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DCI The revised URDG 758 came into effect only a few weeks ago. I know it's early days, but what is your impression of how the new rules are being received by guarantors, beneficiaries and public bodies?

Affaki Yes, it's too early to tell. Our Task Force on Guarantees has noted 30 URDG seminars organized around the world since the adoption of the URDG on 3 December 2009, with participants ranging from 60 to 250 (220 in Vienna, 250 in Tel Aviv). And this figure includes only seminars in which one or more members of the Task Force took part. We have taken the URDG to the heart of beneficiaries' strongholds, including the Gulf and Latin America. An Iranian colleague has made a presentation on the URDG to officers of the Central Bank of Iran. An Italian banker member of the Task Force will be talking to the Italian export credit agency about the advantages of the rules for export guarantees. In Slovenia, a banker proposed to contact the European Commission to consider the use of the rules in EU-backed projects.

I have also taken the rules to the World Bank in Washington D.C. for consideration for use in their unconditional guarantee forms. ICC will be asking UNCITRAL for its endorsement as it has done for the URDG 458 and other ICC rules. The consensus is that the new URDG 758 are a major improvement on URDG 458 in both comprehensiveness of scope and content of rules. The world of demand guarantees has finally found its unified standards.

DCI In these conferences you mention, what are two or three of the most common questions that are being raised by participants?

Affaki Article 11 on Amendments triggers systematically interesting questions as to how the guarantor's being irrevocably bound on issue of the amendment interacts with the beneficiary's choice to accept, reject or do nothing. An answer referring to the similar solution in UCP 600 helps to drive the point home. URDG 758's article 25 (c) terminating a guarantee that contains no expiry provision three years after issue also brings questions and compliments. And a now classic question that we used to have under the old URDG seems to have survived the revision: should we refer to the URDG if our guarantee is governed by a national law (or the opposite)? To which the answer is yes, definitely, for the URDG cover a different scope compared to national law. Actually, I have started taking notes for the next revision in 2028!

DCI What, in your view, are two or three of the most important changes from URDG 458 to URDG 758?

Affaki Banning non-documentary conditions is chief among the many innovations in the new URDG. It is a much-needed reform, but has to be accompanied by proper education of bankers and customers to avoid turning into a trap. The detailed roadmap in articles 14 and 19 for making a presentation a success and its examination a clear task is also positively viewed by all those who commented on the new rules. Also, a major change is the replacement of "reasonable time"/ "reasonable care" standards by a specific number of days and specific tasks to achieve, thus offering a safe harbour to diligent guarantors.

DCI Clearly, URDG 758 has been written to track many of the provisions of UCP 600. But there are also instances where URDG diverges from the new UCP. What are a couple of the most important points of divergence?

Affaki In article 10 of URDG 758, the advising party signifies to both the second advising party and the beneficiary that it has satisfied itself as to the apparent authenticity of the guarantee and that the advice accurately reflects the terms of the guarantee as received. In article 9 of UCP 600, the advising party signifies this only to the second advising party, which leaves the beneficiary only with a warranty of authenticity of the advice, not of the credit. We thought we could offer the beneficiary a better situation without costing the applicant anything. Also, under the UCP, the partial transfer of credits is allowed. This is not the case under the URDG where a guarantee can only be transferred for the full amount. This is not a different drafting policy, but a reflection of the idiosyncrasy of demand guarantees, which differs from that of documentary credits.

DCI URDG 758 also differs in some ways from ISP98, specifically concerning non-documentary conditions. For example, ISP98 says that the guarantor (issuer) will not examine the data in stipulated documents for inconsistency (or conflict) with non-documentary conditions of the guarantee and URDG says the opposite. Why the difference?

Affaki Yes, we have examined ISP98 and their official comment, but were not persuaded that its rationale was compelling in the case of demand guarantees. As in the case of documentary credits governed by UCP, a guarantor who determines that there is an inconsistency amongst documents required in the guarantee and presented to him has the duty to reject the presentation as non-complying.

DCI ICC is asking SWIFT to amend its MT760 message to refer to URDG 758 instead of the current URDG and also to create a new MT message that would be tailored to fit the URDG 758 model forms. Can you explain what's behind this and how the effort to change the SWIFT messages is proceeding?

Affaki MT760 includes a mandatory field numbered 40C, which requires the issuer to choose between: URDG, ISP, Other or None. With article 1 (d) of the new URDG, which indicates that any reference made to the URDG after 1 July 2010 is deemed to be a reference to URDG 758 (unless 458 is indicated), we could keep 40C as is. But we thought that SWIFT could contribute to enlarging awareness of the new URDG by changing the reference to URDG in 40C to "URDG 758" so that no one falls a victim to a too rapid reading of the rules. Again, it's only a matter of clarity. There's a more ambitious project which would ask SWIFT to consider creating a new message type (MT758?) that would track the fields in the new Form of Demand Guarantee under URDG 758 that can be found in page 34 of the ICC publication of the rules. It would be great to see this optional message type happen, but it should certainly not limit the choice of guarantors to issue their guarantee under MT760, MT799 or other message types.

DCI One of our writers in DCInsight wondered why the term "Statement of breach" was not defined in article 2 of URDG along with the other principal terms in the rules rather than being introduced only in sub-article 15 (a). What's your response?

Affaki It is defined under "Supporting statement" in article 2. Because the guarantor is required to support its demand under the counter-guarantee by a statement as well, and that statement is not a statement of breach, you have to choose a neutral generic term for the statement required from the beneficiary and that required from the guarantor. That is why we chose "Supporting statement" instead of "Statement of breach".

DCI Clearly mandatory provisions of national law prevail over the URDG when there is a conflict between the two. But is it always clear which provisions of national law are mandatory and which are optional?

Affaki Yes, it is very clear. Mandatory laws traditionally cover fraudulent demands, injunctions restraining payments, exchange control regulations, authority of signatories and other aspects of guarantee practice that are considered so important to the applicable legal system that they cannot be varied by contract. The URDG stay away from those aspects. Conversely, the successive stages of the lifecycle of the guarantee from issuance to termination are open to agreement, including a pre-packaged agreement already offered in the URDG to the benefit of all issuers and users.

DCI One region where URDG 458 ran into difficulties was the Middle East and in particular the Arab world where guarantees often had no expiry dates and there were special problems in the domain of public procurement. Have you observed any change in attitudes in the Arab world?

Affaki Contrary to the persisting rumour, there is no mandatory law that declares void an expiry date drafted in the guarantee. I have certainly come across no such law. What happens is that beneficiaries, including state-owned beneficiaries, often indicate their expectation that the guarantee terminates only upon release. If the exporter agrees to this expiry term, no one can change the result, including the URDG. Where I hope that the new URDG will make a difference is in the matter of guarantees issued with no expiry term at all. Article 25 (c) of URDG 758 indicates that such guarantees will expire three years after issue. This is obtained by drafting into 25 (c) the functional equivalent of an expiry date. I am confident that the bell has tolled for open-ended guarantees.

DCI The parties to a letter of credit often include a reference to UCP 600 in their standard texts. As I understand it, this is not yet the case with the URDG. Do you foresee a day when the URDG will be so widely accepted that this will also be the case with the URDG?

Affaki Gandhi said: "We must become the change we want to see in the world." It is up to us, up to each of your readers, be they bankers or businesses, to step in the right direction. This direction is towards terminating biased model guarantee forms and win-lose negotiation. Instead, the new URDG 758 offer the only set of international rules fully dedicated to demand guarantees that foster a balance amongst the legitimate interests of the parties. They come with an easy-to-use model guarantee form published in the rules booklet, so that you have everything you need for a successful issue of a guarantee. This is why so many banks (including mine) and international organizations have moved decidedly into the world of the URDG.

Dr Georges Affaki is a member of the Executive Committee and Head of Structured Finance, Corporate and Investment Banking, Legal Affairs at BNP Paribas in Paris. He is Vice-Chair of the ICC Banking Commission and was Chair of the URDG Drafting Group. His e-mail is georges.affaki@bnpparibas.com