- Business in Poland -
Bank Guarantee Dispute: How to Stop a Payout and How to Defend Yourself
A bank guarantee is a bank’s commitment to pay a specified amount to the beneficiary if the beneficiary submits a demand for payment that meets the conditions set out in the guarantee. In commercial practice, a bank guarantee is intended to secure performance of an agreement (e.g., a construction contract, supplies, or services) and reduce the risk of insolvency or non-performance by the party instructing the guarantee. The legal basis for bank guarantees in Poland is Article 81 of the Banking Law [1].
In a business dispute, the key question is: how to stop a bank guarantee payout when, in the debtor’s assessment, the beneficiary’s demand is unfounded or amounts to pressure tactics. The answer requires a distinction between what follows from the guarantee itself (the bank-beneficiary relationship) and what follows from the underlying contract (the applicant-beneficiary relationship).
Unconditional bank guarantee vs. a dispute over the underlying contract
The greatest risk for the applicant arises with a structure commonly referred to as an unconditional bank guarantee (often “on first demand”). In this model, the bank typically verifies only whether the demand formally complies with the guarantee, not who is right in the dispute about contract performance. As a result, payment may be made even if the beneficiary is abusing the security.
This does not mean there is no protection. Protection is available, but it requires swift action and the right litigation tools - from formal review of the demand, through steps taken vis-a-vis the bank, to an application for a bank guarantee payment injunction (interim measure) in civil proceedings, provided the statutory conditions are met [2].
Interim measures and bank guarantees: what you can realistically obtain
In disputes, it is often argued that “a guarantee is independent, so nothing can be done.” That is an oversimplification. Depending on the facts, it may be possible to obtain court-ordered interim relief that, in practice, blocks the payout or limits the ability to demand it effectively. In particular, the following may be relevant:
- interim measures for non-monetary claims (e.g., prohibiting the beneficiary from submitting a payment demand or prohibiting the bank from paying), provided the claim and the legal interest in interim protection are made plausible [2],
- interim measures for monetary claims (less often suitable in guarantee disputes, but sometimes used in parallel),
- an action for a declaration or an action to cease acts infringing subjective rights, if the dispute can be structured this way (depending on the legal basis and the facts).
It should be remembered that the court examines the probability of the claim - it does not decide the merits at this stage. That is why evidence and a coherent risk narrative are crucial.
Bank guarantee payment injunction (interim measure): when it makes sense
An application for interim relief in the form of a payment prohibition is often considered where there is a risk of irreversible economic consequences and the beneficiary is using the guarantee contrary to its purpose. Typical scenarios include:
- the beneficiary demands payment despite the lack of contractual grounds and, at the same time, refuses acceptances or blocks settlements,
- the payment demand is a negotiation pressure tool rather than genuine recourse to security,
- there is a high likelihood that, after payment, recovery will be illusory (e.g., a foreign beneficiary, insolvency risk).
In such cases, the argument of abuse of rights can be important. Under Polish civil law, the prohibition of abusing a subjective right follows from Article 5 of the Civil Code [3]. However, applying it in bank guarantee disputes always depends on the specific facts and how the claim is framed - therefore, analysing the documents is key: the guarantee, the contract, and the performance-related correspondence.
How to respond to a payment demand: what to do in the first 24-72 hours
In practice, timing often determines the outcome. An effective response should run in parallel on several levels.
1) Review the guarantee and the demand
Check whether the beneficiary’s demand meets the guarantee’s formal requirements (deadline, signatures, form, attachments, wording of statements). If the bank pays only upon compliance with enumerated requirements, a defective demand may justify refusal.
2) Letter to the bank and the beneficiary
The bank should receive not only a position explaining why payment is not justified, but also a precise identification of formal defects. In parallel, it is often worth sending a cease-and-desist letter to the beneficiary, describing the breaches and the risk of liability for damages.
3) Prepare an application for interim relief
If the payout risk is real, lawyers often prepare an interim relief application even before the demand is formally served on the bank. The application should show: the claim (e.g., to prohibit the demand or the payout) and the legal interest (risk of irreparable harm) [2].
In cases where the dispute concerns contract performance, litigation steps usually form part of a broader dispute strategy, including commercial litigation and contractual security measures.
Dispute with the beneficiary: defence after the payout
If payment is made, the dispute usually shifts to the settlement between the parties to the underlying contract. Then, what matters is whether the beneficiary was entitled to retain the funds. The most common routes include:
- a claim for the return of an undue payment or damages, depending on the legal structure and contract terms (e.g., Articles 405 et seq. of the Civil Code - unjust enrichment, including Article 410),
- settlement within contractual claims (contractual penalties, set-off, liability for improper performance),
- evidence-related measures: securing evidence, technical expert opinions, acceptance documentation.
In practice, the applicant should treat the guarantee as the beneficiary’s liquidity tool, not as a resolution of the dispute. While payment may be quick, recovering funds can be lengthy and requires a consistent litigation strategy.
Interim measures and bank guarantees: reputational and compliance risks
Bank guarantee disputes often escalate into a conflict affecting reputation, supply-chain relationships, and compliance (especially for regulated entities). From the outset, it is worth securing internal communications, decision-making procedures, and evidence so that actions remain consistent with governance policies and reporting obligations (where applicable).
In high-value disputes, it is standard to manage the court track and the negotiation track in parallel. In such situations, Kopeć & Zaborowski can support risk assessment and preparation of an interim relief application and litigation plan - details can be arranged via https://www.kkz.com.pl/.
Three exceptions you should keep in mind
In practice, three situations most often determine whether blocking a payout has a realistic chance of success:
- The formal defect exception - where the payment demand does not meet the guarantee conditions (e.g., missing required statements, missed deadline, incorrect form). In that case, the bank may refuse payment based on the guarantee itself, regardless of the contract dispute.
- The abuse of rights exception - where the beneficiary uses the guarantee contrary to its security function and circumstances indicate an abuse of rights within the meaning of Article 5 of the Civil Code [3]. The assessment always depends on the facts and the quality of the evidence.
- The court-ordered interim relief exception - where the court grants interim relief under Articles 730 et seq. of the Code of Civil Procedure [2], e.g., by prohibiting payment or prohibiting submission of the demand, provided the claim and the legal interest are made plausible.
If you need a quick assessment of how to stop a bank guarantee payout in your specific case and how to respond to a payment demand, a sensible step is to provide the documents for analysis via https://www.kkz.com.pl/.
FAQ: Bank Guarantee Dispute - How to Stop a Payout and How to Defend Yourself
1) Does an unconditional bank guarantee always mean the bank will pay?
Not always. The bank typically checks whether the guarantee’s formal conditions are met. If the demand is formally defective, payment may be withheld. In other cases, payment is highly likely and the dispute shifts to the relationship with the beneficiary.
2) What is a bank guarantee payment injunction (interim measure)?
It is a temporary measure granted by the court as part of interim relief, based on Articles 730 et seq. of the Code of Civil Procedure [2]. It is intended to prevent payment until the dispute is resolved, where the claim and the legal interest in interim protection are made plausible.
3) Can a defence be based on abuse of rights in a bank guarantee case?
Yes, but effectiveness depends on the circumstances. The legal basis is Article 5 of the Civil Code [3]. It is necessary to show that the beneficiary is using the guarantee in a way that is contrary to its purpose and to principles of social coexistence or the socio-economic purpose of the right.
4) Which documents are key to increase the chances of stopping the payout?
The guarantee text, the underlying contract (including appendices and acceptance procedures), the payment demand with attachments, performance-related correspondence, acceptance certificates, defect documentation, and penalty/charge calculations.
5) Can you recover money from the beneficiary after the payout?
Often yes, but it requires separate action against the beneficiary (e.g., for return of an undue payment/unjust enrichment or damages). The prospects depend on evidence, contract terms, and the beneficiary’s financial position.
6) How quickly should you act after learning about a payment demand?
Ideally immediately. The time window can be short, and the bank may pay after formal verification. In practice, the first 24-72 hours are critical to perform a formal review and prepare a potential interim relief application.
References
[1] Act of 29 August 1997 - Banking Law (consolidated text: Journal of Laws 2024, item 1646), Article 81.
[2] Act of 17 November 1964 - Code of Civil Procedure (consolidated text: Journal of Laws 2024, item 1568), Articles 730-757.
[3] Act of 23 April 1964 - Civil Code (consolidated text: Journal of Laws 2024, item 1061), Article 5.
This material is for informational purposes only and does not constitute legal advice; in matters concerning interim measures in bank guarantee disputes and litigation strategy, it is advisable to consult your specific facts via https://www.kkz.com.pl/.
Author: adv. Maciej Zaborowski, Managing Partner
E-mail: m.zaborowski@kkz.com.pl
