A Surety Bond (often realized as a Bank Guarantee or Insurance Bond in Georgia) is one of the primary risk management tools in the construction industry. It is a tripartite agreement where a guarantor (bank or insurance company) undertakes to reimburse the project owner (obligee) for losses if the contractor (principal) fails to fulfill their obligations. Surety Bond Claims arise when the contractor breaches the contract, but the guarantor refuses to pay out the bond amount due to various formal or substantive reasons. This is a complex financial and legal dispute requiring deep knowledge of banking regulations and construction law.
Bond claims are often delayed because guarantors try to find flaws in the demand to avoid payment. For example, they may argue that the breach was not "material" or the demand was not filed within the specified timeframe. On the other hand, contractors frequently apply to the court to obtain an injunction preventing the bond from being called, claiming the owner's demand is fraudulent or unjustified. Legal.ge offers access to lawyers who can help navigate this complex triangle — owner, contractor, bank — to protect your interests and secure the compensation you are owed.
What Does Surety Bond Claims Service Cover?
This service covers all stages related to calling and enforcing a bond:
- Bond Terms Analysis: Determining whether the bond is unconditional (on-demand) or conditional (default bond), and what documents are required to claim funds.
- Demand Preparation: Correctly formulating and submitting a "Call on Bond" to the bank or insurance company within strict deadlines.
- Challenging Refusals: Litigating against the bank or insurance company if they wrongfully refuse to honor the bond.
- Contractor Defense: If you are a contractor, protecting against unfair or fraudulent calling of the bond (seeking injunctive relief).
- Insurance Disputes: Handling disputes against insurance companies regarding surety products.
Common Real-World Scenarios
Disputes related to surety bonds often unfold in the following ways:
The first scenario is "Injunction against Unconditional Bond." The owner demanded payment under a bank guarantee. The contractor immediately applied to the court for an injunction, claiming the owner is acting fraudulently. This is a very common dispute where the court must decide whether to stop the payment.
The second case is "Missed Deadline." The owner submitted the demand one day before the bond expired, but the bank reviewed and rejected it after the expiration. The dispute centers on whether the demand was effectively presented in time.
The third scenario is "Formal Discrepancy." The bank refuses payment because the wording in the demand does not exactly match the bond text (Strict Compliance principle). The lawyer must prove that the demand is substantively correct.
The fourth situation is "Bankrupt Contractor." The contractor went bankrupt. The bank tries to avoid payment, arguing the principal obligation ceased. In reality, a guarantee is often an independent obligation surviving bankruptcy.
Georgian Legal Framework and Regulations
Bond issues are regulated by Civil and Banking law:
- Civil Code of Georgia (Articles 879-890): Regulates Bank Guarantees and Suretyship. The code distinguishes between independent guarantees (non-accessory) and suretyship (accessory obligations).
- Law on Activities of Commercial Banks: Sets obligations for banks when issuing guarantees.
- ICC Rules (URDG 758): Often incorporated into Georgian contracts, these international rules for demand guarantees are crucial in resolving disputes.
Process and Stages
The process starts with reviewing the bond text. If a breach occurred, the lawyer prepares a formal written demand to the bank/insurer. If funds are not released, a lawsuit is filed. In court, the focus is often less on construction defects and more on the interpretation of the bond document itself. Expertise may be needed to confirm if a "default" event occurred under a conditional bond.
Why Legal.ge?
Calling a bond is a technically strict process where one wrong word can cause millions in losses. On Legal.ge, you will find lawyers with specific experience in banking and insurance litigation who know how to compel financial institutions to honor their commitments.
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