Legal Requirements For Preliminary Injunctions To Prevent The Encashment Of Bank Guarantee Letters

I. Introduction

In commercial practice, pursuant to contractual arrangements between the parties, if one party seeks to ensure a more secure position regarding the performance of the other party's contractual obligations, it may request that such obligations be secured by a guarantee provided by the counterparty. In such cases, one of the most commonly preferred forms of security is the bank letter of guarantee, which typically contains an unconditional and irrevocable payment undertaking upon first demand.

The primary reason for the widespread use of first-demand bank guarantees lies in the assurance that payment is secured by a third party—the bank. Indeed, upon receiving a beneficiary's request for payment under a letter of guarantee containing such an unconditional and irrevocable undertaking, the bank, save for exceptional circumstances, is obliged to immediately pay the amount specified in the guarantee to the beneficiary.

Although the bank must honor the payment immediately upon first demand, as described above, it must also be emphasized that unjust or abusive calls on bank guarantees are not protected under the law. In such circumstances, the sole preventive legal mechanism available to the addressee of the bank guarantee is to request a preliminary injunction from the court to restrain payment under the guarantee. In practice, it is frequently observed that the addressees of such guarantees resort to this remedy.

This study first outlines the legal framework and conditions governing preliminary injunctions under Turkish law. It then examines the specific requirements applicable to injunctions sought to prevent the unfair encashment of bank guarantee letters—i.e., the special conditions that diverge from the general prerequisites for injunctions. Finally, it reviews the current approach adopted by the Turkish legal doctrine concerning the nature and instruments of proof required for granting such injunctions.

II. Preliminary Injunction and the Principle of Prima Facie Evidence

A preliminary injunction is a form of provisional legal protection granted by the court, either before or after the initiation of proceedings, to mitigate potential harm that may arise from the prolongation of litigation until a final judgment is rendered. The conditions for granting preliminary injunctions are regulated under the Turkish Code of Civil Procedure ("TCCP"). Pursuant to Article 389 of TCCP, a preliminary injunction may be granted with respect to the subject matter of the dispute where there exists a legitimate concern that:

1. an imminent change in the existing circumstances may substantially impede or render the realization of a right impossible; or
2. a detriment or serious harm may result from delay.

A preliminary injunction may be requested either before the initiation of a lawsuit or during its pendency.

The standard of proof plays a crucial role in such proceedings. Owing to the urgent nature of injunctions, the court must render its decision swiftly. While a final judgment in the main action requires full proof, the principle of prima facie evidence applies in injunction proceedings. This principle entails that it is sufficient for the existence of the right to be demonstrated with a high degree of probability. In other words, the court must be persuaded at first sight that the applicant's claims are likely legitimate.

The party requesting the injunction must therefore submit evidence supporting the legitimacy of its request. However, conclusive proof is not required at this stage. The purpose is not to convince the court of the absolute existence of the right but rather to establish a reasonable appearance of probable validity.

III. Elevated Prima Facie Standard: Liquid Evidence Rule

Bank guarantee letters, commonly used in commercial transactions and public tenders, that contain an unconditional and irrevocable payment undertaking upon first demand must be readily enforceable to preserve business continuity and commercial credibility. Such guarantees serve both as a means for the beneficiary to swiftly recover losses resulting from the counterparty's non-performance and as a deterrent against default or abandonment of contractual obligations.

Consequently, Turkish legal doctrine has tended to impose stricter conditions for granting preliminary injunctions to prevent the encashment of such guarantees. The underlying objective here is to safeguard the continuity of commercial life, likewise, the reliability of bank guarantee letters should not be undermined¹.

The essential substantive condition for the issuance of such an injunction is that the beneficiary's demand for payment constitutes an abuse of rights. Whether such abuse exists must be determined through a case-specific factual assessment.

To establish that a demand for payment amounts to an abuse of rights, Turkish law adopts the rule of proof by liquid evidence. Liquid evidence refers to evidence that allows the court to ascertain, without interpretation or subjective assessment, that the beneficiary's request for payment violates the principles of good faith.

Accordingly, liquid evidence can be defined as evidence that clearly, unequivocally, and intelligibly demonstrates that the beneficiary's call on the guarantee is contrary to good faith. The standard of proof by liquid evidence may thus be positioned one degree higher than prima facie evidence, yet lower than full proof required in the main proceedings.²

This hierarchy reflects a calibrated distribution of the burden and evaluation of proof. Thus, where it is alleged that a payment call constitutes an abuse of rights, the applicant seeking the injunction is not bound by the same burden of proof applicable to the main action but must nevertheless present more compelling evidence than what would suffice under a mere prima facie showing. Consequently, evidence relied upon must not only be persuasive but also clear and convincing, leading the court to conclude upon closer scrutiny that the claim is justified.

IV. Instruments of Proof Based on Liquid Evidence

In light of above considerations, it is useful to refer to examples in legal doctrine and case law concerning which types of evidence may qualify as liquid evidence. Court decisions establishing that certain documents are forged, judicial admissions before the court³, official letters and records issued by public authorities⁴, as well as court or arbitral awards demonstrating the fulfilment of a contractual obligation secured by a letter of guarantee, may all be cited as examples of liquid evidence. Likewise, a receipt signed by the beneficiary confirming that the obligation secured by a bank guarantee has been duly performed may also be regarded as liquid evidence.

Furthermore, it is necessary to examine whether documents prepared by third parties fall within the scope of liquid evidence. It should be noted that such documents are not absolutely binding upon the guarantor bank, which also has no duty to verify or investigate their accuracy. The party whose performance is secured must therefore substantiate the accuracy of a third-party document through additional liquid evidence⁵. In this context, an expert report resolving or determining a dispute arising from the underlying contractual relationship may also qualify as such evidence.

Another issue warranting consideration is whether a foreign court judgment or arbitral interim measure may be evaluated within the scope of liquid evidence. In our view, foreign judgments and injunctions should be regarded as liquid evidence of abuse of rights in cases where such decisions do not have res judicata effect within the jurisdiction. This is because decisions rendered by foreign courts may constitute documents that either prove or strongly indicate that the payment demand amounts to an abuse of rights.

V. Conclusion

The legal framework governing preliminary injunctions in the context of bank letters of guarantee reflects the delicate balance between commercial certainty and the protection against abuse of rights. Bank guarantees play an essential role in sustaining the reliability of commercial transactions and public procurements by ensuring that obligations are performed or compensated without delay. Consequently, their unconditional and autonomous nature must be preserved to maintain confidence in financial and contractual dealings.

At the same time, the principle of good faith imposes an inherent limitation on the exercise of rights derived from such guarantees. The judicial mechanism of a preliminary injunction thus serves as a crucial safeguard against the abusive or bad-faith invocation of a guarantee. Yet, because injunctions inherently restrict the beneficiary's access to the guaranteed sum, courts must exercise restraint and grant such measures only in clearly substantiated cases.

For this reason, Turkish legal doctrine has developed the liquid evidence rule, representing an elevated evidentiary threshold situated between prima facie evidence and full proof. This standard ensures that injunctions against payment under a guarantee are not granted lightly, but only when the evidence clearly and objectively indicates an abuse of rights. The doctrine has further clarified what may constitute liquid evidence—ranging from judicial admissions and official records to expert reports and foreign judgments—each serving to demonstrate, without interpretative doubt, the lack of good faith in the beneficiary's demand.

Ultimately, adopting this approach aims to preserve the credibility and enforceability of bank guarantees, while simultaneously upholding the integrity of contractual justice. Maintaining this equilibrium between commercial efficiency and legal fairness remains fundamental to both domestic and international trade, ensuring that bank guarantees continue to function as trusted instruments of security rather than tools of opportunism.

Footnotes

1. Tandogan, Haluk, Borçlar Hukuku-Özel Borç İlişkileri, C.II, Ankara 1987, s.862-863, dn.25b

2. 8 Dohm, s.161-162; Kaya, İlk Yazılı Talepte Ödeme, s.236 vd

3. OLG Köln, WM 1988, s.22.

4. 2 Tekinalp, s.459-460

5. Kahyaoğlu, s.79-80.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.