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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Professor Sir Roy Goode KC and Professor Dr. Georges Affaki
Appendix 2
International Standard Demand Guarantee Practice (ISDGP) for URDG 758
International Chamber of Commerce (ICC)
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Publication date: October 2022
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Introduction
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.
While international standard practice in demand guarantees— which the ISDGP is intended to represent—is referred to in article 2 of the URDG in relation to the determination of a complying presentation, it may be used as a useful guide beyond the mere examination of documents, to cover all the stages in the lifecycle of a demand guarantee and counter-guarantee. Collected during over a decade of the application of the URDG in thousands of transactions identified by ICC members as international best practice in demand guarantees, but also from 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, and countless individual comments from practitioners across the world, have permitted a collaborative drafting of the ISDGP that is truly representative of international guaranteed practice. The standards listed in this publication span all types of demand guarantees, domestic and international, in all the sectors of trade and industry.
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 their rules. 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, not alone. Where examples are given in the ISDGP, these are solely for the purpose of illustration and are not 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 revision in URDG 758.
Over the past 30 years, courts and arbitral tribunals have been regularly referring to the URDG as a compendium of customs and usage in demand guarantees, even where the guarantee in dispute did not incorporate the URDG. In the same vein, it is expected that the ISDGP shall also offer guidance on best practice in demand guarantees even where the URDG are not specifically incorporated.
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
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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 in hand and their international and widespread character are evidenced. 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 later be published. 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.
For the avoidance of repetitions, terms used in the ISDGP carry the meaning ascribed to them in the URDG. In particular, “guarantee” means a demand guarantee and includes a counter- guarantee, and “guarantor” includes a counter-guarantor, unless otherwise stated in the relevant practice. Reference in the ISDGP to “article” followed by its number refers to the corresponding rule in the URDG unless otherwise indicated.
In this publication, the practices are classified in accordance with the successive steps of the lifecycle of a demand guarantee. An index at the end of the publication links each listed practice with the relevant articles of the URDG.
Acknowledgments
The co-chairs acknowledge the invaluable contribution to the ISDGP by all the members of the ICC Task Force on Guarantees led by Dr Andrea Hauptmann (Austria). The co-chairs express their immense gratitude to their colleague members of the ISDGP Working Group for their steadfast commitment to the drafting and discussion process throughout its duration. The members of the ISDGP working group are (in alphabetical order): Mazen Al-Ghanim (Bahrain), Laurence Bacon (Ireland), Sir Roy Goode (United Kingdom), Amr Kamal (Egypt), Elena Medvedeva (Russia), Caroline Pasture (France), Véronique Remilien (France), Rita Ricci (Canada), Christina Seierup (Denmark), Pradeep Taneja (India), Mireille Troosters (Belgium), Hou Yun (PRC) and Zhu Hongsheng (PRC). In addition, Glenn Ransier, Zhu Hongsheng and Amr Kamal drafted the concordance tables in pages 48 et seq.
Georges Affaki (France) and Glenn Ransier (USA)
Co-Chairs of the ISDGP Working Group
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A. Application of ISDGP
1. International Standard Demand Guarantee Practice (ISDGP) represents best practice in relation to guarantees governed by the Uniform Rules for Demand Guarantees, ICC Publication No. 758 (URDG), including guarantees issued before the ISDGP has been published. It highlights how the URDG are to be interpreted and applied in a guarantee in which they are incorporated by reference, apply as trade usage, or are established from a consistent course of dealing between the parties. Accordingly, the ISDGP need neither be incorporated in the guarantee nor expressly referred to therein.
2. The ISDGP is designed to be consistent with the URDG. It does not amend, and should be read in conjunction with the URDG.
3. Like the URDG, the ISDGP is subject to the overriding mandatory rules of the applicable law.
4. The practices listed in the ISDGP do not exhaustively codify international standard demand guarantee practice under the URDG. Other practices may be identified in particular cases and may apply to the relevant guarantee if they reflect international standard practice in demand guarantees.
5. The Official Opinions and Decisions of the ICC Banking Commission in relation to the URDG supplement the ISDGP.
6. The practices in the ISDGP that relate to a rule of the URDG that has been excluded in the guarantee do not apply to that guarantee, and those that relate to a rule modified in the guarantee apply only if they are consistent with the modified rule.
7. In the interpretation of the ISDGP, 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.
8. Similar to the case for the URDG, the authentic language of the ISDGP is English. In case of an inconsistency with a translation, the English version of the ISDGP shall prevail.
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B. Definitions
Applicant
9. The applicant is the party to the underlying relationship with the beneficiary, irrespective of the term used in that relationship to refer to the applicant. The applicant may also be the instructing party. Where they are different, the instructing party may be the parent or an affiliate of the applicant or another person with an interest in seeing the guarantee issued to permit the performance of an obligation in the underlying relationship.
10. Demand guarantees may be issued for more than one applicant, such as in the case of unincorporated partnerships or consortia where the partners jointly act as the applicant. Where the multiple applicants also act as the instructing parties, a guarantor may require all the instructing parties jointly and severally to undertake to indemnify the guarantor.
Application
11. The application does not necessarily form the entire agreement between the applicant or instructing party and the guarantor for the purpose of defining their reciprocal rights and obligations in relation to the guarantee. The application may be issued on a standalone basis, fall under a master agreement for the issue of several guarantees, or be part of general terms and conditions that apply to the broader business relationship between the applicant or the instructing party and the guarantor.
12. The application may take the form of a tripartite agreement between the applicant, the instructing party and the guarantor, or take any other form that evidences the applicant’s consent for the use of its name in the guarantee upon the instructions of the instructing party.
13. The beneficiary is not a party to the application and is not bound thereby notwithstanding that it may be referred to in the application or be conferred a role or a responsibility for any purpose, such as the liability for the payment of charges.
14. It is the responsibility of the instructing party to insert in, or append to, the application the terms it requires the guarantee to contain. A guarantor has no duty to control, interpret or otherwise investigate those terms unless it specifically so agrees.
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Authenticated
15. “Authenticated”, as defined in the URDG, means any process of verification assuring that an electronic document, record or data set is complete and unaltered, and is sent by the person that purports to be the sender. The URDG and the ISDGP do not express a preference for, or prohibit the use of, a particular electronic or digital means of exchange of documents or data.
16. Where a guarantee requires a presentation to be made electronically, such as by email, SWIFT or through other proprietary information technology systems, without requiring a specific verification process to meet the authentication requirement in the URDG, the presentation is deemed to be authenticated if it permits the guarantor to achieve all the following requirements:
17. The term “authenticated” may carry different meanings according to the applicable law or the standards of the particular messaging system used. The ISDGP is only concerned with the standard defined in article 2 for electronic documents under the heading ‘Authenticated’. The apparent authentication of paper documents is a matter for the parties’ agreement or the applicable law.
Beneficiary
18. Demand guarantees may be issued in favour of more than one beneficiary. An example is where a guarantee is issued in favour of unincorporated partnerships or consortia where each partner is to be considered a beneficiary. A guarantor may require the beneficiaries to agree on the appointment of one of them as agent or trustee on behalf of all the beneficiaries for all purposes relating to the guarantee, including a release of the guarantor, the acceptance of an amendment, or the presentation of a demand, whereupon the guarantee should identify that agent or trustee and define its role.
19. Guarantees that refer to a class of an unspecified number of beneficiaries that are not individually named, such as “the
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minority shareholders of company X” are uncommon and do not reflect best practice in demand guarantees. Where such a situation arises, an agent or trustee should be appointed to represent the class.
Business day/business hours
20. Business day should not be confused with calendar day. A business day refers to a day when a guarantor is regularly open for business for the acts of processing guarantees. If a guarantor is open on other days to perform non-guarantee- related business, those days do not count as business days as defined by the URDG.
21. A business day is determined by the local law and practice at the place of business where an act of a kind subject to the URDG is to be performed. Where the guarantee is issued by a branch of the guarantor, the law at the place of business of that branch shall determine what a business day is. If the guarantee provides that an act of a kind subject to the URDG, such as a presentation, shall happen at a place other than the guarantor’s or the issuing branch’s place of business, then that other place shall be considered for the purpose of determining a business day.
22. If the processing of guarantees is outsourced to a place other than the place of business of the guarantor without, however, indicating that presentation shall happen at that outsourced place, only the place of business of the guarantor, or the issuing branch, shall be considered for the purpose of determining a business day.
23. The URDG do not define business hours. Unless a guarantee indicates the business hours of a guarantor during which an act indicated in the guarantee is to take place, including a presentation, a business day is considered a standard 24-hour period, e.g. 00:00:00 to 23:59:59, in the time zone of the guarantor.
24. Where a guarantee permits electronic presentations without indicating that a demand must be presented a specific number of days or hours before the expiry date, a demand may be presented electronically until 23:59:59, in the time zone of the guarantor, of the day specified in the guarantee as the expiry date.
25. If the guarantee requires presentations in paper form or is silent about the form, the beneficiary bears the risk that the guarantor’s office may be closed outside of business hours.
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Charges
26. In the URDG, charges is a term used to cover any commissions, fees, costs, expenses, however they may be referred to in the guarantee where they accrue in relation to services provided by a guarantor, a counter-guarantor, an advising party or a second advising party in relation to a guarantee. Although the definition of ‘Charges’ in article 2 refers generically to “any party acting under a guarantee”, the URDG are not meant to apply to charges that may be due to a presenter, even if the guarantee or the application refers to such charges.
27. It is best practice that the party which is liable for the charges is identified in the guarantee. Absent an agreement otherwise, article 32(b) applies.
28. Charges should be claimed, settled or set off without delay, unless a deferred date is agreed between the party owing the charges and its creditor. Claiming charges owed under the guarantee within 60 days following the day of the termination or expiry of the guarantee is consistent with international standard practice in demand guarantees. Claiming charges beyond such a period is not necessarily in conflict with such international standard practice but may lead to unnecessary delays and internal costs for the charge debtor.
29. A party which is owed charges in relation to an act that it had accepted to undertake under a guarantee should not withhold the performance of that act pending the settlement of those charges.
Complying presentation
30. A complying presentation is not limited to a demand. It also includes all presentations made under a guarantee. Examples include a presentation to decrease the guarantee amount or to trigger effectiveness or expiry.
Counter-guarantee
31. Multiple, successive counter-guarantees may be issued back-to-back as may be necessary to cover and indemnify a guarantor that is instructed to issue a guarantee. Each counter-guarantee in the connected chain is a “counter- guarantee” as defined in article 2, is independent of the other counter-guarantees, and is subject to its own terms.
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32. There is no requirement that the issue of a counter- guarantee subject to the URDG is restricted to a situation where it is preceded or followed in the counter-guarantee chain by another counter-guarantee or guarantee also subject to the URDG. The preceding counter-guarantee or the following counter-guarantee or guarantee may be an independent guarantee that is not subject to the URDG, an accessory suretyship, or a standby letter of credit. The issue of back-to-back counter-guarantees and guarantee that are not all independent guarantees is not best practice in demand guarantees.
33. The incorporation in a counter-guarantee of a set of rules other than the URDG, such as the Uniform Customs and Practice for Documentary Credits (UCP) or of the International Standby Practices (ISP), is deemed to be an exclusion of the URDG in that counter-guarantee. In such a situation, article 1(b) shall not apply and the counter- guarantee shall not become subject to the URDG as a result of the counter-guarantor requesting the guarantor to issue a guarantee subject to the URDG. The issue of back-to-back counter-guarantees and guarantee that are not uniformly governed by the same set of rules should be carefully considered as it may lead to an inconsistent treatment of each guarantee.
Demand
34. A demand includes any document, however titled, signed by the beneficiary that permits to infer that the beneficiary is demanding payment under the guarantee. To be considered a complying demand, a demand must in addition meet the requirements of a complying presentation.
Guarantor
35. Any legal or natural person may issue a guarantee under the URDG, for any purpose, and in consideration of any underlying international or domestic relationship. Issues of licensing and authority are matters for the applicable law and outside the scope of the URDG.
36. A guarantee may be issued by multiple guarantors, whereupon best practice should lead to the identification in that guarantee of one of the guarantors to act as agent or trustee of all the guarantors and to the definition of its role.
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Guarantor’s own records
37. The definition of ‘Guarantor’s own records’ in article 2 is confined to records of amounts credited to or debited from accounts held with the guarantor, including its branches in the same country. Records of other operations involving the guarantor or its branches do not fall within the scope of a ‘Guarantor’s own records’, as defined in the URDG, even if the guarantee refers to those other operations. An example is where the guarantee refers to its coming into effect upon the issue of a letter of credit. This situation would not fall within the scope of ‘Guarantor’s own records’, as defined in the URDG, even if the guarantor, or one of its branches, is issuing, confirming or advising that credit.
38. Amounts credited to or debited from accounts held with branches of the guarantor within the same country fall within the definition of the guarantor’s own records. Conversely, branches in different countries are deemed to be separate entities as indicated in article 3(a). Records showing movements on an account held with a branch abroad do not fall within the scope of a ‘Guarantor’s own records’ even if the guarantor has a centralised data system permitting the control of all credits and debits involving its branches abroad.
Instructing party
39. The interaction between the applicant and the instructing party is outside the scope of the URDG. If the applicant is not the instructing party, the guarantor is expected to follow the instructions of the instructing party for all purposes relating to the guarantee, unless the guarantor, the instructing party and the applicant have agreed otherwise.
40. Where the guarantee is issued upon the instructions of more than one instructing party, such as in the case of unincorporated partnerships or consortia, the guarantor should consider requiring the multiple instructing parties to enter into an agreement appointing one of them to act as agent or trustee on behalf of all of them for all purposes relating to the guarantee, including the waiver of discrepancies in a presentation.
Presenter
41. A presenter of a document required in the guarantee need not be the applicant or the beneficiary nominated in that guarantee. The presenter could include the applicant or a
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subsidiary or an agent thereof, the beneficiary or a subsidiary or an agent thereof, a bank, an insurance company, or any other nominated person.
42. Where the guarantee nominates a specific person for the purpose of making a presentation, the guarantor shall determine whether the person making the presentation appears to be the nominated presenter from the face of the documents presented. The URDG do not require the guarantor to verify the authority of the presenter to act on behalf of the applicant or the beneficiary.
43. A presenter on behalf of the applicant or the beneficiary does not become a party to the guarantee by the mere act of making the presentation.
Signed
44. “Signed” is broadly defined in the URDG, covering various forms of signature in paper form and an electronic signature that can be authenticated. For example, in the case of a presentation in electronic form, an authenticated SWIFT message shall be deemed to be a signed document for the purpose of the URDG.
45. Absent a specific requirement in the guarantee, the URDG only require the following documents to be signed: the guarantee, any amendment, any demand (including an extend or pay demand), any of the statements required under article 15, a release from liability, and the transferor’s statement that the transferee has acquired the transferor’s rights and obligations in the underlying relationship.
A guarantee may require other documents to be signed, whereupon the definition of “signed” in article 2 shall apply, unless indicated otherwise.
Other terms not defined in the URDG
46. 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.
47. “Unconditional” is sometimes used in practice to emphasise the rigour of the guarantor’s undertaking to pay on demand. It is an ambiguous term and is technically incorrect where guarantees subject to the URDG are concerned. This is because every guarantee requires one condition at a minimum, namely, that a complying demand is presented
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before expiry. When used, the term “unconditional” should be considered as synonymous with “independent” as defined in article 5, unless the context of the particular guarantee permits to infer otherwise.
48. “Without delay” and “Immediately” are terms used, but not defined, in the URDG. These terms should be understood in their normal meaning of an act being performed without an undue lapse of time.
C. Drafting the guarantee
General drafting considerations
49. The terms recommended in article 8 for drafting guarantees are not a prerequisite failing which the guarantee becomes invalid or unenforceable.
50. References in the guarantee to the definitions provided in the underlying contract for the purpose of giving similar terms in the guarantee the same meaning ascribed to them in the contract should be avoided, as they risk establishing an accessory connection with that contract. It is better practice for those terms to be defined in the guarantee itself even if identical terms are used.
51. The majority of guarantees are issued for a determined amount, generally expressed as a maximum amount. Guarantees providing for the guarantor to perform an obligation other than one consisting of making payment, such as replacing the defaulting contractor in the completion of the works or procuring a replacing contractor, are not guarantees within the scope of the URDG, even if they are stated to be “on demand” or subject to the URDG.
Reference to the underlying relationship
52. As is recommended in article 8, and drafted in both the Form of Demand Guarantee under URDG 758 and the Form of Counter-Guarantee under URDG 758 appended to the URDG, it is best practice in demand guarantees that the guarantor refer in the guarantee to the underlying contract(s) in consideration of which the guarantee is issued. Amongst many reasons making that reference compelling, it enables a guarantor or counter-guarantor who has issued two or more guarantees to the same party to identify the instrument under which the demand is made and avoids the risk of an inadvertent or unfair demand being prompted by a breach by the applicant under a different contract.
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53. A reference to the underlying relationship in the guarantee does not affect the independence of that guarantee as affirmed in article 5. However, references made in the guarantee to the underlying relationship in terms such that any operative part of the guarantee becomes predicated on the occurrence of an event under the underlying relationship should be avoided as they may lead to the recharacterisation of the demand guarantee as an accessory suretyship. That would be the case where terms are drafted in the guarantee to the effect of conditioning (a) payment upon establishing a breach in the underlying relationship, or (b) expiry upon the satisfactory performance of the underlying relationship.
Use of generic terms to describe an issuer of a document
54. Generic terms used to describe an issuer of a document are imprecise and may be misunderstood. For example, references to a “first class bank” or a “well-known international bank” are subjective references. They do not necessarily entail that the relevant bank is solvent or credit-worthy. It is best practice that they are avoided.
If they are used, article 3(f) applies with the result that any bank can issue the required document. It is better for guarantors to indicate the function of the issuer of the document, e.g. law firm, inspection company, and the like, whereupon the guarantor only needs to verify that the document refers on its face to that function.
Expiry terms
55. When the Parties contemplate including multiple expiry possibilities in the guarantee, it is critical to define a precise order of priority amongst the listed expiry possibilities.
In the following example:
“Expiry shall occur:
a) If the applicant is the successful bidder, upon our receipt of copies of XXX documents; or
b) If the applicant is not the successful bidder as stated in the beneficiary’s notification to the applicant of the result of the bidding process, upon the earlier of:
(i) Our receipt of a copy of the beneficiary’s notification to the applicant of the result of the bidding process, or
(ii) 28 days after the end of the bid validity, i.e. [insert the exact calendar date]”,
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a demand could be presented indicating that “the applicant is the successful bidder” after the guarantee has expired due to the provision cited in (b)(ii) in the example. A better drafting would take the following form:
“This guarantee shall expire upon the earlier of:
a) our receipt of copies of XXX documents; or
b) our receipt of a copy of the beneficiary’s notification to the applicant of the result of the bidding process indicating that the applicant’s bid was not selected; or
c) on [insert the exact calendar date].”
56. National laws and local practices may ascribe a different meaning to numeric date formats. For instance, “4/5/ [xxxx]” could mean 4 May or 5 April according to the country. It is recommended to write dates in numeric and in word form, e.g. “4 May [xxxx].”
57. The URDG do not address the issue of the release by the guarantor of collateral procured from the instructing party, following the beneficiary’s release of the guarantor for all or part of its liability. This is a matter left to the parties’ agreement or to the applicable law.
Governing law
58. The URDG are standard terms of contract. They are not a law; they apply alongside the national law or laws, or the non-statutory rules of law, chosen by the parties in the guarantee or determined pursuant to article 34. Absent a choice of the governing law by the Parties, that law shall be determined pursuant to article 34.
59. Because the guarantee is independent of the counter- guarantee, the law governing one of them cannot automatically be deemed to also apply to the other. Article 34 offers the parties the possibility to choose the same national law, or rules of law, in the guarantee and in any counter- guarantee. The governing law chosen by the parties could be the law of any party in the chain of guarantee/counter- guarantees, that of a party to the underlying relationship, that of a third country, or the general principles of law.
60. Where the law of the location of the guarantor’s branch or office that issued the guarantee applies pursuant to article 34, that law should apply throughout the lifecycle of the guarantee unless otherwise amended. In instances where a guarantor relocates its premises to a different location where the applicable law differs from that of the place
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of issue, the law of the place of issue remains applicable unless the guarantee is amended to adjust the governing law to the new location of the guarantor.
Jurisdiction
61. A choice of the law governing the guarantee does not subsume a choice of the competent jurisdiction. The court with jurisdiction shall be determined pursuant to the parties’ choice in the guarantee or, absent a choice, pursuant to article 35.
62. Because the guarantee is independent from the counter- guarantee, the court or arbitral tribunal with jurisdiction on one of them cannot be deemed also to have jurisdiction on the other.
63. For the sake of consistency of the remedies throughout the chain of guarantee/counter-guarantees in case of a dispute at any level, article 35 offers the parties the possibility to choose the same competent court, or arbitration system, in the guarantee and in any counter-guarantee. That court could be the court of the place of business of any party in the chain of guarantee/counter-guarantee(s), that of a party to the underlying relationship, or that of a third country. It can also be any arbitration system, wherever the place of arbitration may be.
64. When a guarantor issues a guarantee that does not specifically confer jurisdiction on a specific court but, instead, relies on article 35 to confer jurisdiction upon the competent court in the country of the location of the guarantor’s branch which issued the guarantee, that competent court remains unchanged throughout the lifecycle of the guarantee unless otherwise amended. In instances where a guarantor relocates its premises to a different location outside the territorial jurisdiction of the initial court, the competent court of the place of issue retains its jurisdiction on the guarantee unless it is amended to change jurisdiction to another court or to opt for arbitration.
Exclusions
65. 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 expressly so indicate in the guarantee.
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66. 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, the presumption is that the beneficiary can only present one complying demand, whether for all or part of the available amount.
D. Issuing the guarantee
When is a guarantee ‘issued’?
67. The creation of the guarantee in the guarantor’s internal system and its signing by any authorised signatory does not mean that the guarantee is issued, for it has not left the control of the guarantor.
68. Once a guarantee has left the control of the guarantor, it is deemed to have been irrevocably issued, even if the guarantor has mistakenly allowed it to leave its control by any means or if its issue does not comply with the internal hierarchical approval process according to the guarantor’s internal control system.
69. A guarantee shall not be deemed to be issued if the beneficiary has obtained a copy thereof from the applicant or from any other person before the guarantor has issued the original, signed guarantee.
70. For the purpose of article 4(a), control is not restricted to the physical possession of the guarantee. The guarantor’s transmission of the original, signed guarantee in paper form to its agent, with instructions for transmission to the beneficiary, does not meet the requirement for issue, as the agent acts under the guarantor’s control. Unless otherwise specified in the guarantee, external legal counsel representing the guarantor and courier companies entrusted with the delivery of the guarantee are generally deemed to be an agent of the guarantor, whilst the applicant or the instructing party is not the guarantor’s agent.
71. In accordance with article 15 and article 4(c), a beneficiary is permitted to present a demand from the time when the guarantee leaves the guarantor’s control.
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E. Advising a guarantee
72. If the advising party nominated in the application is not a correspondent of the guarantor, the guarantor may:
73. A person requested to advise a guarantee is not required to act accordingly unless it has agreed to do so. However, when that person accepts to advise the guarantee, it is best practice for it to inform the guarantor without delay when it has advised the guarantee to the beneficiary.
74. An advising party advising a guarantee directly to the beneficiary or, if so authorised by the guarantor, by instructing another advising party to do so, must not change any terms of the guarantee.
75. In accordance with article 10(c), there is no duty for any advising party to review the terms of the guarantee for the purpose of ensuring effectiveness, coherence, enforceability, the absence of conflicting terms, or the like, or to address matters such as the credit standing of the guarantor.
76. A bank-to-bank type instruction that may be contained in the request for advice of a guarantee need not be advised to the beneficiary, for such an instruction is not considered to be part of the guarantee. Examples include the authorisation of the guarantor to debit a counter- guarantor’s account; instructions on how to forward a guarantee. Any variation of those terms is a matter for the banks, and the beneficiary need not consent thereto.
77. Where an advising party no longer wishes to continue in that role, it should inform the guarantor, whereupon the guarantor may either:
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F. Amendments
78. Any change made to the terms of the guarantee is deemed an amendment, regardless of the title used or the purpose of the change.
79. If the guarantor proposes an amendment to the beneficiary without being instructed by the instructing party, the amendment is binding on the guarantor and shall be effective if it is accepted by the beneficiary, but may affect the guarantor’s recourse against the instructing party. This is not changed by the amendment being either prompted by the guarantor’s choice or duty to comply with a law applicable to it, or by the amendment benefiting the position of the instructing party.
80. Where a guarantee provides for an automatic amendment in its terms upon the advent of a date or the occurrence of an event, such as in the case of a reduction clause or of the automatic extension of the validity period, article 11(b) shall be superseded and the amendment shall take effect automatically without the need to seek the beneficiary’s agreement.
81. If a beneficiary is simultaneously notified of multiple separate amendments, each amendment stands as a separate amendment, and the beneficiary may accept or reject any amendment, in its totality, in any order of the notified amendments that the beneficiary may choose. The guarantor’s consecutive numbering of the successively- issued amendments to the guarantee is consistent with international standard practice in demand guarantees.
G. Presentation
Premature presentation
82. A demand that is presented before the occurrence of a date or event indicated in the guarantee pursuant to article 4(c) is untimely. If such a demand is presented, it must be rejected pursuant to the process set out in article 24.
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To whom presentations may be made?
83. A presentation may be made only to the guarantor.
A presentation made to an advising party or to a second advising party does not comply with the requirements of article 14(a). However, a presentation may be transmitted to the guarantor through an advising party or second advising party, whereupon it shall be deemed to be made upon its receipt by the guarantor.
Presentations in electronic/digital form
84. Digital and electronic records may be considered as different. A digital record is one that exists only in a digitised form, such as a SWIFT message, whereas an electronic record may additionally encompass a copy of a paper document that is stored in an electronic form, such as a scanned copy. The reference in the URDG to electronic presentation or document must be read as also encompassing digital records unless the guarantee indicates otherwise.
85. The guarantee should state the name/type/version of system/platform/technology to be used and the electronic address to which the electronic presentation is to be delivered.
86. The data messaging rules published by SWIFT do not modify or override the URDG or the terms of guarantees that are issued through SWIFT. In particular, the use of a SWIFT message type outside the intended purpose assigned by SWIFT to that category of message type does not have, as far as the URDG are concerned, any detrimental effect on the undertaking of the guarantor which has issued its guarantee through the SWIFT system.
87. A guarantee that requires or permits presentations to be made using a SWIFT message should specify the guarantor’s SWIFT address.
88. A guarantee that requires or permits a presentation to be made using an authenticated SWIFT message, but without excluding the use of any particular SWIFT message type, allows the presenter to use any message type stated by SWIFT to be an authenticated message type if that message is delivered to the correct recipient on or before any required due date.
89. Where the guarantee requires the use of a specific authenticated SWIFT message type, only that message type may be used in connection with the guarantee, unless, at the time when the presentation is to be made, that
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message type is no longer available for use for the purpose for which the requirement was made, whereupon any other authenticated message type may be used.
90. If, outside SWIFT, a bank has provided access to the beneficiary to use the bank’s own proprietary system to upload the required data, the guarantee should specify the name of the system and, if relevant, its version number.
Original/Copy of a document
91. Guarantees seldom require the presentation of original documents other than the supporting statement under article 15(a) or (b). The URDG do not define when a document constitutes an original or a copy of an original. A guarantee requesting a copy of an original document is deemed to allow the presentation of an undated or unsigned document, including unsigned copies, and/or photocopies of signed or unsigned original documents, faxes or e-mail printouts.
92. If a guarantee requires the presentation of an original document without defining that term, the guarantor shall treat as an original any document bearing an apparently original signature, mark, stamp, label of the issuer of the document or another characteristic feature of an original document, unless the document itself indicates that it is not an original. The guarantor shall also accept a document as original if it:
93. Guidance in relation to what constitutes an ‘original document’ may also be found in the official opinions issued by the ICC Banking Commission under the Uniform Customs and Practice (UCP) from which the ISDGP draws the standards for original documents.
94. If a guarantee requires presentation of copies of originals, presentation of either originals or copies of originals is permitted.
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95. If a guarantee requires presentation of multiple documents by using terms such as “in duplicate”, “in two fold” or “in two copies”, this shall be satisfied by the presentation of at least one original document and the remaining number in copies.
96. The URDG do not require that the original guarantee issued in paper form be presented to the guarantor for expiry or in support of a demand, nor should the guarantee so require. If the guarantee so requires, the original letter of guarantee that had been delivered in paper form to the beneficiary must be presented, with no copy of that original guarantee being substitutable thereto. In that case, there is no need for any amendments to be presented in original or in a copy unless so required in the guarantee.
97. If the guarantee requires the presentation of the original letter of guarantee in paper form and that original is no longer available to the beneficiary for any reason, the guarantor should issue a duplicate original upon the request of the beneficiary and is entitled to require an indemnity from that beneficiary in terms acceptable to the guarantor. It is best practice that the duplicate guarantee indicate that it is a duplicate original and that the original copy is null and void.
98. Where a guarantee requires that presentations shall be made in electronic form and shall include an original of the letter of guarantee, without indicating that the presentation of the paper original of that letter of guarantee is required, the beneficiary satisfies its obligation where an electronic copy of the guarantee is presented to the guarantor by any means that meets the requirements for authentication as set out in article 2.
99. Any requirement for submission of one or more originals or copies of an electronic record is satisfied by the submission of one electronic record.
100. The transmission of a copy of a complying demand to the counter-guarantor under article 22 is neither a presentation for the purpose of article 14 nor a demand under the counter-guarantee. Accordingly, the guarantor is permitted to transmit in electronic form a copy of the beneficiary’s complying demand under article 22 even if the guarantee indicates that a presentation or demand is to be made in paper form.
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Identification of guarantee under which a presentation is made
101. To avoid delaying the time for the start of the examination of a presentation indicated in article 20, a presentation shall identify the guarantee under which it is made.
Documents to be approved or countersigned by an applicant
102. Terms in the guarantee requiring that a document must be approved or countersigned by the applicant for entry into effect, increase of amount, or payment purposes, do not reflect international standard practice in demand guarantees and should be avoided. If such terms are provided in the guarantee, they must be complied with.
H. Demands
Supporting statement(s) under article 15(a) or (b)
103. A statement presented for the purpose of article 15(a) or (b) may be inserted within the text of the demand or be provided in a separate document accompanying the demand.
104. A demand and any separate statement must be signed by the beneficiary. When the demand and the supporting statement are combined, the document requires only a single signature.
105. Unless the guarantee requires specific terms to be used in the statement required in article 15(a), the beneficiary has the discretion to use any terms that convey the nature of the breach in the underlying relationship.
106. Article 15(a) does not provide any limitation of the detail required for a supporting statement. It is best practice that the supporting statement is precise and concise.
107. Where a counter-guarantee does not vary the effect of article 15(b), the guarantor need not provide a statement of breach with its demand under the counter-guarantee; it only needs to indicate in its demand that it has received from the beneficiary a complying demand under its guarantee. The guarantor’s duty to transmit to the counter- guarantor a copy of the beneficiary’s complying demand and of the statement of breach is separate, arises under article 22, and has no influence on the counter-guarantor’s determination of the compliance of the demand under the counter-guarantee and ensuing payment obligation.
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108. If, in addition to its demand under the counter-guarantee, the guarantor transmits to the counter-guarantor pursuant to article 22 a copy of the beneficiary’s demand before the earlier of:
a. the counter-guarantor’s determination that the demand under the counter-guarantee is complying, and
b. the expiry of the time period in article 20(a), the counter-guarantor shall also examine the beneficiary’s demand as transmitted. Where the counter-guarantor finds that, contrary to the guarantor’s statement under article 15(b), the beneficiary’s demand is not a complying demand, it shall reject the demand under the counter-guarantee although it appears on its face to be a complying demand. The counter-guarantor shall not be prevented from refusing to make payment under the counter- guarantee although it may have determined the guarantor’s demand to be complying or that the time period in article 20(a) has expired.
109. The exclusion terms proposed in article 15(c) is an example. If a guarantee does not expressly exclude article 15(a) and requires the presentation of a “demand in writing accompanied by a written statement stating that the Applicant is in breach of its obligations under the Contract, without the need for the beneficiary to prove or to show grounds for its demand or the sum specified therein”, the exclusion is effective and the supporting statement need not indicate in what respect the applicant is in breach of its obligations under the underlying relationship.
110. Article 15(a), but not the rest of the URDG, should be excluded where the payment of a guarantee is not predicated upon an applicant’s breach, even where no evidence of such a breach is required. That might be the case in so-called “direct-pay” undertakings, sometimes used in support of the issue of securities, where the guarantor undertakes to redeem the securities at maturity without the need for the issuer first to default.
Form and content of demand
111. Demands may be issued by the beneficiary in any form with or without a title, or without including the word “demand” if another similar term conveying the meaning of demanding payment is used. In addition to any other requirements in the guarantee, a demand must satisfy the following conditions to be a complying demand:
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a. be an original and signed by the beneficiary or another person who establishes to the guarantor its entitlement to act as the beneficiary’s agent;
b. be dated on or after the date the beneficiary has become entitled to present the demand pursuant to article 4(c);
c. include or be accompanied by the statement required in article 15(a) or (b) as may be the case, unless the statement requirement is excluded pursuant to article 15(c); and
d. indicate the amount claimed.
112. The amount claimed in the demand may be written in numbers and/or in words. Where a demand includes numbers and words, the amounts must be consistent. In case of an inconsistency, the demand is non-complying.
113. A demand should indicate the full bank account details on which the beneficiary requests that payment be made by the guarantor. If those details are missing or incomplete, the time period for payment mentioned in paragraph 160 below will be delayed.
Date of demand
114. If the guarantee provides that a demand may only be presented after a set period has elapsed after the breach, the demand and the statement must only be presented, and dated, after that period has elapsed. For the calculation of that period, the guarantor shall rely on the date of the breach indicated in the demand or in the supporting statement.
115. No demand or statement may be presented on a date earlier than the date of issue of that demand or statement as indicated on their face. If such a demand is presented, it is non-complying and the rejection process set out in article 24 shall apply. A guarantor that agrees to keep such a demand in trust beyond five business days following the day of presentation, until the date marked on its face as the date of issue occurs, is at risk of being precluded from rejecting the demand pursuant to article 24(f).
Partial demand and multiple demands; amount
116. It is recommended to issue guarantees allowing for partial demands. Article 17(a) makes this the default position. Where a partial complying demand is made, other demands may be made for the remainder of the guarantee amount.
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However, where the guarantee prohibits multiple demands, no further demands may be made for the remainder of the guarantee amount.
117. When multiple demands are made in a single presentation, each demand must be accompanied by its ascribed supporting statement and any other required documents, whereupon each demand shall be examined separately within the time period stated in article 20(a) to determine if it is a complying demand.
118. Where the amount indicated in the demand, and potentially in the statement under article 15, is higher than the amount stated in another required document, such as a copy of an unpaid invoice, the demand is a non-complying demand and must be rejected pursuant to the process set out in article 24. In particular, the guarantor has no authority to elect to pay the lesser amount even if so requested by the beneficiary and regardless of whether the guarantee permits partial demands. Conversely, a demand made for an amount less than the amount stated in a required document is not, for that reason alone, a non-complying demand.
Corrected presentations, including demands
119. When a demand is rejected as a non-complying demand, the beneficiary is allowed to correct the presentation by presenting a new demand before expiry, even if the guarantee excludes article 17(b).
120. The presentation of a new demand correcting the discrepancies in the initial demand does not extend the validity period of the guarantee. A new examination period of five business days shall commence on the day following the day of the new presentation.
121. If, before the guarantor has determined whether a demand is a complying demand, the beneficiary presents a new demand purporting to correct discrepancies it has identified in its initial demand:
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business days following the day of presentation of each demand. If the guarantor determines that the first demand is a complying demand, it need not continue its examination of the subsequent demand if payment of the first demand exhausts the available guarantee amount. The same applies if the new demand is received after the guarantor has examined the first demand and determined both that it is a complying demand and that its payment exhausts the available guarantee amount.
I. Extend or pay demand
122. An extend or pay demand must include a complying demand for payment for the guarantor to be compelled to make payment if the extension requested by the beneficiary is not granted upon the expiry of the suspension period. To that end, the extend or pay demand must be accompanied by the statement required in article 15 and any other documents specified in the guarantee.
123. An extend or pay demand should indicate the precise period for which an extension is requested. If it does not, the guarantor, having determined that the demand is a complying demand and decided to suspend payment pursuant to article 23(a), should query with the beneficiary the duration of the requested extension. Absent a reply by the beneficiary indicating the requested extension period, the guarantor may approach the instructing party or, in the case of a counter-guarantee, the counter-guarantor, for instructions as to the extension period. If, by the end of the suspension period, the guarantor has not been informed by the beneficiary, the instructing party or counter-guarantor of the extension period requested by the beneficiary, the guarantor may treat the demand as being made for payment only.
124. A beneficiary is not entitled to present a demand offering the guarantor the option between making payment or holding the claimed amount for value. “Hold for value” options are generally considered to mean that the beneficiary has crystallised its entitlement to the guarantee amount by presenting a complying demand, but has elected to keep the amount in trust with the guarantor. This practice or guarantee term is outside the scope of the URDG.
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Examination and suspension
125. When the beneficiary makes a demand that includes a request to extend the guarantee or to pay all or part of its amount, the guarantor must determine whether the demand is a complying demand within five business days following the day of presentation.
126. The suspension period provided in article 23(a) commences on the day following the day of presentation of the extend or pay demand to the guarantor, not from the determination that the demand is complying.
127. It is best practice in demand guarantees that the guarantor inform the beneficiary that it has elected to suspend the payment of the complying extend or pay demand for the period indicated in article 23(a).
128. A beneficiary cannot condition its extend or pay demand upon an extension being granted within a time period different from the one indicated in article 23(a), unless the guarantee provides otherwise. The same applies to a guarantor presenting an extend or pay demand under a counter-guarantee.
129. The reference to ‘calendar days’ in article 23(a) means that the 30-day suspension period may start to run or end on a non-business day at the place of issue. However, if the suspension ends on a non-business day, it shall be extended to the first following business day.
130. Whenever the guarantor determines that an extend or pay demand is not a complying demand, it must provide its notice of rejection in accordance with article 24.
Repeating a demand during the suspension period
131. When a complying extend or pay demand has been presented for the available guarantee amount and the guarantor has elected to suspend payment pursuant to article 23(a), the beneficiary cannot make a new demand for payment or one with a different extension option; it must await the decision of the guarantor whether to grant the requested extension.
132. Notwithstanding the prohibition of multiple demands in a guarantee, if the guarantee is extended following the presentation of a complying extend or pay demand, the beneficiary may present a new, separate demand for payment, or one with an extension option, at any time, prior to the new expiry date.
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133. Where the guarantee does not exclude article 17(a), the presentation of a complying extend or pay demand for less than the full available guarantee amount does not prevent the beneficiary from presenting another demand for the rest of the available guarantee amount without the need to wait for the decision of the guarantor on the first demand, unless the guarantee prohibits multiple demands. That additional demand may be either another extend or pay demand or a demand for payment.
Suspension period by counter-guarantor
134. In line with the rationale underlying article 22, article 23(b) does not permit the counter-guarantor to require the transmission of a copy of the extend or pay demand received by the guarantor in order for the counter- guarantor to decide whether to suspend the counter- guarantee and, if so, the duration of the suspension period.
135. When presenting a demand pursuant to article 23(b), the guarantor should inform the counter-guarantor of the period for which it suspended payment under the guarantee pursuant to article 23(a). If it does not, the counter-guarantor should query that information with the guarantor. The guarantor’s omission to inform the counter- guarantor of that period cannot be a basis for a refusal of either the extension or the payment of a complying extend or pay demand under the counter-guarantee.
No need to repeat or update demand
136. If, after suspension, the guarantor does not extend the guarantee for the period requested in the extend or pay demand, payment must be made for the full amount of the demand. It follows that the beneficiary need not reiterate its demand, present a fresh demand, or provide an update of any statement or document attached thereto, even if the document was issued for a limited period that expired by the end of the suspension period, such as an official certification valid for a limited period.
No interest on suspension period
137. The beneficiary is not entitled to interest or similar delayed payment compensation during the suspension of payment period decided by the guarantor pursuant to article 23(a).
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J. Examination
Standard for determination of compliance
138. To determine whether a presentation is complying, a guarantor must examine the presentation against the three standards set out in the definition of complying presentation in article 2, in the order in which they appear in that definition. Accordingly, no presentation shall be deemed a non-complying presentation for inconsistency with the URDG or international standard demand guarantee practice if it complies with the express terms of the guarantee. Article 15(c) and article 25(c) prevail over conflicting terms in the guarantee unless those articles are expressly excluded in the guarantee.
139. In determining compliance, a guarantor may not rely on resources or verify facts other than those specifically provided in the guarantee or from the guarantor’s own records or an index specified in the guarantee as indicated in article 7.
140. Article 7 requires that non-documentary conditions shall be deemed as not stated and shall be disregarded. That requirement is not overridden by the statement in article 12 that the guarantor is liable in accordance with the terms of the guarantee, including any non-documentary conditions therein included.
141. The definition of “complying presentation” in article 2 does not require literal compliance when examining a presentation. An apparent difference between a presentation and the terms of the guarantee does not automatically make that presentation a non-complying presentation when the terms used in the presentation appear on their face to convey the same meaning as that required in the guarantee. For example, the requirement for a statement in article 15(b) is satisfied where the party to whom the counter-guarantee was issued supports its demand with a statement indicating that the demand it has received contains no discrepancies.
142. Should a guarantee require the presentation to contain specific terms by quoting those terms between quotation marks or referring to an attached form, the terms in the presentation must reproduce the terms required in the guarantee. The beneficiary’s adding terms or figures in any spaces included for completion purposes in the area between the quotations or in the attached form does not make the presentation a non-complying presentation.
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143. A guarantor cannot imply into the terms of the guaranteed requirements for the compliance of a presentation that are additional to those terms. For example, where a guarantee refers to the underlying contract by date and number for identification purposes and, in the demand section, requires that a statement be presented stating: “The applicant is in breach of its payment obligation(s) under the contract for the deliveries during the period from 1st April until 20th August and the beneficiary fulfilled its delivery obligations during that period”, the guarantor may not reject as a non-complying document a statement that complies with the terms that appear in the guarantee between quotation marks but does not quote the contract’s date or its reference number.
Presenting non-required information in a required document / Presenting a non-required document
144. Information or documents in a presentation that are not required in a guarantee need not be examined for the purpose of determining whether the presentation is complying. The guarantor is required to examine all other documents required in the guarantee and included in the same presentation.
145. Where a required document includes non-required information that conflicts with the terms of the guarantee, the presentation is a non-complying presentation, even if the conflict arises with a non-documentary condition in the guarantee. For example, if a guarantee states a non- documentary condition as follows: “This guarantee is issued in consideration of contract No. 12345”, that term serves to identify the underlying relationship but is to be disregarded for examination purposes. However, where a presentation includes data referring to a different contract number in a document or statement required in that guarantee, e.g. the statement of breach presented by the beneficiary states that the demand for payment is in accordance with the terms of contract number 55555, the presentation is a non-complying presentation pursuant to article 19(b).
Recalculations
146. Where a guarantee provides that its amount shall vary according to a specific index, article 19(e) shall be superseded by article 13(b), with the result that the guarantor shall perform or control the calculations to determine the variation of the amount. Once the guarantor has determined the new amount reflecting the variation, any presentation must not exceed that amount.
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Typographical errors
147. Typographical errors which do not materially change the meaning of a term used in a presentation do not render the presentation non-complying. For example, a statement stating “fnal acceptance certificate” instead of “final acceptance certificate” should not be rejected for the missing “i” alone. However, not all typographical inconsistencies are immaterial. For instance, when a guarantee requires a document to state a contract number(s), the contract number is expected to appear on the face of the required document as stated in a guarantee.
148. The use of certain fonts may cause confusion, especially in the case of an electronic examination process, e.g. a number “1” may be confused with a letter “I”, or the letter “O” could be confused for the number “0”. In such a situation, the presentation should not be rejected as non-complying, outside specific circumstances such as the use of alphanumerical product codes, such as ‘132I’, which requires strict compliance.
Abbreviation of corporate forms
149. The use of abbreviations for words or company names, such as “Inc.” for Incorporated, “Ltd.” for Limited, “S.A.” for Société Anonyme, or “S.p.A.” for Società per Azioni, do not make a presentation non-complying.
Punctuation marks in a document
150. Missing or changing punctuation such as a period/full stop, comma, colon, etc. does not constitute a discrepancy, for example, where the guarantee quotes the precise wording/ text of a required statement and the text between quotation marks adds or omits a punctuation mark, unless such an omission or change alters the meaning of a word or introduces ambiguity or changes the value of an amount, e.g. “14” cannot be used to represent 1/4 when the “/” is missing.
Document issuers
151. Other than a demand and a supporting statement which must be issued by the beneficiary in accordance with the standards set out in the URDG, the onus is on the guarantor, pursuant to the application, to provide in the guarantee the required content of any document and whether and by whom it has to be signed.
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152. When a guarantee requires a document to be issued by a specific person, the document must appear on its face to be issued by that person. This may be evidenced by, amongst other indications, the document letterhead showing its provenance and the signature of the required person appearing on the document. When the document issuer required in the guarantee is a legal person, the requirement is satisfied when the document appears to have been completed or signed by, for, or on behalf of, the named person or entity.
153. It is better that guarantees abstain from requiring a named person to issue a required document, for there is a risk that the nominated individual might pass away or that the specified entity might cease to exist or lose its licence empowering it to undertake the activity permitting the issue of the document, with the result that the document becomes impossible to issue.
154. If the guarantee refers to a generic category of document but is silent as to which specific type of document is required, any document falling within the generic category is acceptable. In the case of an invoice for example, any commercial invoice shall be acceptable, but an invoice marked as proforma or provisional shall not be acceptable.
Signatories
155. Where a guarantee requires the presentation of a signed document, a guarantor shall verify that the presented document is signed but shall not verify any of the signature features listed in article 27(a).
Countersignature by beneficiary’s bank / Authentication of beneficiary signatures
156. The URDG do not require that the beneficiary’s signature is countersigned, certified or attested by any bank. Accordingly, the guarantor can only require that additional bank’s countersignature, certification or attestation of a signature if the guarantee expressly so provides.
157. When the bank of the beneficiary countersigns or otherwise certifies in any form the signature of the beneficiary, that bank should not be deemed to certify the authority of the signatory to present a demand on behalf of the beneficiary. Rather, the countersigning or certification only indicates that the bank has satisfied itself as to the apparent identity of the person who signed the document.
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Examination timeline
158. Article 20(a) is to be read in conjunction with articles 14(b) and 14(f). The time period of five business days following the day of presentation therein specified is a fixed period regardless of the number or the complexity of the documents presented and of the proximity of the date of presentation to the guarantee’s expiry date.
159. Any day on which the guarantor is regularly open for business for an act of a kind subject to the URDG constitutes a business day even if the business is open only for part of a day. Thus, if the guarantor was open for guaranteed business for a half day, e.g. 09:00–13:00, that half day would be considered as one of the five business days to which article 20(a) and article 24(e) refer.
K. Payment
Date of payment
160. Best practice in demand guarantees requires that payment of a complying demand must take place without delay. To that end, payment within three business days following the day of determination that a demand is complying is consistent with international standard practice in demand guarantees.
161. A guarantor informing the instructing party or the counter- guarantor of the receipt of a demand or of the guarantor’s determination that the demand is a complying demand cannot delay the guarantor’s duty to make payment without delay, regardless of the terms of the application or of any other agreement between the instructing party and the guarantor.
Set-off
162. Pursuant to article 5, the guarantor cannot assert against the beneficiary’s complying demand a set-off defence that would be available either to the applicant under any relationship with the beneficiary or to the guarantor under the application. This does not prevent the guarantor from setting off the beneficiary’s entitlement to payment under the guarantee pursuant to a complying demand against any debt owed by that beneficiary to the guarantor under any relationship between the guarantor and that beneficiary, unless agreed otherwise in the guarantee. However, and subject to the provisions of the applicable law, no set-off
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shall be permitted where it concerns a debt arising from the underlying relationship that has been assigned by the applicant to the guarantor for the purpose of permitting its application against the beneficiary’s entitlement under the guarantee.
163. If the amount of the beneficiary’s debt owed to the guarantor arising out of a relationship extrinsic to the guarantee, or under the guarantee itself, is equal to or exceeds the amount of the complying demand, the guarantor need not make any payment to the beneficiary or the assignee of the proceeds. However, this does not limit its recourse against the instructing party for the amount of the complying demand and any charges.
Currency of payment
164. Where the guarantee provides for a multi-currency payment option, the beneficiary can present a demand in any of those currencies. Absent such an option, a demand can only be presented in the currency of payment specified in the guarantee and can only be paid in that currency.
165. A demand presented in a currency other than the currency of payment specified in the guarantee is a non-complying demand, even if the currency of payment indicated in the guarantee is not convertible. It is only in the two situations listed in article 21(b)(i) and (ii) that the guarantor is authorised to make payment in the currency of the place for payment if it does not coincide with the currency of the guarantee.
166. An agreement between the guarantor and the beneficiary that a complying demand presented in the currency of the guarantee should be paid in equivalent value in another currency is not an infringement of the URDG. Foreign exchange fees potentially charged by the guarantor to the beneficiary as a result of a currency conversion requested by the beneficiary do not fall within the definition of charges in the URDG. Regardless of the currency in which payment is made pursuant to that agreement, the guarantor can only claim payment from the instructing party in the currency of the guarantee or pursuant to any other payment modality agreed in the application or in any other document.
Subrogation
167. The URDG do not address whether a guarantor that has paid the beneficiary pursuant to a complying demand is subrogated in that beneficiary’s rights against the applicant under the underlying relationship as a consequence of that payment extinguishing the applicant’s debt towards the beneficiary. The matter is left to the applicable law.
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Payment without a demand
168. Practice in certain regions reveals guarantee terms granting the guarantor the discretion to pay the beneficiary the guarantee amount without a complying demand being presented. The purpose is to permit the guarantor to bring the guarantee to an end before the stipulated expiry. Payment of a guarantee without the presentation of a complying demand is not covered by the URDG. It does not reflect international standard practice in demand guarantees either.
169. A counter-guarantor which decides in its discretion to pay the counter-guarantee to bring it to an end pursuant to a term therein stipulated to that effect, notwithstanding the absence of a demand from the guarantor, may pay the counter-guarantee even if the guarantor is not seeking to end its guarantee. In that case, the amount paid under the counter-guarantee shall be held in trust by the guarantor and shall be refunded to the counter-guarantor absent the payment by the guarantor of a complying demand presented by the beneficiary before expiry of the guarantee. No interest shall be due on the refunded amount unless agreed otherwise.
L. Non-complying demand, waiver and notice
Notice of rejection / Waiver
170. In accordance with article 24(a), a guarantor has the option of either rejecting a non-complying presentation and providing its notice of rejection or, at its discretion, approaching the instructing party for a waiver of the discrepancies. Electing to approach an instructing party does not extend the five-business day period provided in article 24(e) for the issue of the notice of rejection. The same applies in the case of a counter-guarantor choosing to exercise its option under article 24(b).
171. A guarantor which determines a demand to be a non- complying demand, should not approach an instructing party or counter-guarantor for a waiver unless it has, at that time, the intention of accepting and acting upon a waiver that may be provided.
172. A notice of rejection shall be provided to the presenter, whether that presenter is the beneficiary or a person acting on its behalf.
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Rejection terms
173. The term “reject” does not need to be used specifically when sending a notice of rejection to the presenter provided that a similar verb, such as dishonour or refuse, is used in the notice. The mere listing of discrepancies without an indication that the guarantor is rejecting the demand does not comply with article 24(d).
174. A notice of rejection must state, in the same message, all the discrepancies for which the guarantor rejects the demand. No effect shall be given to an additional rejection notice purporting to supplement an initial list of discrepancies in relation to the same presentation.
Corrections to a non-complying demand
175. The beneficiary may before expiry make a correction to its demand which has been the object of a notice of rejection.
176. A guarantor that had found a document to be complying in the initial non-complying demand cannot, in the new demand in which the beneficiary has cured the other discrepancies, find that same document to be non- complying if that document has undergone no change. However, if the correction carried out to cure any discrepancies results in the presentation of additional or different data in a document required by the guarantee that conflict with data in any required document or the guarantee, the new presentation is non-complying.
M. Reduction and expiry of a guarantee
Payment reductions
177. Unless the guarantee is issued for a revolving amount, which is a case not covered in the URDG, partial demands paid under the guarantee reduce the amount of the guarantee by up to the amount paid.
178. A demand, including a partial demand, that has been presented and rejected as non-complying does not reduce the amount of the guarantee.
Total or partial release
179. A signed release of liability issued by the beneficiary to the guarantor shall supersede the expiry term in the guarantee, whether that term is an expiry date or an expiry event.
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180. A partial release of liability shall decrease the amount available under the guarantee regardless of the reduction mechanism provided in the guarantee. Where the partial release leaves an amount payable under the guarantee, any reduction mechanism provided in the guarantee remains applicable for the guarantee amount that is not covered by the partial release.
181. For the purpose of communicating to the guarantor its signed release in an electronic form under article 25(a)(iii) and article 25(b)(iii), the beneficiary may use any authenticated communication means that complies with the terms of the guarantee or, absent a specific format or system specified therein, with article 14(c). The beneficiary may also use a paper form.
182. The beneficiary may choose to transmit the release through the advising or second advising party that advised the guarantee.
Article 25: overriding termination terms
183. Article 25(b)(i)-(iii) lists three events the happening of the earlier of which automatically triggers the termination of the guarantee.
184. A guarantee that provides that the guarantor’s liability shall cease upon the beneficiary’s release of the guarantor shall terminate upon the earlier of either the presentation to the guarantor of the beneficiary’s signed release from liability under the guarantee or the lapse of three years from the date of issue pursuant to article 25(c).
185. A guarantee which provides that the guarantor’s liability shall cease upon:
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Automatic extension of guarantees
186. Guarantees have been reported sometimes to provide for their required extension upon a discretionary request by the beneficiary or automatically upon the occurrence of a set date unless the guarantor has given notice to the beneficiary, within a specified period, that the guarantee will no longer be extended. This is neither covered in the URDG nor reflects international standard practice in demand guarantees, as terms of that sort result in an open risk for the guarantor and a potential difficulty in managing the collateral. Nevertheless, if automatic extension terms are provided in the guarantee, they must be granted effect.
187. Requirements for extension of the type referred to in the above paragraph 186 are not extend or pay demands covered by article 23, and therefore need not comply with the requirements for a demand. However, the beneficiary’s request for extension must be received before expiry, for once a guarantee has expired, it ceases to exist and cannot be put back in effect. Where the guarantor extends an expired guarantee, it is deemed to have issued a new guarantee in the same terms as those of the expired guarantee, regardless of the identical or different identification number that the new guarantee may be given.
N. Force majeure
188. Article 26 sets out the requirement for determination of force majeure, namely that it should be a cause beyond the guarantor’s control, leading to the interruption, in the sense of the temporary cessation of the guarantee-related business of the guarantor in its totality. The applicable law or the terms of the guarantee may add further requirements for an event to be characterised as force majeure.
189. To fall within the scope of article 26, the event must interrupt guarantee-related business of the guarantor. This does not necessarily equate with physical closure of the guarantor’s premises, especially where business continues through remote access. Rather, interruption should be understood in the sense of the event preventing presentation, examination, payment, or notification of rejection of presentation by rendering them impossible to make, not merely more onerous.
190. The situations listed in article 26(a) are examples and do not form an exhaustive list. A pandemic for instance may amount to force majeure under article 26 if it also leads to
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the interruption of the guarantor’s guarantee-related business. Conversely, events that are beyond the guarantor’s control and that render the payment of the guarantee impossible do not fall into the scope of article 26 if they do not lead to the interruption of the guarantor’s guarantee-related business. That is generally the case of multilateral or unilateral economic sanctions if they only prevent the guarantor from making payment or from extending the guarantee, but do not prohibit presentations being made or their examination. Their effect on the guarantee would therefore depend on the applicable law, not on the URDG.
191. Deciding whether a particular event amounts to force majeure is a matter that falls within the jurisdiction of the competent court to determine in case of a dispute. The mere declaration by an authority or a government that an event or a type of event is a force majeure does not necessarily lead to the application of article 26.
192. If force majeure extends beyond the 30-calendar day extension provided in article 26(b), thus preventing the guarantor from resuming its business, the guarantee shall expire and the guarantor shall be released of its undertaking, notwithstanding that the beneficiary was in a position to present a complying demand but for the force majeure.
193. A guarantee requiring presentations in paper form may at any time before expiry be amended to permit an electronic presentation, thus facilitating the making of the presentation, whereupon article 14(c) shall apply.
194. The disclaimer in article 28 of the guarantor’s liability for the delay in the transmission of a document sent in accordance with the terms of the guarantee, extends to situations where the guarantor is not able to transmit the document to the instructing party or to the counter-guarantor, as the case may be, because the courier or postal service provider nominated in the application or in the counter-guarantee does not accept, collect or deliver the document, or because, where no courier or postal service provider has been specifically nominated in the guarantee, no courier or postal service provider accepts, collects or delivers at the time the guarantor had determined that a complying presentation has been made. In both cases, the guarantor is expected to have made reasonable efforts to find a courier or postal service provider that could accept or collect and thereafter deliver the relevant documents.
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195. If the beneficiary requests a presenter, including an advising or second advising party, to forward its demand in paper form to the guarantor, but the presenter is unable to do so, e.g. due to the courier service not being able either to accept the document for delivery to the guarantor or to deliver it, the presenter may choose to assist the beneficiary by contacting the guarantor to seek an alternative delivery option.
O. Transfers
Amount of transfer
196. Each transfer must be for the full guarantee amount available at the time of transfer. Partial transfers are outside the scope of the URDG and would need to be expressly stated in the guarantee. However, there may be successive transfers for the full amount.
Transfers of amended guarantees
197. A guarantee shall be transferred as amended by any amendment that became effective in accordance with article 11.
198. Upon the transfer being made, the guarantor should inform the transferee of any amendments that have been issued by the guarantor but not yet accepted by the beneficiary.
199. Amendments that have been rejected and amendments that have not yet been accepted by the beneficiary do not modify the guarantee. Accordingly, the guarantee shall be transferred without taking into account those amendments.
Transferee beneficiary to present the documents
200. Following the transfer of a guarantee, it is the transferee, not the transferor, which must sign a demand and any supporting statement under article 15(a). The transferee shall also sign any additional documents required to be signed by the transferor, even if the name of the transferor is specifically quoted in the guarantee, and the guarantor cannot consider the change in the beneficiary’s name to be a discrepancy.
201. References to the initial beneficiary stated in the guarantee to be a mandatory requirement in any statement or document, such as a reference to the underlying contract as concluded between the applicant and the initial beneficiary,
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shall be satisfied by the presentation by the transferee of the document with the required statement without the need to substitute its name for that of the transferor.
Transfers by operation of law
202. Transfers by operation of law, where all the assets and liabilities of the transferor are transferred by law to the transferee, with the transferor then ceasing legally to exist, such as in the case of a succession, an absorption or another type of corporate restructuring, are not covered in article 33. If the applicable law mandates that the transferee succeeds to the transferor by operation of law, the transfer shall occur without the process provided in article 33 applying. International standard practice in demand guarantees would require in such a case that the transferee by operation of law evidence to the guarantor its entitlement under the guarantee by presenting any document that the guarantor may reasonably require. Alternatively, the guarantor may choose to refer the matter to the instructing party for a potential waiver or for further instructions.
203. If the guarantor determines that the person presenting the demand is not authorised to act for the beneficiary or to succeed to the beneficiary, it may reject the demand.
204. A transfer by operation of law does not lead of itself to the suspension of the examination period defined in article 20(a).
P. Assignment of proceeds
205. A notification of an assignment of proceeds by the beneficiary or the assignee to the guarantor does not compel the guarantor to pay the proceeds of the guarantee in the hands of the assignee unless the guarantor has so agreed or the applicable law so requires, whereupon article 33(g)(ii) is superseded.
206. Even where acknowledged by the guarantor, an assignee of the proceeds does not become a party to the guarantee. Only the beneficiary is entitled to accept amendments and to present demands and the supporting statements.
207. The enforceability of a clause in the guarantee limiting the effect of, or prohibiting an assignment of proceeds by the beneficiary, is a matter for the applicable law.
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208. Practice sometimes shows that the terms “transfer” and “assignment” are used interchangeably. Where a guarantee refers to “transfer”, “assignment” or the like, it is recommended that the guarantee clarify whether the transfer or assignment refers to the transfer of the beneficiary’s drawing rights under the guarantee, i.e. the entitlement to present a demand, or merely to the assignment of the right to be paid the proceeds after the beneficiary identified in the guarantee has presented a complying demand.
Q. Miscellaneous
Fraud
209. Improper demands, including fraudulent, illegal and unfair demands, are outside the URDG. Their characterisation and legal implications are a matter for the applicable law. Regard may be had to article 19 of the United Nations Convention on Independent Guarantees and Stand-By Letters of Credit as an authoritative codification of the standard of fraudulent or otherwise improper demands in guarantees.
210. The disclaimers provided in URDG articles 27 to 29 provide useful guidance as to the limits of the liability of the guarantor in the event of a fraud in the demand.
Provisional court measures
211. If a guarantor is notified of a court order preventing the payment of the guarantee and complies therewith by suspending the payment of a complying demand, that guarantor should inform the beneficiary without delay and transmit to that beneficiary a copy of the court order as may be available. In doing so, the guarantor need not translate the order or express any views or comments. The guarantor should keep the beneficiary informed of the progress of the court proceedings. The guarantor’s compliance with the court order shall not extend the period specified in article 20(a) for the examination of the demand and the period specified in article 24(e) for the sending of the notice of rejection.
212. While a guarantor may not act contrary to an injunction issued by a court with jurisdiction, the guarantor should seek to resist the imposition of such an injunction or, if an injunction has already been obtained, seek to have it lifted if no manifest and clear fraud or other impropriety is established to the guarantor.
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213. Guarantors should abstain from including terms in their guarantee providing for an undertaking to make payment notwithstanding a court order. Such undertakings do not reflect international standard practice in demand guarantees, are non-documentary conditions and, as such, are deemed as not stated and shall be disregarded. Whether the guarantor’s duty to comply with a competent court’s provisional measure prevails over its duty to honour its undertaking pursuant to the presentation of a complying demand is a matter for the applicable law.
Sanctions clauses
214. Bank guarantors have sometimes been reported to include sanctions clauses in their guarantees. Through those clauses, guarantors purport to withhold the payment of a complying demand or the extension of a guarantee if they determine that sanctions regulations that they deem to be applicable prevent that payment or extension. ICC discourages the use of sanctions clauses in guarantees, as it does in documentary and standby letters of credit and in documentary collections.1 The use of sanctions clauses may put into question the irrevocable character of the undertaking and may be considered as a non-documentary condition. Sanctions clauses are at best a repetition of overriding mandatory rules applicable to the guarantee regardless of its terms or the applicable law, whereupon those clauses would be redundant and unnecessary. In certain situations, they may also raise issues of liability of the guarantor for violation of anti-discrimination laws and countermeasures. Drafting sanctions clauses in guarantees can under no circumstances be considered as international standard practice in demand guarantees.
215. Guarantors should be aware that, by taking the initiative of adding a sanctions clause into a guarantee the terms of which had been agreed between the applicant and the beneficiary, they risk causing the beneficiary’s rejection of the guarantee and the applicant potentially to be excluded from a bidding process for non-compliance with the bidding terms.
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Index of correspondence between URDG and ISDGP
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1 Guidance Paper on the Use of Sanctions Clauses in Trade Finance-Related Instruments subject to ICC Rules, ICC Document No.470/1238, November 2014, and the Addendum issued in May 2020, as those documents may be revised and amended by ICC from time to time.