lacked parties. The panel of judges at review level considered the following:

    “That according to the provisions of Article 1820 of the ICC, if the Debtor fails to fulfill its obligations, the Guarantor will fulfill the Debtor’s obligations. In a quo case, the Guarantor is the Defendant and the Debtor is PT CEM, have been given a warning to carry out their payment obligations to the Plaintiff, but the Debtor has not fulfilled their obligations (Evidence P-8). Therefore, the Plaintiff/Petitioner for Review can file a claim to the the Defendant as Guarantor without involving the Guaranteed/PT CEM.”16

    Based on the 2 (two) cases that the author analysed above, it can be seen that the guaranteed party does not need to be included in a breach of contract claim on the bank guarantee. The guarantee beneficiary may file a claim to the guarantor to fulfill its obligations based on the bank guarantee itself.

    The important thing to pay attention to when filing a breach of contract claim on regarding a bank guarantee, is proof of the breach of contract committed by the guaranteed party. This means that the guaranteed party at the trial must be able to prove that the guaranteed party’s default actually occurred, so that it is proven that the guaranteed party has the right to liquidate and receive payment of the bank guarantee.

Conclusion

Based on the provisions of Article 1820 of the ICC, SEBI BG, and SKBI BG, a bank guarantee is a guarantee agreement that is separate from the main agreement. A bank guarantee is issued by the guarantor to the guarantee beneficiary to guarantee the guaranteed party’s performance.  The guaranteed party’s default issues the right to the guarantee beneficiary to liquidate the bank guarantee.

In a bank guarantee agreement, the parties involved are guaranteed beneficiary and the guarantor. The guaranteed party is not a party to the bank guarantee. The guaranteed party is a party to the main agreement and the bank guarantee issuance agreement. Thus, the guarantee beneficiary may file a claim to the guarantor to fulfill its obligations under the bank guarantee, without involving the guaranteed party. Apart from that, before filing a lawsuit in court, an important thing to note is that the guarantee beneficiary must be able to prove that the guaranteed party has actually committed a default so that the guaranteed party has the right to liquidate the bank guarantee.

Fitri Nabilla Aulia

Sources

  1. Paragraph (2) of General Elucidation of Banking Law
  2. Article 1 Number 3 letter a Decree of the Board of Directors of Bank Indonesia on the Provision of Guarantees by Banks
  3. Ibid.
  4. Provision No. 4.1 Letter H SEBI BG
  5. J. Satrio, Hukum Jaminan, Hak-Hak Jaminan Pribadi Penanggungan (Borgtocht) dan Perikatan Tanggung-Menanggung, Citra Aditya Bakti, 2003, page. 39
  6. Ibid. page 39-40
  7. Ibid, page 41-42
  8. Ramlan Ginting, Jaminan Perbankan Internasional: sesuai UCP 600, ISP98 & URDG 758, page. 22
  9. Ibid., page 21.
  10. Ibid.
  11. Ibid
  12. Palembang District Court Decision No. 99/Pdt.G/2013/PN Plg page. 30-31
  13. Supreme Court Decision No. 115 K/Pdt/2017 page. 26
  14. Samarinda High Court Decision No. 27/Pdt/2016/PT.SMR, page. 46
  15. Supreme Court Decision Number 2275 K/Pdt/2016, p. 36
  16. Supreme Court Decision Number 135 PK/Pdt/2018, p. 8
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