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The URDG and the ISDGP in a nutshell

What are the URDG?

The URDG are a set of contractual rules that apply to demand guarantees and counter-guarantees

62. Because the URDG are contractual by nature, they apply only if the parties to a demand guarantee or counter-guarantee so choose. The URDG require in article 1(a) that this choice be expressed by means of a reference to the URDG in the text of the guarantee or the counter-guarantee (but see also article 1(b) and application as a trade usage at paragraphs 85 et seq.). The parties to the guarantee are the guarantor and the beneficiary, and the parties to the counter- guarantee are the counter-guarantor and the guarantor. It is their decision whether to incorporate the URDG in their agreement. For instance, if an agreement in the underlying relationship between the applicant and the beneficiary to the effect that the guarantee will be subject to the URDG is not followed by a reference to the URDG in the guarantee, the URDG will not apply to that guarantee. That being said, a guarantor (or a counter-guarantor) that takes the initiative of incorporating the URDG in its commitment without proper instructions to that effect (whether such instructions are given before issue or by way of ratification after the guarantee is issued) risks being deprived of its reimbursement claim against the party from which it received its instructions.

The URDG are the only contractual rules devoted to demand guarantees and counter-guarantees

63. No other ICC or other non-governmental organization rules are devoted to demand guarantees and counter-guarantees, including the following sets of rules:

• The Uniform Customs and Practice for Documentary Credits (ICC Pub. No. 600) govern documentary credits.

• The International Standby Practices (ICC Pub. No. 590) govern standby letters of credit.

• The Uniform Rules for Contract Bonds (ICC Pub. No. 524) govern accessory guarantees.

• The Uniform Rules for Contract Guarantees (ICC Pub. No. 325) govern guarantees of a hybrid nature that combine characteristics of independent undertakings and accessory undertakings. The URCG are no longer published by ICC nor serviced by the ICC Banking Commission. They are rarely, if ever, encountered in practice.

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• The UN Convention on Independent Guarantees and Stand-by Letters of Credit (1995), which applies to demand guarantees and counter-guarantees, consists of legislative rules primarily aimed at adoption by states. It does not offer contractual rules to be chosen by the parties to a particular guarantee or counter-guarantee.

The URDG are neither a law nor an international treaty

64. The URDG are privately developed rules of a contractual nature. Accordingly, if the parties choose to apply the URDG, they should simply indicate this by referring to the URDG in their guarantee or counter-guarantee. The parties need not consider whether the URDG have been enacted as a law or ratified as a treaty, either in their own country or in the jurisdiction whose law they chose to apply to their undertaking.¹⁸ Since the URDG operate solely by contract, their scope is necessarily limited to matters that can be dealt with by contract. They therefore do not govern property rights, priority issues, tort claims or claims in unjust enrichment, all of which are governed by the applicable law as determined by the conflict of laws rules of the lex fori, including, in EU member states, the provisions of Rome I.¹⁹

Similarly, the effectiveness of a prohibition against an assignment of proceeds is governed not by the URDG but by the applicable law. As will be seen, there are many issues that have to be resolved by reference to the applicable law, not the URDG.

What is the ISDGP?

65. The International Standard Demand Guarantee Practice for URDG 758 (ISDGP) is a companion document to the ICC Uniform Rules for Demand Guarantees 758 (URDG). It supplements the URDG by identifying and recording best practice in relation to the URDG rules and beyond.

66. While international standard practice in relation to demand guarantees – which the ISDGP is meant to represent – is referred to in article 2 of the URDG in the context of the definition of a complying presentation, it may be employed as a useful guide in areas beyond the mere examination of documents, including all stages in the life cycle of a demand guarantee or counter-guarantee. Reflecting over a decade of the URDG’s application, including thousands of transactions identified by ICC members as international best practice in relation to demand

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guarantees, as well as mishaps that led to costly court proceedings, the ISDGP offers an unparalleled insight into the correct application of the URDG in a practical context. Its authority stems primarily from the participative process of its drafting. Seventy-two sets of national comments received from 27 ICC national committees on five continents, as well as countless individual comments from practitioners around the world, turned the drafting of the ISDGP into a collaborative process that is truly representative of international guarantee practice. The standards listed in this publication span all types of demand guarantees, both domestic and international, in all sectors of trade and industry.

67. The ISDGP is a statement of best practice when applying the URDG; it is not an amendment of the URDG, nor can it conflict with the rules contained therein. It offers guidance as to how rules and practices codified in the URDG are to be applied regardless of the applicable law, the mandatory rules of which will always prevail. Accordingly, the ISDGP must be read in conjunction with the URDG and not on its own. Where examples are given in the ISDGP, these are solely for the purpose of illustration and are not meant to be exhaustive. The ISDGP may also be used as an aid for the interpretation of URDG 458 where the relevant rule in URDG 458 does not contradict the revised rule in URDG 758.

68. Over the past 30 years, courts and arbitral tribunals have regularly referred to the URDG as a compendium of customs and usage in relation to demand guarantees, even in cases where the guarantee in question did not incorporate the URDG. In a similar vein, it is expected that the ISDGP will also offer guidance on best practice in relation to demand guarantees, even in cases where the URDG are not specifically incorporated.

69. The listing of best demand guarantee practice in the ISDGP is not exhaustive, nor is it ever expected to become so. Other international standard demand guarantee practices under the URDG may be identified on a case-by-case basis. Those additional, uncodified practices may apply alongside or instead of the ISDGP where both their relevance to the case at hand and their international and widespread character are clearly apparent. Official Opinions of the ICC Banking Commission naturally add to and supplement the ISDGP, even if those Opinions are not listed in this publication or any addenda that may be published in the future. In contrast, local practice, however widespread in the relevant country, should not be held to amount to international standard demand guarantee practice under the URDG.

70. For the avoidance of repetition, terms used in the ISDGP carry the meaning ascribed to them in the URDG. In particular, “guarantee” refers to a demand guarantee or a counter-guarantee, and “guarantor” also refers to a counter- guarantor, unless otherwise stated in the relevant practice. Reference in the ISDGP to “article” followed by a number refers to the corresponding rule in the URDG, unless otherwise indicated.

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A brief history of the drafting of the ISDGP

71. The ISDGP was prepared by a working group under the joint chairmanship of Georges Alfaki and Glen Ransier. The work was spread over a period of three years and was approved by an overwhelming majority of national committees, with 56 votes in favour of adoption, two votes against and no abstentions.

Mode of application of the ISDGP

72. The ISDGP applies by incorporation into demand guarantees, as a trade usage or by implication from a consistent course of dealing. It is designed to be consistent with the URDG and is supplemented by Official Opinions of the ICC Banking Commission. The ISDGP contains a helpful index of concordance between the URDG and the ISDGP. The ISDGP represents best practice in relation to demand guarantees governed by the URDG. It highlights how the URDG are to be interpreted and applied in a guarantee. It is neither a set of new rules nor an amendment to the URDG. Accordingly, the ISDGP need not be expressly referred to alongside the URDG in the terms of the guarantee in order to apply. Like the URDG, the ISDGP is subject to the overriding mandatory rules of the applicable law. The Official Opinions and decisions of the ICC Banking Commission in relation to the URDG supplement the ISDGP. Practices in the ISDGP relating to a rule of the URDG that has been excluded from a guarantee do not apply to that guarantee, and those that relate to a rule modified by the guarantee apply only if they are consistent with the modified rule. The ISDGP provide that, in the interpretation of the practices therein recorded, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international demand guarantee practice.²⁰ As in the case of the URDG, only the English version of the ISDGP is authentic. In the event of an inconsistency with any of the seven official translations existing at the time that this Guide was drafted, the English version of the ISDGP shall prevail.

Are there conditions for the URDG to apply to a guarantee?

73. To fall within the rules, the guarantee or counter-guarantee must satisfy six conditions:

• It must embody a signed undertaking (see the definition of “signed” in article 2 of URDG 758).

• The undertaking must be for the payment of money, not for other kinds of performance. Non-payment undertakings, such as the guarantor’s undertaking to step in to complete an underlying construction contract in lieu of the defaulting contractor, are outside the scope of the URDG even though the guarantor’s failure to perform may itself attract a duty to pay damages.

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• The payment undertaking must be for a specified amount or maximum amount, as opposed to a sum fixed by reference to the amount of the beneficiary’s loss.

• The undertaking must be documentary in character, that is, conditioned solely on presentation of a demand in a signed document (as defined in article 2) and such other documents as may be specified in the guarantee or the rules, without the need to show actual default on the part of the applicant. Accordingly, the URDG do not apply to suretyship guarantees, which are payable only on proof of default.

• It must be the intention of the applicant and the beneficiary that the guarantee will be invoked only if there has been default in the underlying contract or other relationship. It is this that distinguishes demand guarantees from documentary credits (see further paragraphs 22 et seq.) and direct-pay standby letters of credit (see further paragraph 24).

• The guarantee or counter-guarantee must expressly indicate that it is subject to the URDG, or, alternatively, the URDG must in some other way have effect under the applicable law (see paragraphs 76 et seq.).

74. Any undertaking that fulfils these six conditions is a guarantee or counter- guarantee covered by the URDG, whether described as a guarantee, bond, letter of credit or otherwise and whether issued by a bank, insurance company or other body or person. Though widely used in international trade, the URDG can also be used for domestic transactions where guarantor and beneficiary are situated in the same country and the contract embodied in the underlying relationship provides for performance by both parties in that country. Demand guarantees are issued to support any type of obligation, whether performance obligations (the predominant use) or payment obligations, in much the same way as letters of credit. In fact, there is a confirmed practice of utilizing demand guarantees as a substitute for letters of credit in order to benefit from the reduced cost resulting from the fact that the guarantor is meant to be only the second port of call for payment. This is because the underlying contract makes the applicant/purchaser the party primarily liable. Furthermore, undertakings that fulfil the above six conditions are within the rules for any stage of the underlying contract to which they relate, from the pre-contract tender (or bid) guarantee at one end of the spectrum to the warranty guarantee at the other.

75. The URDG do not in general apply to relations between the instructing party and the guarantor or counter-guarantor. These relations are governed by the terms of the parties’ agreement and by the applicable law. However, there are various rules that expressly affect the instructing party, and the purpose of article 1(c) is to enable the instructing party to benefit from those rules that are in its favour and to be bound by those rules that restrict its rights or impose obligations on it. Without such a provision, there would be no link between the rules and the instructing party other than the one provided by the underlying contract. Examples of rules

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in the URDG that confer a right or impose an obligation on the instructing party include the following:

• articles imposing a duty on the guarantor or counter-guarantor to provide information or transmit documents to the instructing party (e.g. articles 16, 22, 23, 25 and 26);

• article 5, which provides for the independence of the guarantee or counter- guarantee from the application;

• article 21, which provides that the instructing party is bound by a payment made in a foreign currency.

• article 26, which provides that the instructing party is bound by an extension, suspension or payment given or made under that article.

• the disclaimers in articles 27, 28 and 29, which prevent the instructing party from holding the guarantor liable for the consequences of acts or abstentions, provided they were carried out in good faith (article 30); and

• article 31, which requires the instructing party to indemnify the guarantor against all obligations and responsibilities imposed by foreign laws and usages, including where those foreign laws and usages impose terms on the guarantee or the counter-guarantee that override its specified terms.

In the absence of article 1(c), the instructing party, while instructing the guarantor to apply the URDG, could argue that it is not bound by the duties imposed on it by these rules. As in the case of article 1(b), this could lead to a prejudicial asymmetry.

How do the URDG apply?

76. The URDG apply to a guarantee or counter-guarantee:

• where they are expressly incorporated into the guarantee or counter-guarantee (article 1(a));

• absent such an incorporation, as a result of the application of the rule in article1(b) on asymmetrical guarantees; or

• if the applicable law so permits, as a trade usage or as a result of a course of prior dealing in which they were consistently applied to guarantees or counter- guarantees between the parties.

This is explained in the following paragraphs.

Application by express contractual incorporation

77. As rules of a contractual nature, the URDG apply to any demand guarantee or counter-guarantee where the parties so choose. Their choice should take the form of a simple reference to the URDG in the particular guarantee or counter- guarantee. This reference need not be in any particular form. The inclusion of phrases such as “This guarantee is governed by the Uniform Rules for Demand Guarantees of the International Chamber of Commerce, Publication No. 758”, “Subject to URDG” or even simply “URDG” leads to the same result, which is to

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bring all 35 articles of the URDG into the guarantee or counter-guarantee as if they had been physically inserted into its text. Strictly speaking, the reference to the publication number of the newer version of the URDG – 758 – is not necessary, since article 1(d) provides that this version shall apply where a guarantee issued on or after 1 July 2010 indicates that it is subject to the URDG without indicating that the older 458 version applies.

Can the URDG be excluded or modified?

78. Because the URDG are contractual rules and rely for their effectiveness on the parties’ agreement, it is open to those parties to modify the URDG as a whole or exclude or modify one or more of its provisions when incorporating the rules in the guarantee or counter-guarantee (article 1(a)).²¹ The exclusion of one or more rules of the URDG can be achieved either explicitly, by indicating, for example, “this guarantee is subject to URDG, except for article 25(c) which is excluded”, or implicitly, by including in the guarantee a provision that in some way departs from a rule (see paragraph 694 in Part II below). For example:

• A guarantee that indicates that no document shall be dated before the guarantee’s date of issue modifies article 15(d) and excludes its second sentence without the need to indicate expressly that it does so.

• A guarantee that allows the beneficiary to present only one demand excludes article 17(b) without the need to indicate expressly that it does so.

• A guarantee that requires the guarantor to determine whether a demand is a complying demand within one business day of presentation modifies article

20(a) without the need to indicate expressly that it does so.

• A guarantee that indicates that the guarantor shall assume no responsibility for the consequences arising out of the interruption of its business by force majeure excludes article 26 without the need to indicate expressly that it does so.

79. However, there are three limitations to this rule. First, to fall within the scope of the URDG, the undertaking must be an independent guarantee or counter-guarantee as opposed to a suretyship guarantee. Parties seeking to exclude or modify any of the key rules of the URDG, such as article 5 or article 7, should be cautioned against doing so, as this could lead a court to conclude that their demand guarantee now contains terms that are indicative of an accessory suretyship. The second exception is the requirement for a supporting statement under article 15, which must be expressly excluded. It is not sufficient for the guarantee to state that it is payable on demand without making reference to the requirement of a

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supporting statement (see paragraphs 919 et seq. in Part II). The third exception is the banning in article 7 of non-documentary conditions whose fulfilment cannot be determined from the guarantor’s own records or from an index specified in the guarantee.²² The inclusion in a guarantee or counter-guarantee of a non- documentary condition does not in itself exclude article 7. The non-documentary condition is deemed as not stated and will be disregarded, except for the purpose of determining whether data that may appear in a document specified in and presented under the guarantee do not conflict with data in the guarantee (see paragraphs 806 et seq. below).

80. As the ISDGP usefully recall, the URDG are conceived as a balanced set of rules. The exclusion of an article of the URDG or of any part thereof may affect the application of the rest of the rules. When the parties have resolved to exclude an article of the URDG, it is recommended that they indicate so expressly in the guarantee.²³ If an article of the URDG is excluded and the guarantee remains silent regarding the replacement intended by the parties, the opposite of the excluded article’s default position shall be deemed to apply where it can be readily determined. For example, if a guarantee indicates that it is subject to the URDG except for article 17(b) and is otherwise silent on the issue, the presumption is that the beneficiary can only present one complying demand, whether for all or part of the available amount.²⁴

Application of the URDG absent express incorporation

81. The URDG can apply without the need for express incorporation in the following two cases: in indirect asymmetrical guarantees and, where the applicable law so permits, as a trade usage or as a result of a consistent course of dealing.

Application of the URDG in asymmetrical indirect guarantees

82. This case arises where the counter-guarantor requests the guarantor (or another counter-guarantor) to issue the guarantee (or another counter-guarantee) subject to the URDG but fails to indicate in its counter-guarantee that it is subject to the URDG. Such an asymmetry causes an imbalance between the duties and expectations of the parties that is likely to lead to uncertainty and possible litigation. An example of this would be the inconsistency in the payment terms between a guarantee subject to the URDG and a counter-guarantee that is not. The guarantor would be expected under article 15(a) to require the presentation of a statement of breach by the beneficiary, while the counter-guarantor would

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not be entitled to require the guarantor to state that it had received a complying demand under the guarantee. The result is that the guarantor’s duty is left uncontrolled unless the counter-guarantee includes a clause explicitly requiring the guarantor to state that it received a statement of breach from the beneficiary and setting out the terms of such a statement.

83. The URDG remedy the consequences of such asymmetry. Article 1(b) states that where, at the request of a counter-guarantor, a guarantee is issued subject to the URDG, the counter-guarantee shall also be subject to the URDG, unless it expressly states otherwise. Indeed, where the counter-guarantor has prompted the guarantor to issue its guarantee subject to the URDG, it is only reasonable that the counter-guarantor should be required to accept the obligations imposed on counter-guarantors by the URDG. While the counter-guarantor could argue that the URDG are inapplicable to its counter-guarantee absent incorporation by an express reference, such an argument, in the context, would be in bad faith and should not be allowed to prosper. Indeed, a counter-guarantor that intends not to be bound by the very rules that it expects the guarantor to be bound by can be expected at a minimum to exclude the rules from its counter-guarantee completely. Any other solution is destined to become a trap for the guarantor.

84. The rule in article 1(b) does not apply where the counter-guarantee is expressly governed by the URDG, but the guarantee is not. In such cases, the guarantee is not subject to the URDG. This rule does not apply both ways. The reason for this is that many guarantees in the field of public procurement are issued according to a mandatory model form imposed by mandatory regulation. A rule to the effect that a guarantee is deemed to be subject to the URDG merely because the counter- guarantee incorporates the URDG could result in state-owned beneficiaries rejecting URDG guarantees for modifying the imposed template. In practice, however, it will almost always be the case that a counter-guarantee subject to the URDG will indicate in the issue of guaranteed instructions a requirement that the guarantee also be subject to the URDG.

Application of the URDG as a trade usage or as a result of a consistent course of dealing

85. Like all other sets of ICC rules, such as the UCP and Incoterms, the URDG can also have an effect on or apply to a guarantee or counter-guarantee absent express incorporation. This is the case, for example, where a court or an arbitral tribunal regards the URDG as evidence of a commercial usage in the matter that is in dispute. In such situations, the URDG are granted a normative force similar to that enjoyed by contract terms and are even considered part of the parties’ agreement by implication rather than incorporation.

86. The main legal systems of the world (civil law, common law and Islamic law) accept that, in the matter of commercial transactions, trade usages are a key source of law and have normative force. Courts and arbitral tribunals have the

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authority to identify in ICC rules – as well as in rules drafted by other professional organizations – evidence of established trade usage pertaining to the matter in hand, thus supplementing legislation or contracts. Where this is so, the URDG can be regarded as implied terms in the guarantee or counter-guarantee, as if they were explicitly incorporated in its text. To this end, the introduction to the URDG provides as follows:

The new rules apply to any demand guarantee or counter-guarantee where incorporated by reference in the text. They can also apply as trade usage or by implication from a consistent course of dealing between the parties to the demand guarantee or counter-guarantee where so provided by the applicable law.

87. Take the example of a guarantee that does not refer to the URDG and provides in its text a termination date, as well as indicating that it will cease to have any effect upon the presentation of a delivery certificate. If the parties disagree as to which condition – the advent of the specified date or the occurrence of the specified event – leads to the expiry of the guarantee, the court is at liberty to draw evidence of relevant usage from the definition of “expiry” in article 2 of the URDG, which indicates that, where an expiry date and an expiry event are stated in the guarantee, the guarantee expires upon the occurrence of the earlier of the two.

88. Even where they are neither expressly incorporated into the guarantee nor regarded as evidence of trade usage in a particular case, the URDG can still take effect as part of a course of dealing if they were incorporated consistently in previous guarantees (or counter-guarantees as the case may be) between the parties. Under these circumstances, the parties may reasonably be taken to have intended the URDG to govern the guarantee (or counter-guarantee).

Preparatory works

Both the first and second drafts of the revised URDG included the following paragraph in article 1: “Nothing in these rules shall preclude their taking effect as trade usage or by implication from a consistent course of dealing between the parties to the demand guarantee or the counter-guarantee where so provided by the applicable law, even where there is no reference to the rules.” The explanatory note accompanying the drafts indicated that the aim was not to compel a mandatory application of the URDG to a guarantee or counter-guarantee absent express incorporation. Rather, it was to set aside any erroneous reading of article 1 that might suggest that the URDG, where not expressly incorporated in the guarantee, cannot be referred to by the parties, a court or an arbitral tribunal as an aid to interpretation. References to the effectiveness of trade usages are quite customary in international commercial law and practice codifications (see for instance ISP98 rule 1.03 and article 13(2) of the UN Convention on Independent Guarantees and Stand-by Letters of Credit). Furthermore, such references reflect approaches consistently taken by courts and arbitral tribunals dealing with international commercial contracts to the effect that ICC rules embody trade usage in the relevant sector and, as such, can be used as an aid for the interpretation of contracts. Specifically, courts in France, Belgium and the People’s

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Republic of China, as well as numerous arbitral tribunals, have recognized in URDG 458 a source of customs and usage in relation to independent guarantees.²⁵

However, during the course of the revision of the URDG, a majority of the comments received on this paragraph expressed discomfort as to its potential misuse and the uncertainty that could result from the “surprise” application of the URDG to a guarantee lacking any reference to the rules. Furthermore, it was observed that the URDG are not limited to international commercial transactions and that they can be validly used in any demand guarantee, including a guarantee securing the performance of a consumer’s obligation. In such cases, it may be considered inappropriate for the URDG to apply as trade usage. At its meeting in Dubai on 10-13 March 2009, the ICC Banking Commission opted to delete this paragraph from the draft rules, while accepting that the URDG could take effect as a trade usage where the applicable law so permits. This is what the introduction to URDG 758 and this chapter in the Guide seek to underscore.

ICC lists of adherence

89. The ICC Banking Commission previously had a practice of asking its members and ICC national committees to express their “adherence” to its newly adopted or revised sets of rules. Displaying impressive lists of “adhering” banks was expected to encourage the use of the rules. In 1995, an adherence list was launched for the URDG, resulting in seven national committees expressing the collective adherence of their members to the rules, as well as 25 banks from other countries expressing their adherence on an individual basis.²⁶ This prompted the legitimate question as to whether a bank that expresses its adherence to the URDG by joining the ICC list should be considered to be bound by the URDG even if they are not incorporated in a specific guarantee or counter-guarantee. The answer is no. At best, adherence expresses a bank’s support for the rules, but it does not result in a legal obligation. In order to be binding, the URDG have to be specifically agreed between the two parties to a guarantee (the guarantor and the beneficiary) or a counter-guarantee (the counter-guarantor and the guarantor). At a meeting on 21 November 2000, the ICC Banking Commission ultimately decided to eliminate adherence lists to avoid any party being misled.²⁷

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Can the URDG apply to guarantees or counter-guarantees that include terms not covered in the rules?

90. This would be the case, for instance, if the URDG were to be incorporated in a guarantee that calls for its confirmation by another obligor, as in the case of documentary credits, or in a guarantee providing for payment by acceptance of a bill of exchange. While confirmations and bills of exchange are outside the scope of the URDG, this does not preclude the application of the URDG to the other aspects of the guarantee covered in the rules. In the example above, if a URDG guarantee were to provide for its payment by acceptance of a bill of exchange, its issue, entry into effect, reduction of amount, expiry and the guarantor’s notification duties thereunder would be covered by the URDG without any limitation, while aspects specific to the inclusion of the bill of exchange (mandatory requirements of form, aval, rights of endorsees, holders in due course, etc.) would be governed by the law applicable to the bill. In such cases, once the guarantor has accepted the bill of exchange, the guarantor’s obligations under the guarantee are suspended pending maturity of the bill and are only revived if the bill is dishonoured, in which case the beneficiary has the option of suing the guarantor of the bill or suing on the guarantee (in addition to its recourse against the applicant under the underlying relationship). In this respect, paragraph 46 of the ISDGP provides:

Confirmation of guarantees is not standard practice in demand guarantees. The URDG provide no rules in relation to confirmation. Where confirmation of a guarantee is sought, the guarantor should provide terms in the guarantee determining the entire process of confirmation.

The URDG and the law

91. The URDG are not themselves rules of law but constitute a set of rules that take effect through incorporation into guarantees and other independent undertakings. They are therefore necessarily limited in scope to contractual issues and to matters for which the parties are free to make contractual provision under the applicable law. As such, they take effect subject to (and in some cases may even be displaced by) any applicable mandatory rules. These rules can take two forms: (1) domestic mandatory rules, that is, rules of the lex fori that the parties cannot exclude by agreement but which, unless otherwise provided by the lex fori, come into play only where the lex fori is the applicable law governing the guarantee, such as rules relating to formalities of contract, requirements of capacity or the authority to issue a guarantee and (2) overriding, or international, mandatory rules of the forum that apply regardless of the otherwise applicable law, such as those relating to illegality, fraud or waivers of the right to seek injunctions to stop the payment of the guarantee. Within the European Union, both types of mandatory rules are governed by Rome I.²⁸ Overriding rules also fall into two categories:

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those that are universal, that is, spatially unlimited and not dependent on any connecting factor linking the issue to the forum, and those that apply under the lex fori only where there is the requisite connecting factor linking the issue to the forum, such as the establishment of the guarantor in the forum state. Where mandatory rules of either kind are applicable, the instructing party or counter- guarantor has to indemnify the guarantor against all associated obligations and responsibilities pursuant to article 31.

Does the inclusion of a governing law clause in the guarantee conflict with a reference to the URDG in that guarantee?

92. The answer is no. This is why article 34 offers the parties the possibility to agree on a governing law and, absent such an agreement, designates a law to govern the guarantee. This coexistence between the URDG and a governing law is a matter of necessity. Indeed, the URDG are contractual rules. As such, they are confined to matters of contract, supplementing the parties’ agreement in all areas that are open to the parties’ agreement. This basically includes all the operative stages of the life cycle of a guarantee: issue, amendment, presentation of demand, examination, payment and expiry. Conversely, there are issues that are regulated by mandatory laws as described in paragraph 72 above. Those issues cannot possibly be covered by a set of contractual rules such as the URDG. They can only be covered by law. Hence the need for both the URDG and a governing law to cater for all issues that might arise under a guarantee.

Is there a law banning the URDG?

93. It has been reported that certain parties – often local banks acting as guarantors upon the instruction of foreign counter-guarantors – claim that their national laws preclude them from accepting the URDG in the counter-guarantee or from incorporating them in the guarantee. In many such cases, applicants and instructing parties feel that they have no choice but to abandon the URDG and to negotiate the terms of the counter-guarantee and the guarantee from scratch or, more frequently, to simply adhere to the model forms imposed by the local banks. Such arguments should not be accepted without scrutiny for at least two reasons:

• First, no law that specifically bans the URDG has ever been reported to ICC and the authors are not aware of the existence of any such law.

• Second, to the extent that a mandatory law (whether statutory or case law) might conflict with an article of the URDG,²⁹ the following should be noted:

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(i) Such laws would only supersede the contradictory provision in the URDG but would not overrule the URDG as a whole. Few contradictions (if any) can be expected to exist between the URDG and mandatory national laws, because the URDG avoid dealing with areas traditionally considered to be within the scope of such laws, whether domestically mandatory, such as those concerning capacity or authority, or internationally mandatory (overriding), such as those concerning fraud or illegality.

(ii) Experience shows that certain related arguments are often made too hastily:

– Where a state-owned entity claims that there is a local ban on the URDG, this argument often serves to hide imposed guarantee forms that the entity is not empowered to modify. In such cases, agreeing on the use of the URDG is not a matter of conformity with local laws but rather a matter of bargaining power and, ultimately, of getting the necessary permission to amend the imposed forms.

– Alleged local bans on the URDG are also likely to stem from a superficial analysis of the applicable law. Most national laws on guarantees only list suretyships as the archetypal form of third-party guarantees, but this does not mean that non-accessory guarantees are illegal. Virtually all legal systems in the world recognize freedom of contract. Consequently, a demand guarantee (including a URDG guarantee) should be given effect as a legal category in itself, arising from the parties’ freedom to contract, and not as an imperfect mutation of a suretyship deprived of its accessory character.

Using URDG 758: advantages to all parties

94. Each party to a demand guarantee or counter-guarantee has numerous incentives to incorporate the URDG in that guarantee or counter-guarantee, as discussed below. The combination of these advantages results in a streamlined negotiation and operational framework for both guarantees and counter-guarantees that is much more conducive to the successful building of business relationships on a balanced and transparent basis.

Advantages to the beneficiary of using the URDG

95. The beneficiary of a URDG guarantee and the guarantor/beneficiary of a URDG counter-guarantee derive the following advantages from the incorporation of the URDG in the guarantee and counter-guarantee.

A truly independent undertaking

96. The most important advantage that the beneficiary derives from using the URDG is the independent nature of the demand guarantee and counter-guarantee. A large part of guaranteed litigation revolves around the determination of the guarantee’s true nature: is it an independent undertaking or an accessory

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suretyship? Hundreds of court decisions, all resulting from lengthy, costly and highly adversarial proceedings, have attempted to answer this seemingly simple question. At stake is the possibility for the guarantor to raise defences thwarting the beneficiary’s demand. In a nutshell, if the disputed guarantee is found to be an independent guarantee, the beneficiary is entitled to be paid if it presents a demand that complies with the terms of the guarantee, regardless of whether or not any breach has actually occurred in the underlying relationship and regardless of the amount of the resulting loss. By contrast, in the case of a suretyship guarantee, the beneficiary (1) has to prove the applicant’s breach and (2) can expect its demand to be set off against any counterclaim or defence arising from the underlying relationship. In some countries, the stakes are even higher. Certain statutes or banking regulations could provide that some categories of guarantors are not authorized to undertake one of the two categories of guaranteed business. For example, the OHADA Uniform Act on Secured Transactions declares null and void any independent guarantee issued by an individual, while banking regulations in the United States only allow national banks to issue independent undertakings, while accessory guarantees are subject to stringent conditions.³⁰

97. None of the numerous structuring factors or incantatory formulas drafted over the years to express an intention to conclude an independent guarantee have proved to be barriers against the potential recharacterization of an independent guarantee as an accessory guarantee: payment on demand, irrevocable and unconditional undertaking, payment on first demand, issue of the guarantee by a bank, issue in an international context and so forth. Conversely, the incorporation of the URDG in a guarantee, especially when combined with the use of the model guarantee and counter-guarantee forms published in the URDG booklet, is a conclusive indication of the parties’ intent to conclude an independent undertaking and not a suretyship. Indeed, article 5 of the URDG (Independence of guarantee and counter-guarantee) provides:

a. A guarantee is by its nature independent of the underlying relationship and the application, and the guarantor is in no way concerned with or bound by such relationship. A reference in the guarantee to the underlying relationship for the purpose of identifying it does not change the independent nature of the guarantee. The undertaking of a guarantor to pay under the guarantee is not subject to claims or defences arising from any relationship other than a relationship between the guarantor and the beneficiary.

b. A counter-guarantee is by its nature independent of the guarantee, the underlying relationship, the application and any other counter-guarantee to which it relates, and the counter-guarantor is in no way concerned with or bound by such relationship. A reference in the counter-guarantee to the underlying relationship for the purpose of identifying it does not change the independent nature of the counter-guarantee. The undertaking of a counter-guarantor to pay under the counter-guarantee is not subject to claims or defences arising from any relationship other than a relationship between the counter-guarantor and the guarantor or other counter-guarantor to whom the counter-guarantee is issued.

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Irrevocable undertaking

98. URDG guarantees, and counter-guarantees are irrevocable undertakings even if they do not state so (article 4(b)). This protects the beneficiary against the risk of revocation of the guarantee at a time when the applicant’s obligation is still to be completed. In fact, by combining irrevocability with an expiry date or an expiry event, the URDG offer beneficiaries undertakings for an agreed limited duration that cannot be revoked before that duration elapses. This spares beneficiaries a serious risk that they would have encountered in some legal systems – for instance civil law systems – where guarantees issued for an unlimited duration can be revoked, even were agreed otherwise.

Effective when issued

99. A beneficiary can present a demand under a URDG guarantee and counter- guarantee from the time of issue, unless a later time or event is indicated in the undertaking (article 4(c)). This rule is meant to avoid misunderstandings, common in advance payment guarantees, where applicants argue that the effectiveness (i.e. availability for drawdown) of the guarantee depends upon the receipt of the advance payment. Absent a clause to that effect in the guarantee, this understanding may not necessarily be shared by the beneficiary. If the URDG are incorporated in the guarantee, no party can be misled about the principle that all guarantees and counter-guarantees, including advance payment guarantees, are available for the presentation of a demand as from their issue, unless they expressly stipulate a deferred entry into effect. Under the URDG, a guarantee is issued when it leaves the control of the guarantor (article 4(a)). See paragraph 204.

No variation of amount absent agreement

100. The amount of a URDG guarantee or counter-guarantee can only be reduced in accordance with the reduction clause stipulated in that guarantee or counter- guarantee or as a result of the payment of a complying partial demand presented by the beneficiary. Such reduction is not connected to progress of performance of the underlying relationship (articles 12 and 13).

Time and content of notice of rejection – preclusion

101. The beneficiary (or the guarantor in the case of a counter-guarantee) must be notified whether its demand is non-complying and of the reason for rejection no later than the close of the fifth business day following the day of presentation (article 24). Failure to do so precludes the guarantor (or the counter-guarantor in the case of a counter-guarantee) from claiming that the demand and any related documents are non-complying. Beneficiaries are expected to heartily welcome this time-limit, given the amount of time that guarantors sometimes take to decide whether or not to pay. “Business day” means a day on which the place of business where an act of a kind subject to the URDG is to be performed is regularly open for the performance of such an act (article 2). In other words, were

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the issuer is regularly open for business on a given day for all other activities but not for the receipt of presentations under a demand guarantee that day is not a business day.

Statement, not proof, of breach

102. Unless article 15(a) is excluded or modified in the guarantee, which can only be done expressly, thus without risk of trapping the beneficiary, the beneficiary is only expected to indicate in a statement supporting its demand in what respect the applicant is in breach of its obligations under the underlying relationship. The beneficiary cannot be required to prove the breach or to justify its right to claim payment. The same also applies to counter-guarantees, as article 15(b) only requires the guarantor to state it has received a complying demand under its guarantee, but nothing else. No proof of actual payment of the guarantee is required.

Extend or pay means pay unless extension granted

103. By incorporating the URDG, the parties agree that an extend or pay demand that complies with the terms of the guarantee should be considered, in itself, as a payment demand if no extension is granted (article 23). An essential advantage for beneficiaries is that their right to payment will not be curtailed if they have submitted a complying extend or pay demand within the validity period of the guarantee but were notified of the guarantor’s refusal to extend after the expiry of the guarantee.

A remedy for asymmetrical guarantees

104. As the beneficiary of the counter-guarantee, the guarantor is assured that the counter-guarantee issued in its favour will be subject to the URDG even if it does not state so, provided that the instructions to issue the guaranteed state that the guarantee is subject to URDG (article 2(b)). This rule is expected to put an end to the problem of asymmetrical indirect guarantees.

Amendments to be agreed

105. An amendment made without the beneficiary’s agreement is not binding on the beneficiary, although it irrevocably binds the guarantor from the time of issue. A provision in an amendment to the effect that it shall take effect unless it is rejected within a certain time is to be disregarded (article 11(f)).

Incomplete presentations possible

106. A beneficiary can choose to make a presentation (including a demand) in a piecemeal manner, provided it indicates that it will be completed later, in which case it must be completed on or before expiry (article 14(b)). Where the beneficiary indicates that its presentation will be completed later, the guarantor need not commence examination until the presentation is complete (article 20(a)). This

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protects the beneficiary against any rejection risk in the interim. An incomplete presentation containing no indication that it will be completed later is not a valid presentation.

Electronic presentations

107. If an electronic presentation is required and the guarantee omits to specify the format, the system for data delivery and the electronic address for the presentation, the beneficiary has a choice between making any electronic presentation that can be authenticated or making one in paper form (article 14(c)).

Mode of delivery of paper presentations

108. If a paper presentation is to be made through a particular mode of delivery without excluding the use of another mode, the beneficiary can use another mode of delivery if the presentation is received at the place for presentation on or before the expiry of the guarantee (article 14(d)). Where alternatives modes of delivery are excluded, then pursuant to article 14(d) a presentation made using another mode of delivery is of no effect even if it is shown that the issuer received it. However, it should be borne in mind that the URDG are contractual rules that give way to any contrary rule of the applicable law, and courts may be reluctant to hold a demand invalid if the issuer has acknowledged its receipt.

Multiple demands allowed

109. Unless the guarantee prohibits multiple demands, the beneficiary is allowed to make more than one demand (article 17(b)), provided the aggregate does not exceed the amount available under the guarantee (article 17(a)). This avoids futile debates on whether the presentation by the beneficiary of a demand for less than the full amount available should stop the beneficiary from presenting subsequent complying demands for the remaining amount.

Separate demands

110. Where the guarantee provides that only one demand may be made and the beneficiary makes a demand that is rejected for non-compliance, another demand can be made on or before expiry of the guarantee (article 17(d) and article 18(a)).

Functional standard for examination of documents

111. The URDG adopt a functional standard for the examination of documents. While presented documents have to be consistent with each other and compliant with the guarantee, the data contained therein need not be identical in all documents or to the data in the guarantee terms (article 19(b)). This rule is expected to curb the rate of rejection of demands on grounds of non-conformity.

Change of currency

112. In general, a beneficiary may not require, and the guarantor may not make payment in any currency other than that specified in the guarantee (article 21(a)),

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unless the other party agrees. However, if payment cannot be made in the currency of the guarantee because of an impediment beyond the control of the guarantor, the guarantor is directed to make payment in the currency of the place of payment even if the guarantee indicates that payment can only be made in the currency specified in the guarantee (article 21(b)). Absent this rule, the guarantee could have been frustrated and the guarantor’s obligation terminated on grounds of impossibility to perform.

Termination upon release

113. Outside the occurrence of an expiry event or the advent of an expiry date indicated in the guarantee, a guarantee terminates upon presentation to the guarantor of the beneficiary’s signed release (article 25(b)). This rule is more protective of the interests of the beneficiary and less open to abuse than, for example, a rule to the effect that the return of the original guaranteed document amounts to a release of the guarantor. This is all the more relevant given that many guarantees are returned as a result of a clerical error or a misappropriation by the applicant or someone acting on its behalf. However, a provision to the effect that the guarantor’s liability continues until the beneficiary has granted a release, without specifying a document of release, is to be disregarded as a non- documentary condition (article 7).

Force majeure

114. Contrary to the previous situation under URDG 458 (and UCP 600), a beneficiary (and a guarantor in the case of a counter-guarantee) that sees a guarantee expiring at a time when presentation, examination or payment is prevented by force majeure is no longer deprived of its rights. The guarantee and the counter- guarantee are extended for a limited duration (unlike in the case of ISP98), and

any rights already crystallized by presentation or determination of compliance are suspended pending the cessation of the force majeure (article 26). A guarantor whose guarantee is extended as a result of force majeure is also protected by the automatic proportionate extension of the counter-guarantee.

Charges

115. Guarantors are directed not to stipulate that the guarantee or amendment is conditional upon the receipt by the guarantor of its charges (article 32(c)). This rule avoids traps for unwary beneficiaries and assures them of the reliability of the guarantor’s commitment.

Transfer

116. Beneficiaries are able to transfer a guarantee. This makes the beneficiary’s rights under the guarantee a valuable and mobile personal property that is susceptible of conveyance, appropriation and collateralization under certain conditions listed in article 33, and in particular the condition of transfer of the beneficiary’s rights and obligations in the underlying relationship (see paragraphs 1111-1114 in Part II).

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Advantages to the guarantor and counter-guarantor of using the URDG

An unqualified statement of independence

117. It is not practicable for the guarantor or counter-guarantor (particularly if they are banks) to assess the genuineness, accuracy, honesty or fairness of the beneficiary’s assertion of breach, the amount of the exact loss resulting from that breach or the validity of the defences available to the applicant under the underlying relationship. Neither are they in a position to determine before payment any disputed issues of fact or law arising from the underlying relationship. Accordingly, unless knowingly choosing to issue an accessory suretyship, the guarantor will wish to see its undertaking insulated from the underlying relationship and subject only to its own terms. Articles 5 and 12 offer the assurance of an independent undertaking subject only to its own terms. Articles 6 and 7 assure the guarantor that it will deal only with documents, not with facts or non- documentary conditions that require factual investigation.

Entire agreement

118. A guarantor or counter-guarantor need not worry about the terms (often highly technical and complex) of the underlying relationship. URDG guarantees and counter-guarantees are only subject to their own terms, whether such terms are stipulated in the undertaking or incorporated by reference. This is indicated in article 12, which provides a true “entire agreement” rule:

A guarantor is liable to the beneficiary only in accordance with, first, the terms and conditions of the guarantee and, second, these rules so far as consistent with those terms and conditions, up to the guarantee amount.

Accordingly, “entire agreement” clauses of the kind often found in underlying contracts are not required in the URDG, as they are rendered unnecessary by article 12.

An exclusively documentary role

119. Guarantors (and counter-guarantors) deal with documents and not with the goods, services or performance to which the documents may relate (article 6). Non-documentary conditions whose fulfilment cannot be determined from the guarantor’s own records or from an index specified in the guarantee are deemed as not stated and will be disregarded (article 7). Those two key rules of the URDG ensure that the guarantor is insulated from fact-finding exercises that risk tainting its independent role by requiring it to determine issues of fact or law arising from the underlying relationship. In fact, the URDG organize the successive stages in the life cycle of a guarantee or counter-guarantee based upon the presentation of a document or the advent of a date. This is particularly true with regard to the availability of a guarantee for a drawdown (article 4(c)), the variation of the amount (article 13), payment (article 15), termination (article 25(b)) and transfers (article 33(d)(ii)). Guarantors and counter-guarantors are only required to examine

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the appearance of conformity of documents or to determine from their own records or from an index specified in the guarantee that a condition has been fulfilled. This would be the case, for instance, where the condition consists of an advance payment being made on the applicant’s account maintained with the bank guarantor.

Document examination diligence limited to determining appearance of conformity

120. Article 19 requires guarantors and counter-guarantors to determine, on the basis of a presentation alone, whether it appears on its face to be a complying presentation. They need not go beyond the presented document to determine issues of fact or law in relation to the data contained therein. Their task is limited to examining diligently and with professional care the required presented documents and comparing the data stated therein to other data in other required presented documents and the guarantee’s (or the counter-guarantee’s) terms and conditions.

Bank risk-weighting

121. Ascertaining whether the guarantee at hand is independent or accessory in nature is also relevant for risk-based calculations of banks’ capital adequacy, whether under Basel I (1988), Basel II (2004) or Basel III (2010), now consolidated in the Basel Framework. This framework encompasses the full set of standards of the Basel Committee on Banking Supervision (BCBS), which is the primary global standard setter for the prudential regulation of banks. The membership of the BCBS has agreed to fully implement these standards and to apply them to all international banks operating within their jurisdictions. Under this framework, the proper risk-weighting factor to be applied to a guarantee is based on the risk represented by the guarantee, which depends directly on its independent or accessory character. This, in turn, should determine the fees that the bank will charge the applicant (or the instructing party if different from the applicant) for the consumption of the bank’s economic capital by the amount of the issued guarantee. Article 5 of URDG 758 leaves no doubt that guarantees subject to the URDG are independent guarantees. The risk attached to a suretyship guarantee is obviously significantly lower than that attached to a demand guarantee. See also the ICC/GCD 2022 Performance Guarantees study assessing the average credit conversion factor (CCF) for defaulting customers, which makes the case for applying a 20% CCF in determining exposure at default (EAD) for performance guarantees when calculating risk-weighted assets for capital purposes.

122. The following example illustrates the importance of properly determining the nature of the guarantee at the outset. Consider the case of a bank that has issued what it believes to be an accessory suretyship. To comply with the Capital

Accord standards, the bank is expected to risk-weight the guarantee using a given factor and charge the applicant commitment fees on the basis of that factor. Later, a court rules that the guarantee is an independent guarantee. Depending on the jurisdiction where it is located, the bank may then be obliged to increase the conversion factor originally attributed. In some cases, this factor could be

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100% of the amount of the guarantee. However, the bank would be precluded from charging the applicant an increased fee, unless such a possibility is expressly provided for in the application. The use of a URDG guarantee would have made it clear from the beginning that the guarantee is independent.

123. The importance of determining the independent or accessory nature of the guarantee with certainty at the outset is just as important under the Basel III capital framework, particularly where the bank is a beneficiary of the guarantee. Banks that have chosen the advanced approach are entrusted with determining the proper risk-weighting of their commitments according to their own expert determination. The strong independent commitment that URDG guarantees offer is expected to lead bank regulators to view them more favourably in the calculation of the exposure at default (EAD), the probability of default (PD) (essentially, whether the guarantor is likely to step in and make a payment that avoids the breach by the borrower) or the loss given default (LGD) (essentially, what the beneficiary bank can recover by enforcing the guarantee after default). In each case, a more favourable risk-weighting is expected to be attributed to a transaction involving a URDG guarantee, leading to less consumption of regulatory capital.

URDG guarantees as legally effective and enforceable unfunded credit protection arrangements pursuant to the EU Capital Requirements Regulation

124. To ensure legal certainty and a level playing-field within the European Union, a single set of regulations for all market participants was considered to be a key element for the proper functioning of the EU internal market. The Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD) form the legal framework governing the access to the activity, the supervisory framework and the prudential rules for credit institutions and investment firms.³¹

Against this backdrop, one of the new requirements is set out in article 194(1) of the CRR:

The technique used to provide the credit protection together with the actions and steps taken and procedures and policies implemented by the lending institution shall be such as to result in credit protection arrangements which are legally effective and enforceable in all relevant jurisdictions.

The regulations also prescribe the requirements for funded and unfunded credit protection arrangements. To be considered an eligible credit protection arrangement, the arrangement must be legally effective and enforceable in the relevant jurisdictions and provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk-weighted exposure amounts and to the degree of recognition allowed (see articles 194 and 213 of the CRR).

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125. Guarantees are specifically listed in the CRR as eligible arrangements. Under article 213, credit protection deriving from a guarantee qualifies as eligible unfunded credit protection if the following conditions are met:

(a) the credit protection is direct.

(b) the extent of the credit protection is clearly defined and incontrovertible.

(c) the credit protection contract does not contain any clause, the fulfilment of which is outside the direct control of the lender, that:

(i) would allow the protection provider to cancel the protection unilaterally;

(ii) would increase the effective cost of protection as a result of a deterioration in the credit quality of the protected exposure;

(iii) could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due, or when the leasing contract has expired for the purposes of recognising guaranteed residual value under Articles 134(7) and 166(4);

(iv) could allow the maturity of the credit protection to be reduced by the protection provider;

(d) the credit protection contract is legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement.

126. Article 215 provides for the following additional requirements for guarantees to qualify as eligible unfunded credit protection:

(a) on the qualifying default of or non-payment by the counterparty, the lending institution has the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of which the protection is provided and the payment by the guarantor shall not be subject to the lending institution first having to pursue the obligor;

…

(b) the guarantee is an explicitly documented obligation assumed by the guarantor; (c) either of the following conditions is met:

(i) the guarantee covers all types of payments the obligor is expected to make in respect of the claim;

(ii) where certain types of payment are excluded from the guarantee, the lending institution has adjusted the value of the guarantee to reflect the limited coverage.”

127. Under article 215(2)(b), the CRR requires that lending institutions can demonstrate to the satisfaction of the competent authorities that the effects of the guarantee, which shall also cover losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, justify such treatment.

128. ICC considers that URDG guarantees and counter-guarantees qualify as eligible unfunded credit protection as they meet all the conditions set out in articles 213 and 215 of the CRR. Accordingly, ICC has commissioned a legal opinion confirming that URDG guarantees and counter-guarantees constitute legally effective and enforceable obligations of the guarantor pursuant to article 194(1) of the CRR and as such meet the criteria for credit risk mitigation set out in articles 194 to 217 of the CRR.

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Exemption from liability if acting in good faith

129. Guarantors and counter-guarantors are exempted from liability for acts – or the consequences of acts – made or omitted in the course of carrying out the applicants’ instructions and performing their undertaking, unless they fail to act in good faith (articles 27 to 30).

Controlled transferability and assignability

130. No guarantor, especially if it is a bank, should issue a freely transferable guarantee without knowing the identity of the transferee beneficiary. Whatever the strength of the applicant’s collateral, a guarantor should still know the party to which it entrusts its independent undertaking. There are obvious reasons for this note of caution. They include:

• the risk of termination of insurance coverage if the beneficiary were to change in the course of the life of the insured guarantee;

• the need to assess the beneficiary’s creditworthiness in case an amount unduly paid is to be recovered by the guarantor (if a court holds that the applicant has no obligation to reimburse the guarantor);

• the guarantor’s compliance with its statutory or regulatory duties to conduct a proper assessment of the identity, activity and legal and beneficial owners of its counterparties before doing business, as well as with its legal duties vis-à-vis economic sanction regulations, for example, and

• the beneficiary’s track record with regard to unfair demands. Issuing a freely transferable guarantee turns the guarantee into a negotiable instrument that is tradable on an unregulated secondary market and forms an easy target for prime bank instrument scams involving money laundering or terrorist financing.³²

131. No URDG guarantee can be transferred unless the guarantor expressly consents to that transfer (article 33(b)), which it would presumably only do after having properly verified the putative transferee. Furthermore, the transfer of a URDG guarantee can only take place if the underlying relationship is also transferred to the same transferee (article 33(d)(ii)). A transfer of the guarantee on its own is of no value, and a purported such transfer is usually fraudulent. Finally, article 33(g)

(ii) protects the guarantor by indicating that the guarantor is not obliged to pay an assignee of proceeds unless it has so agreed.

Committed only if agreed

132. The URDG protect guarantors and counter-guarantors against being committed where they have not expressly agreed to it. This protection is best illustrated by three articles from the URDG, which apply to both guarantees and counter-guarantees:

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• Article 9, which directs a guarantor receiving instructions for the issue of a guarantee to inform the party that gave the guarantor its instructions if it is not prepared or is unable to do so. Even where the guarantor fails to so inform the applicant without delay, no preclusion can be invoked obliging the guarantor to issue the guarantee.

• Article 23, which indicates that where an extend or pay demand is presented, the guarantor is entitled not to grant the requested extension, even if the party that gave the guarantor its instructions agree to do so. This unqualified statement cuts short any attempt by the applicant or the beneficiary to contend, as it has sometimes been argued, that the guarantor should not be allowed to refuse to extend the guarantee or, alternatively, that it should be held liable for damages in reparation of the loss caused by its refusal. Reasons invoked by applicants or beneficiaries to establish an alleged duty of the guarantor to extend the guarantee include:

– the guarantor’s awareness when issuing the guarantee that extend or pay demands are commonplace and should be expected during the life cycle of a guarantee or a counter-guarantee;

– so-called fiduciary duties owed by the guarantor to the applicant, often combined with the claim that the guarantor incurs no additional risk if it were to extend the guarantee, because the applicant could extend its own indemnity towards the guarantor for the same extension period; and

– a situation where the guarantor has suspended payment upon receipt of a complying extend or pay demand but has subsequently refused to extend the guarantee as instructed by the instructing party after an agreement is reached between that party and the beneficiary. Once again, the clear terms of article 23(e) – “The guarantor or counter-guarantor may refuse to grant any extension even if instructed to do so and shall then pay” – ensure that parties are aware upfront that the ultimate payment or extension decision is the guarantor’s alone (or the counter-guarantor’s in the case of a counter-guarantee).

• Article 24. When determining that a demand is non-complying, the guarantor has the option of approaching the party from which it received its instructions for a waiver of discrepancies. Article 24(c) provides: “Obtaining the waiver of the counter-guarantor or of the instructing party does not oblige the guarantor or the counter-guarantor to waive any discrepancy.” Here, too, the URDG ensure that the guarantor remains in control of the extent of its commitment.

Instructing party’s indemnity

133. The URDG direct the instructing party to indemnify the guarantor against all obligations and responsibilities imposed by foreign laws and usages (article 31). A typical example of this occurs when the law in the country of the beneficiary imposes a validity period or an expiry event that overrides a contrary provision in the guarantee. In such cases, the instructing party remains bound towards

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the guarantor as a result of article 31, even if the application provides for a different expiry period or event. Absent the URDG, the guarantor could lose its reimbursement claim against the instructing party.

Law of guarantor to govern – guarantor’s tribunal competent

134. Unless otherwise provided in the guarantee, the law of the guarantor’s branch or office that issued the guarantee governs the guarantee and the law of the counter-guarantor’s branch or office that issued the counter-guarantee governs the counter-guarantee (article 34). Likewise, the competent court of the guarantor’s branch or office that issued the guarantee has jurisdiction over disputes arising from the guarantee, and the competent court of the counter- guarantor’s branch or office that issued the counter-guarantee has jurisdiction over disputes arising from the counter-guarantee (article 35). Seasoned bankers and traders know the difficulty of negotiating a governing law and jurisdiction clause in favour of one’s jurisdiction and the likelihood of ending up with a so- called neutral third jurisdiction with a legal system they rarely know. The default solution in articles 34 and 35 facilitates reaching an agreement as proposed by ICC, an international organization that is not suspected of national bias.

Advantages to the applicant of using the URDG

135. It has occasionally been claimed that the URDG have sacrificed the applicant’s interests at the altar of the beneficiary’s interest-driven compromise. This is not the case. If an accessory suretyship or a URCG hybrid guarantee is taken as a benchmark, an applicant is likely to find a URDG demand guarantee more severe because it will not be asked to give its consent before the guarantee is paid. However, such a benchmark would be unrealistic in today’s buyer-driven market. Applicants that do not offer cash-like guarantees are automatically excluded from many major projects. A more positive and realistic approach for an applicant would be to identify the advantages offered by a URDG guarantee compared to the cash deposit that the applicant would otherwise have been obliged to place in the hands of the beneficiary. These advantages can be divided into two categories: (1) a streamlined negotiation environment that is conducive to a better relationship with the beneficiary and a (2) series of rights offered to the applicant as a result of the application of the URDG without the need to specifically negotiate for them.

A streamlined negotiation environment: bases for negotiation

136. The URDG also benefit the applicant by streamlining the negotiation process, thereby saving time, costs and effort. Above all, the URDG allow the negotiation to take place in a more serene environment that is conducive to a better business relationship with the beneficiary, as indicated below. Offering the URDG as a regulatory framework for the guarantee, whether at the outset or as a means to break a negotiating stalemate, is more likely to obtain the beneficiary’s

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acceptance than, for instance, the applicant’s suggestion of clauses drafted by legal counsel, which is often suspected of being biased. The reason lies in the international representativeness that characterizes both the rules themselves and the organization under whose aegis they were elaborated:

• The text of the URDG is the result of long consultations involving representatives of all parties: exporters (often applicants), banks (often guarantors) and importers (often beneficiaries). Because they do not side with a particular party’s interests, the URDG can be presupposed to offer a neutral and balanced set of terms that meet the reasonable expectations of all parties.

• The URDG also benefit from the internationally recognized standing of ICC, an organization that has served international business for 90 years, with over 7,000 members in 130 countries, among which the country of the beneficiary is very likely to be represented. This eliminates suspicions of bias and renders the URDG more likely to be accepted by the beneficiary.

A shortened text

137. Agreeing to issue a URDG guarantee spares the parties the effort of drafting extensive clauses to describe the independence of the guarantee, its irrevocability, its conditional transferability, the guarantor’s duties, the treatment of extend or pay demands, compliance standards for presentations, the applicable law and jurisdiction and so forth. In short, a one-page URDG guarantee or counter- guarantee, whether or not it tracks the terms of the proposed model URDG guarantee form, is as efficient and comprehensive as a 30-page document drafted at great cost by specialist consultants, because all 35 articles of the URDG are incorporated into the guarantee merely by stating that it is “subject to URDG”. Applicants can thus save considerable negotiating time and costs by benefiting from ready-to-use standard conditions and the accompanying model guarantee form (see Appendix 1 to this Guide).

New rights for the applicant

The right to be informed

138. Under the URDG, the guarantor owes the instructing party a comprehensive set of information duties. Counter-guarantors are also entitled to the same information in indirect guarantees. Absent the URDG, the instructing party (or the counter-guarantor) may not be entitled to claim such information, since such a right may not be available to it under the applicable law. The URDG direct the guarantor to provide the following information to the party from which it received its instructions:

• Article 9. If the guarantor is not prepared or is unable to issue the guarantee, it should so inform the applicant without delay. This provision does not, strictly speaking, impose a duty; it is merely precatory. That being said, in certain situations, the fact that the applicant is unaware that the guarantee will not be

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issued can be critical. This can be the case, for example, where the applicant has to procure a performance guarantee by a determined date, failing which it will be considered to be in breach of the tender terms and will see its tender guarantee forfeited.

• Article 16. In the event of a demand for payment or an extend or pay demand, the guarantor has a duty under the URDG to inform the instructing party without delay.³³ However, the URDG do not require the guarantor to do so before making payment.

• Article 23. In the event of a complying extend or pay demand, the guarantor has a duty to inform the instructing party without delay of its decision to suspend payment, extend the guarantee or pay the demand.

• Article 25. Where the guarantee terminates for any reason other than the advent of the expiry date, the guarantor has a duty to so inform the instructing party without delay. The corollary, although not mentioned in the URDG, is that the guarantor has to release the instructing party from its indemnity and must also release any collateral that the instructing party might have put up as a requisite for the issue of the guarantee. Instructing parties can thereby benefit from replenished credit lines and recover their collateral to arrange for other financing.

Safe regulatory harbour

139. Applicants are often concerned about the risk of entering into contracts under foreign laws with which they may be unfamiliar. To a reasonable extent, the URDG offer them a safe regulatory harbour. This is because the majority of national commercial or civil code provisions relating to demand guarantees are optional.³⁴

As such, they can be superseded by the URDG. The successive operational stages spanning the life cycle of a demand guarantee can therefore be regulated by the URDG instead of by the provisions of the governing law that would otherwise have applied. This is the case with respect to the guarantor’s comprehensive duty to provide information to the party from which it received its instructions (articles 9,16, 25 and 26) and to the termination of the guarantee upon expiry, whether or not the guaranteed document is returned to the guarantor (article 25(b)). However, the parties should still carefully examine the applicable law, at least to ensure that its provisions are optional.

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Termination

140. In article 25(b) and (c), the URDG provide multiple termination causes that supplement whatever expiry event or date is stipulated in the guarantee or counter-guarantee. Thus, whether or not the guarantee or counter-guarantee so indicates, its incorporation of the URDG will lead to its termination: (i) on expiry; (ii)when no amount remains payable under it (including as a result of its reduction as provided in article 13); or (iii) on presentation to the guarantor of the beneficiary’s signed release from liability under the guarantee. Moreover, if the guarantee or the counter-guarantee states neither an expiry date nor an expiry event, the guarantee terminates three years from the date of issue (and the counter- guarantee shall terminate 30 calendar days after the guarantee terminates). This last cause of termination is expected to be welcomed by the instructing parties as it imposes a time limit on open-ended guarantees and counter-guarantees.

Force majeure

141. When an obligation cannot be performed because of an external unforeseeable impediment over which the debtor has no control, the majority of legal systems suspend the performance duty and any time limit associated with it until such time as performance is possible again. This has led to the extension of some obligations for several months because of war or civil strife. If the expiry of a guarantee were to be suspended because of force majeure by effect of law, the applicant would be expected to stay committed and continue to pay commitment fees to the guarantor for the duration of the suspension. In article 26, the URDG offer a balanced solution that avoids this fate. Where the guarantee expires at a time when presentation is prevented by force majeure, the guarantee is extended not for the duration of the force majeure but for a period of 30 days from the date on which the guarantee would otherwise have expired. If, at the end of that extension, the guarantor has not resumed its business, the guarantee expires. In cases where the force majeure event lasts for more than 30 days, article 26 still offers an advantage to the applicant by avoiding an uncertain outcome before a court of law, but without immediately and unfairly putting an end to the rights of the beneficiary under the guarantee and the guarantor under the counter- guarantee. See further paragraph 546.

The scope of URDG 758: what’s in – what’s out

142. In a nutshell, the URDG cover:

• demand guarantees and counter-guarantees that are stated to be subject to the URDG (article 1(a));

• asymmetrical indirect guarantees (article 1(b));

• transition from URDG 458 to URDG 758 (article 1(d));

• separateness of branches in different countries (article 3(a));

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• electronic as well as paper guarantees and counter-guarantees and presentations thereunder (article 2 (definition of “authenticated” and “signed”), article 3(c) and article 14);

• issue and irrevocability of guarantees and counter-guarantees and their availability for presentation of demand (article 4);

• independence of guarantee and counter-guarantee (articles 5 and 6);

• non-documentary conditions (article 7).

• recommended content of applications, guarantees and counter-guarantees (article 8);

• consequences of applications not taken up (article 9).

• advising of guarantees and counter-guarantees (article 10);

• amendment of guarantees and counter-guarantees (article 11);

• variation of amount (article 13);

• presentations: place, time, content, form, mode of delivery, linkage of documents to guarantee or counter-guarantee and language of documents (articles 14 and 15);

• information of instructing party about demand and expiry (articles 16, 23 and 25).

• standards for complying presentations (article 2 (definition of “complying presentation”), article 17 (partial and multiple demands and amount) and article 19);

• separateness of presentations (article 18).

• examination of presentations (article 20);

• impossibility of payment in the currency specified in the guarantee (article 21);

• extend or pay demands (article 23);

• rejection process for non-complying demands (article 24);

• liability (and its limits) of the guarantor and the counter-guarantor (articles 12 and 27-30);

• termination of guarantee and counter-guarantee, including where no expiry provisions are stated (article 25);

• force majeure (article 26);

• the intrinsic value of the document embodying the guarantee or counter- guarantee (article 25);

• indemnifying the guarantor or counter-guarantor for the obligations imposed by foreign law and usages (article 31);

• liability for charges (article 32);

• transfer of guarantees and assignment of proceeds of guarantees and counter-guarantees (article 33);

• governing law (article 34);

• competent jurisdiction (article 35).

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143. The URDG do not cover:

• the capacity, power and authority of the applicant, the counter-guarantor and the guarantor to enter into their respective undertakings;

• confirmation of guarantees.

• syndication of, or participation in, guarantees or counter-guarantees.

• subrogation whether arising under equity, contract or law;

• succession by operation of law (merger, trust, liquidation, inheritance, etc.);

• payment in kind, items of value, acceptance or negotiation of negotiable instruments and other non-monetary means of payment of guarantees or counter-guarantees;

• guarantees requiring the guarantor to step into the underlying relationship and perform in lieu of the defaulting applicant in accordance with the terms of that relationship.

• legal effectiveness of effect of contractual or statutory restrictions on and conflicts of priority in the assignment of proceeds of a guarantee or counter-guarantee;

• the application – especially legal duties upon entering into a business relationship, providing collateral, possible fiduciary duties and so forth – except for the instructing party being deemed to have accepted the rights and obligations ascribed to it in the URDG (article 1(c));

• type, scope and description of content of documents, other than the content of statements required under articles 15 and 33;

• the underlying relationship: legality, bindingness, rights and obligations of the parties and so forth;

• fraud and unfair demands;

• provisional measures enjoining the payment of the guarantee and counter-guarantee;

• the guarantor’s post-payment claim in restitution or for unjust enrichment against the beneficiary or the counter-guarantor’s equivalent claim against the guarantor.

144. The ISDGP identifies and records best practice in relation to demand guarantees, although some of its paragraphs do not relate directly to URDG rules. This includes the correct interpretation of terms sometimes encountered in guarantee practice but not defined in the URDG, such as “confirmation of guarantees”, “unconditional”, “without delay” and “immediately”, which are defined in paragraphs 46-48. Subrogation and set-off are addressed in paragraphs 167 and 162 in relation to the payment of guarantees. Chapter Q: Miscellaneous addresses fraud, provisional court measures and sanctions clauses in paragraphs 209-215.

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Other questions on the scope of the URDG

145. Frequently asked questions on the scope of the URDG cover their application to counter-guarantees, two-party and multi-party guarantees, domestic guarantees, guarantees issued by non-banks, branches acting in a separate capacity in indirect guarantees, standby letters of credit and electronic guarantees. These questions are discussed below.

Counter-guarantees and the URDG

146. Because several URDG articles only mention guarantees and guarantors, but not counter-guarantees and counter-guarantors, a question may arise as to whether those articles apply equally to counter-guarantees and counter-guarantors. This is the case, for example, in articles 6-14, as well as in other articles.

147. That same question was raised under URDG 458, which gave the impression that some of their provisions covered only guarantees, in the absence of an explicit reference to counter-guarantees. On 14 June 2000, the ICC Banking Commission adopted Opinion 470/TA.454rev, in which it indicated that URDG 458 provisions referring to guarantees and guarantors but not counter-guarantees and counter- guarantors should be read, where the context so warrants, as also referring to counter-guarantees and counter-guarantors. The new URDG 758 codify this Opinion in a more general rule of interpretation without changing its substance. This is what article 3(b) provides:

Except where the context otherwise requires, a guarantee includes a counter-guarantee and any amendment to either, a guarantor includes a counter-guarantor, and a beneficiary includes the party in whose favour a counter-guarantee is issued.

148. The purpose of this rule is to avoid tedious repetitions in the formulation of URDG rules where this is not necessary. The reason for the reservation “except where the context otherwise requires” is that there are rules in the URDG under which counter-guarantees require separate treatment, in particular those embodied in articles 1(b) (application of URDG to asymmetrical guarantees),5(b) (independence of guarantee from counter-guarantee), 8(e) (identification of counter-guarantee), 15(b) (requirements for demand under counter-guarantee), 20(a) (place for payment), 23 (extend or pay), 25(c) (termination of counter- guarantee), 26(c) (force majeure), 33(a) (transfer of guarantee), 34(b) (governing law) and 35(b) (jurisdiction).

Two-party and multi-party guarantees and the URDG

Three- and four-party guarantees

149. A traditional guarantee involves three parties: an applicant that requests a guarantor to issue a guarantee in favour of a beneficiary (see Diagram 1 at paragraph 1 above). Where the beneficiary wishes to benefit from the undertaking of a guarantor that is located in the same country, a four-party structure is set up.

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In this structure, a counter-guarantor, acting upon the applicant’s instructions, instructs and counter-guarantees the guarantor, which issues its undertaking in favour of the beneficiary (see Diagram 3 at paragraph 33 above).

Two-party guarantees³⁵

150. In practice, other structures are also frequently found. For example, an exporter may ask a bank to guarantee the payment of the price due by the importer. In such cases, the exporter both applies for and benefits from the guarantee.³⁶ In addition, guarantors may act for their own account. This would be the case, for instance, where a head office of a company issues a guarantee covering the liability of a branch in the same country. Because both the head office and the branch are one and the same legal entity, the guarantee is a two-party guarantee in which the applicant and the guarantor are the same person (the situation is different where the branch is in a foreign country – see article 3(a)). Additionally, in certain legal systems with a common law tradition, the issue of a guarantee for the guarantor’s own account will typically give the beneficiary a stronger right than a mere claim under the underlying relationship. The issue of a cheque or other bill of exchange fulfils a similar function and illustrates this point.

151. Like the UCP and the ISP, URDG 758 specifically cover cases where guarantors and counter-guarantors act for their own account, that is, where they combine the role of applicant and guarantor or counter-guarantor. Article 2 defines “guarantor” as follows:

Guarantor means the party issuing a guarantee, and includes a party acting for its own account.

It also defines “counter-guarantor” as follows:

Counter-guarantor means the party issuing a counter-guarantee, whether in favour of a guarantor or another counter-guarantor, and includes a party acting for its own account.

Multi-party guarantees³⁷

152. Guarantees issued in favour of two or more beneficiaries by two or more syndicated guarantors, or for the account of two or more applicants, are not referred to in the URDG but are nonetheless compatible with these rules. Where such guarantees are issued subject to the URDG, rights and obligations ascribed in the rules to the “beneficiary” are to be considered as being ascribed to all beneficiaries, unless the guarantor is informed that one of the beneficiaries is to act as an agent or trustee for the other beneficiaries. Actions to be performed by

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the beneficiary towards the “guarantor” in cases where the guarantee is issued by multiple guarantors, such as presenting a demand, are to be made in a timely fashion to all the guarantors, unless the beneficiary is informed that one of the guarantors is acting as the agent for a syndicate of guarantors. This raises obvious difficulties, especially where the presentation of one or more original documents is required. Likewise, duties owed to the instructing party (such as providing information) have to be performed in favour of all instructing parties. Experience shows that unless the rights and obligations arising under each party’s role under a guarantee are vested in one party acting as an agent or trustee for the benefit of the other parties, disputes may arise as to which party owes, and which party is owed a duty. It is recommended that an agency or trust agreement is drafted among multiple parties of any one class to a guarantee or counter-guarantee before the guarantee is issued. The relationship between the parties to the agency, trust or other agreement falls outside the scope of the URDG.

Domestic guarantees and the URDG

153. Demand guarantees are the product of transnational transactions. Initially, their structure (direct and indirect guarantees), key principles and texts were fashioned in response to the problems and challenges that typically arise in international contracts. Yet practice shows that many of these problems regularly arise in guarantees issued in the context of domestic transactions as well. Issues that regularly arise in the life cycle of domestic guarantees, whatever the covered obligation, include the independence principle and its consequences, the presumption of irrevocability, the guarantor’s and counter-guarantor’s duties, the variation of amount, extend or pay demands, standards of examination of presentations, incomplete demands and many others. All of these issues can be settled by applying the relevant URDG rule. In short, because the URDG are contractual rules, it is open to the parties to domestic guarantees to incorporate them by reference in exactly the same way as in the case of international guarantees. Obviously, articles 21, 34 and 35 covering, respectively, the currency of payment, governing law and the competent jurisdiction will be of little relevance in purely domestic contracts.

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Non-bank guarantees and the URDG

154. Although the percentage of demand guarantees and counter-guarantees issued by banks substantially exceeds that issued by non-banks, it is open to non-banks to issue guarantees and counter-guarantees as well. Guarantees issued by parent companies in favour of creditors of their subsidiaries are commonplace in modern economies. In such cases, the same standard of examination has to be applied as to instruments issued by banks.

155. Contrary to the UCP, the URDG acknowledge various types of guarantors and do not restrict the definition of guarantor, counter-guarantor or advising party in article 2 to the performance of these roles by a bank. The only limitations on the above might result from provisions in the applicable law. Indeed, a number of national laws consider the regular issue of guarantees by non-banks to constitute illicit banking activity. Any such prohibition would obviously supersede the URDG.

Separate capacity of branches

156. Both the UCP (article 3) and the ISP (rule 2.02) allow branches of a bank that are located in different countries to act under a letter of credit in different capacities. For example, they can confirm and pay a credit issued by their head office or accept or negotiate documents presented under a credit issued by another bank. URDG 758 follow suit. Article 3(a) provides that branches of a guarantor in different countries are considered to be separate entities. This allows for a structure where Branch A in one country issues a guarantee against a counter-guarantee from Branch B of the same issuer in another country. Likewise, a guarantee could be issued by Branch A in one country and be advised to the beneficiary by Branch B of the same issuer in another country. Internal accounting or regulatory reasons may also lead a head office in one country to issue a guarantee in favour of its branch in another country to avoid the need to deposit funds with that branch to strengthen its capital base. Reasons for this may include the need to obviate the consequences of the branch’s insufficient working capital and allow it, through the issue of a head office guarantee, to extend new credit lines.

Standby letters of credit and the URDG

157. Standby letters of credit technically fall within the scope of URDG, but their issuers may find it more convenient to opt for the ICC Uniform Customs and Practice for Documentary Credits (UCP) or possibly the International Standby Practices (ISP), since standby letters of credit use mechanisms, including confirmation and payment by acceptance or negotiation of drafts, that are more akin to those utilized for documentary credits.

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Electronic guarantees and the URDG

158. The URDG have a wide scope. They apply to guarantees on traditional paper, i.e. guarantees printed on paper and mailed or handed to the beneficiary, as well as to electronic guarantees issued by tested telex, through the Swift messaging system (see paragraph 159 below), via the internet or by other electronic means. Two definitions in article 2 are relevant to electronic guarantees:

Authenticated, when applied to an electronic document, means that the party to whom that document is presented is able to verify the apparent identity of the sender and whether the data received have remained complete and unaltered.

Signed, when applied to a document, a guarantee or a counter-guarantee, means that an original of the same is signed by or on behalf of its issuer, whether by an electronic signature that can be authenticated by the party to whom that document, guarantee or counter-guarantee is presented or by handwriting, facsimile signature, perforated signature, stamp, symbol or other mechanical method.

The Swift messaging system

159. Swift is a fast electronic messaging system that transmits vast quantities of data across the world every day. Developed by the Society for Worldwide Interbank Financial Telecommunications (Swift), it is the near-universally used system for communicating the issue of a documentary credits and demand guarantees. Swift assigns each financial institution an eight- or eleven-character business identifier code (BIC), of which the first four characters denote the name of the institution, the next two characters the country code, the next two the location/ city and the last three (which are optional) the codes used by the institution to identify individual branches. Messages are classified by type, with documentary credits, demand guarantees and standby letters of credit falling within Category 7 of MT 760. The latest update was issued in August 2023. Each message type (MT) comprises a number of fields, or elements, such as transaction reference number, details of guarantee and so forth. It is important that an applicable field be completed. Field 40C requires identification of the applicable rules by selecting “URDG”, “ISP”, “OTHR” or “NONE”. Where “NONE” is selected, this is held to exclude the application of URDG 758 (ICC Banking Commission Opinion R865). ICC and Swift have recently unveiled the first industry-standard application programming interface (API) for bank guarantees and standby letters of credit, which is designed to facilitate seamless and structured data exchanges, making multi-bank interactions more efficient.

Electronic presentations

160. Where a guarantee or counter-guarantee is issued electronically, it needs to be authenticated (see paragraph 158 above). This means that the beneficiary, or the guarantor in the case of a counter-guarantee, is able to verify the apparent identity of the sender and whether the data received have remained complete and unaltered. Where a guarantee or counter-guarantee, or a document

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presented thereunder, is required to be signed, it means that an original of the same is to be signed. “Original” is not defined in the URDG, but the rule of interpretation in article 3(c) devised for electronic presentations can be of assistance in this regard:

Any requirement for presentation of one or more originals or copies of an electronic document is satisfied by the presentation of one electronic document.

161. Faxes are not regarded as originals and accordingly do not meet the requirement of presentation of a “signed” electronic document under the URDG. By contrast, Swift messages can be regarded as originals.

162. Similarly, a guarantee or counter-guarantee can require that a presentation be made electronically, including where the guarantee or counter-guarantee itself is in paper form. The rules require some electronic documents to be signed (as defined above), such as the demand for payment and a beneficiary’s statement of release of the guarantor. Furthermore, article 14(c) requires that a guarantee requiring an electronic presentation should specify the format, the system for data delivery and the electronic address for that presentation. Failing to do so allows a presenter to make any presentation in any electronic format that allows it to be authenticated (as defined above) or in paper form.

In summary

163. Because of their contractual nature, the URDG are extremely flexible. They can be adapted to the transaction at hand, whatever its complexity. In fact, the URDG offer a suitable operational framework for any situation where a demand guarantee is required, whatever the situation or the sector involved. Any demand guarantee or counter-guarantee can be a URDG guarantee or counter-guarantee if the parties so choose.

Interpretation of the URDG

164. This Guide is designed to provide a comprehensive analysis of the URDG, but questions that are specific to particular transactions inevitably arise. As various courts have held, the URDG are not to be treated as standard terms of contract that can be interpreted in accordance with national law but are to be given an autonomous interpretation as an internationally recognized set of rules. There are two main sources of interpretative guidance within the International Chamber of Commerce. The first is the ISDGP, which contains valuable guidance on demand guarantee practice. This is supplemented by the Official Opinions of the ICC Banking Commission, which are drafted by technical advisers who also deal with informal queries submitted by users of ICC uniform rules. A rapid dispute resolution procedure is provided by the ICC DOCDEX rules, which are administered by the International Centre for Amicable Dispute Resolution (ADR) and used to resolve disputes arising from documentary instruments guided by the technical advisers. The technical advisers operate under the aegis of the ICC Banking Commission’s Executive Committee.

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