Turkish Company Calls a Bank Guarantee Unfairly: Can a Foreign Contractor Stop Payment? – 2026 Updated Guide

Can a foreign contractor stop a Turkish company from calling a bank guarantee? Learn about injunctions, fraud exceptions, conditional guarantees, bank liability, evidence, and recovery remedies.

When a Turkish company calls a bank guarantee against a foreign contractor, the contractor may believe that the demand is unfair because the work was completed, the alleged breach never occurred, or the beneficiary is trying to obtain payment during a contract dispute.

Stopping payment may be possible in exceptional circumstances, but it is not automatic. Demand guarantees are generally independent from the underlying contract, and banks usually examine the guarantee and demand documents rather than deciding which party is correct in the construction or supply dispute.

The foreign contractor must act immediately if it wants to prevent payment.

What Type of Bank Guarantee Was Issued?

The first step is to determine whether the guarantee is:

• An unconditional first-demand guarantee;
• A conditional performance guarantee;
• An advance-payment guarantee;
• A warranty guarantee;
• A retention guarantee;
• A payment guarantee;
• A tender or customs guarantee.

An unconditional guarantee may require the bank to pay upon a compliant written demand. A conditional guarantee may require proof of default, an engineer’s certificate, a court decision, an arbitral award, or another specified document.

The exact wording is decisive.

Why Are Bank Guarantees Independent?

A bank guarantee is generally an independent undertaking. The bank’s payment obligation may exist separately from the construction, supply, service, or investment contract between the foreign contractor and Turkish company.

The contractor may argue that the Turkish company breached the main contract or that no money is owed. That dispute may support a separate claim, but it may not automatically prevent payment under a first-demand guarantee.

The bank may focus only on whether the demand complies with the guarantee.

When Can Payment Be Stopped?

An injunction or other urgent measure may be considered where there is strong evidence of:

• Fraudulent demand;
• Forged documents;
• Clear abuse of the guarantee;
• A demand that does not satisfy express conditions;
• An expired guarantee;
• Demand for an amount exceeding the guaranteed sum;
• Demand by an unauthorized person;
• Failure to provide a required certificate;
• Demand made for a purpose clearly outside the guarantee;
• A manifestly unlawful attempt to obtain payment.

Courts are generally cautious because the commercial purpose of a demand guarantee is rapid and independent payment.

A simple disagreement about whether the contractor completed the work may not be enough. The contractor may need to show that the demand is clearly improper or contrary to the guarantee’s express terms.

Underlying Contract Dispute Is Not Always Enough

A foreign contractor may have strong defenses under the main contract, including:

• Completion of the works;
• Valid extension of time;
• Employer-caused delay;
• Approved variations;
• Payment default by the Turkish company;
• Force majeure;
• Defective instructions;
• Wrongful termination;
• Lack of evidence of loss.

These defenses may support arbitration or commercial litigation, but they do not necessarily stop a complying demand under an autonomous guarantee.

The contractor should separate the bank-guarantee issue from the underlying contract merits.

Review the Demand Requirements

The contractor should compare the Turkish company’s demand with the exact guarantee wording.

Questions may include:

• Was the demand made before expiry?
• Was it submitted to the correct bank?
• Was the correct amount demanded?
• Was the beneficiary correctly identified?
• Was the required signature provided?
• Was a breach statement required?
• Was an engineer’s certificate required?
• Was notice to the contractor required?
• Was a court or arbitration decision required?
• Was the demand sent through the agreed channel?
• Were original documents required?

A discrepancy may provide grounds to challenge the bank’s payment obligation, particularly under a conditional guarantee.

URDG Rules and Bank Terms

The guarantee may incorporate the Uniform Rules for Demand Guarantees, commonly known as URDG rules.

If incorporated, these rules may regulate the demand, examination, refusal, expiry, amendments, and bank communications.

The contractor should review whether the guarantee refers to URDG, a specific version, Turkish law, foreign law, or bank-specific terms.

The bank’s obligations may differ depending on whether it issued the guarantee directly, confirmed another bank’s guarantee, or acted under a counter-guarantee structure.

Emergency Injunction Application

The foreign contractor may consider applying for an urgent injunction against the beneficiary, the bank, or both, depending on the legal structure and available evidence.

The application should present:

• The guarantee;
• The underlying contract;
• The demand;
• The alleged breach;
• The contractual performance records;
• The specific documentary defect or fraud;
• The risk of immediate payment;
• The urgency;
• The requested protection.

The court may require security. The contractor should not delay while waiting for the beneficiary to withdraw the demand voluntarily.

Notification to the Bank

The contractor should notify the bank in writing that the demand is disputed and explain the alleged non-compliance or fraud.

However, a notice from the contractor does not automatically prevent payment. The bank may still be required to honor a compliant demand unless it receives a court order or identifies a valid reason for refusal.

The notification should be accurate and supported by documents. Unsupported allegations may weaken the contractor’s credibility.

If the Bank Has Already Paid

If the bank has already paid the Turkish company, the foreign contractor may consider a claim for restitution, repayment, damages, or enforcement under the underlying contract.

The contractor may argue that the beneficiary received money without legal basis or acted fraudulently. The availability of recovery depends on the guarantee wording, the underlying contract, the evidence, and the beneficiary’s assets.

Urgent measures may be considered if the beneficiary is transferring or hiding the payment.

Claims Against the Turkish Company

The contractor may pursue the Turkish company for:

• Wrongful calling of the guarantee;
• Breach of contract;
• Repayment of the guaranteed amount;
• Compensation for additional losses;
• Loss of profits;
• Financing costs;
• Damage to reputation;
• Unpaid contract amounts;
• Costs of defending the guarantee claim.

The contractor should review the contract’s arbitration, jurisdiction, governing law, notice, and security provisions.

Evidence the Foreign Contractor Should Preserve

The contractor should preserve:

• The original bank guarantee;
• Amendments and extensions;
• The main contract;
• Project schedules;
• Completion certificates;
• Progress reports;
• Payment records;
• Correspondence with the beneficiary;
• Notices of delay or breach;
• Engineer’s reports;
• Site photographs and videos;
• Meeting minutes;
• Change orders;
• Force majeure notices;
• The bank’s communications;
• The beneficiary’s demand.

Digital project-management records, electronic signatures, cloud files, online correspondence, and messaging applications may be particularly important in 2026.

The contractor should preserve evidence lawfully and avoid altering project records after receiving the demand.

Can the Beneficiary Call the Guarantee During Arbitration?

The answer depends on the guarantee and the arbitration agreement. An arbitration clause in the main contract may not automatically bind the bank because the bank may not be a party to that agreement.

Starting arbitration may protect the contractor’s underlying contractual rights, but it may not by itself stop payment under an independent guarantee.

The contractor should consider urgent interim relief separately.

Fraud and Abuse Threshold

Courts generally require strong evidence before interfering with a demand guarantee. A beneficiary’s mistaken interpretation or aggressive contractual position may not amount to fraud.

The contractor should focus on clear documentary contradictions, forged statements, expired instruments, absence of required conditions, deliberate misrepresentation, or a demand that is plainly outside the guarantee.

A well-supported application is more effective than a general assertion that the call is unfair.

2026 Practical Considerations

In 2026, guarantees may be issued or presented electronically, through digital banking systems, SWIFT communications, electronic signatures, and online document platforms.

Foreign contractors should negotiate:

• Clear demand conditions;
• Expiry and extension procedures;
• Notice requirements;
• Reduction mechanisms;
• Required certificates;
• Governing law;
• Jurisdiction;
• Arbitration;
• Fraud and abuse protections;
• Notice before calling;
• Return of the guarantee after completion.

A contractor should review the guarantee before signing the main contract and obtain legal advice before a demand is made.

Lawyer Fırat Fesih Kaya assists foreign contractors with Turkish bank guarantees, unfair guarantee calls, injunctions, performance bonds, construction disputes, arbitration, restitution, and commercial litigation.

Frequently Asked Questions (FAQ)

1. Can a foreign contractor stop a Turkish company from calling a bank guarantee?
Potentially, but usually only in exceptional cases involving clear fraud, abuse, documentary non-compliance, expiry, or another serious legal defect.

2. Does a dispute over the construction contract automatically stop payment?
No. An independent demand guarantee may remain payable even while the underlying contract is disputed.

3. What if the contractor completed the work?
Completion may support the underlying contract defense, but the effect on the guarantee depends on its wording and whether the demand complied with its conditions.

4. Can payment be stopped under a first-demand guarantee?
Potentially, but the contractor generally needs strong evidence of fraud, abuse, forgery, or an obviously invalid demand.

5. What if the beneficiary demands more than the guaranteed amount?
An excessive demand may create a documentary or contractual objection, subject to the guarantee terms.

6. Can an expired bank guarantee be called?
A demand after expiry may be invalid, but the dates, presentation method, extensions, and applicable rules should be checked immediately.

7. Can the contractor notify the bank of the dispute?
Yes. The contractor should notify the bank promptly, although the notice alone may not legally prevent payment.

8. What if the bank already paid the beneficiary?
The contractor may consider repayment, restitution, damages, and underlying contract claims against the Turkish company.

9. Can arbitration stop payment under a bank guarantee?
Arbitration may protect contractual rights, but it may not automatically bind or restrain a bank that is not a party to the arbitration agreement.

10. What should a foreign contractor do immediately?
The contractor should obtain the guarantee and demand, notify the bank and beneficiary, preserve evidence, and seek urgent Turkish legal advice about interim protection.

This article is provided for general informational purposes only and does not constitute legal advice. We recommend consulting a lawyer about your specific circumstances to avoid any loss of rights.

Expert Legal Support for Unfair Guarantee Calls

Expert legal support is essential to avoid losing valuable rights. By working with a lawyer experienced in Turkish bank guarantees, performance bonds, demand guarantees, injunctions, construction disputes, arbitration, restitution, and commercial litigation, foreign contractors can protect their financial interests. Fırat Fesih Kaya Law Office provides professional legal support for guarantee disputes in Turkey and abroad.

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