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Farideh Tazhibi is a member of the Drafting Group revising ICC's Uniform Rules for Demand Guarantees (URDG). She is Secretary of the Banking Commission of ICC's Iranian National Committee and an arbitrator with the Iranian Chamber of Commerce Arbitration Center. In the past, she worked as a Superintendent, Finance Manager and Deputy in the Exchange Control Department of the Central Bank of Iran.

DCI How were demand guarantees handled in Iran starting in the 1960s?

Tazhibi At the time of the first boom in oil prices, Iran's increasing oil revenue enabled our institutions, mostly government agencies, to conclude major contracts with western firms for largescale projects. With the Iranian revolution of 1979-1980, large numbers of guarantees in favour of Iranian institutions were called in, and many western firms took recourse to the courts attempting to prevent payment under the terms of the stipulated guarantees. At that point, the relationship between the underlying contract and the guarantee, or the independence of the instrument from the commercial contract, began to attract the attention of bankers, lawyers and courts.

Even at that time, Iranian banks took note of what was written in article 10 of the Iranian Civil Code, (allowing for the free will of the parties to prevail, similar to the situation in the vast majority of legal systems). Thus, it became clear that bank guarantees could be issued as instruments independent from a commercial contract to secure the parties' interests.

With the support of this modern legal framework, Iranian banks were able to issue independent guarantees not related to the underlying contracts.

DCI Article 10 of the Iranian Civil Code seems to be a liberal law. If that is the case, why did Iran have the reputation of being a hard-line beneficiary country as far as demand guarantees were concerned?

Tazhibi I think the reputation was unjustified. The conservatism of the banks should not be interpreted as hard-line. Banks are conservative by nature and want to protect their customers/beneficiaries.

Concerning big projects, the customer is usually a large state-owned company. The banks worked to protect their customers as beneficiaries from the abuse of many contractors who left projects of national importance unfinished after substantial investments by the owner/beneficiary. This has been wrongly interpreted as being hard-line.

DCI Apparently, the improved atmosphere for demand guarantees in Iran had a lot to do with the Iranian National Committee of the ICC. What steps did the national committee take to change the government's approach to guarantees?

Tazhibi When in the early 1990s the ICC's Uniform Rules for Demand Guarantees (URDG) were first prepared and sent to national committees for comments, the Iranian National Committee and its then secretary, Mohammad Zoghi, were very active in providing comments and support for the rules.

After a decade of implementation and the increasing success of the rules, the Iranian National Committee had frequent contacts with the Iranian Central Bank and commercial banks to clarify that, according to article 10 of the Civil Code, the URDG could be used as a regulatory base for Iranian independent bank guarantees.

The Central Bank, having specialized staff in this regard, was quite open to discussing the related points and finally accepted the non-conflicting nature of the URDG, especially with regard to their contractual nature, with Iranian mandatory rules. In 2004, Bank Markazi Jomhouri Islami Iran (BMJII, the Central Bank of Iran) issued a circular, indicating that Iranian banks could use the URDG.

DCI In most countries, the central banks guard their independence quite jealously. But it seems that in Iran there was an active dialogue between the business community and the Iranian Central Bank.

Tazhibi The BMJII listens to banks and is open to discussion with representatives from different economic sectors. When I was working in the Central Bank, prior to the issuance and dissemination of a circular, we would communicate with the banking sector to examine the impact of the circular.

Now, the Central Bank actively participates in Iranian National Committee meetings. We have three directors of the Central Bank in the Banking Commission of our national committee. They take part in ICC Banking Commission meetings as well.

DCI You wrote an article for this newsletter some time ago in which you said that exporters and importers in Iran were still largely unaware of the advantages of the URDG. Is this still the case?

Tazhibi URDG awareness has substantially increased since then. I have arranged a number of seminars and training courses in the Central Bank, in other banks and also in our national committee. Many businesspeople and judges attended as well. I even distributed the model forms of URDG (ICC Publication No. 503) to the guarantee departments of banks, and now they are well aware of the rules.

DCI What future activities do you have planned to keep people more aware of the URDG in Iran?

Tazhibi When I was chosen to be a member of the Drafting Group to revise the URDG, the general secretary of the Iranian National Committee sent a letter to the Central Bank requesting its active involvement and a supportive role in the process. The Central Bank then sent out a letter to all commercial and noncommercial banks, saying that they should cooperate with me in this regard. As a result of this, all Iranian banks are aware of my role, and they are coming to me for information. In fact, they have already sent me letters proposing some amendments to, and some corrections in, the present URDG.

DCI Do you think this turnaround in Iran with regard to demand guarantees could also happen in other countries in the region that still seem to be somewhat reluctant to change their templates and procedures?

Tazhibi I think it axiomatic that people are reluctant to accept something they do not understand. In Iran, we experienced that in the beginning. When banks and businesses get to know the benefits of the URDG, then they will adopt it, as they have done for the UCP. As a result of using the URDG, they will no longer have to go to court or hire lawyers and consultants to prepare guarantee texts for them.

We should raise the awareness of banks and users so that certain boundaries between the two groups are reduced. In that task, we believe it is far more efficient to use internationally accepted language found in internationally accepted rules.

DCI Would it be feasible to visit some of these countries and explain the URDG to their banks and government officials?

Tazhibi Yes, and I would do this. In fact, the URDG Task Force has already asked me to approach Islamic banks to make the case for the URDG in Islamic bank guarantees.

DCI In the region, more often than not, I understand that guarantees have to be issued without an expiry date or without an expiry event, which is contrary to international practice. Can that be changed?

Tazhibi This is not the case in Iran. Guarantees usually have an expiry date or event, and persons relying on the URDG or the UNCITRAL Convention will know that there is a limit to the duration of a guarantee.

DCI As a member of the URDG Drafting Group, are you satisfied with the progress of the revision?

Tazhibi Very much so. We are working quite hard. At our meeting in late October, we distributed a first draft to the URDG Task Force for comments. The Drafting Group will meet later to consider these comments. Based on these and any changes we make as a result of them, we are hoping that that we can submit an initial draft of the new rules for Commission members' comments and the comments of ICC national committees in early 2008, nine months after we started the revision.

DCI At this stage of your discussions, what seem to be the hardest issues to resolve?

Tazhibi We have had discussions about many things. I cannot say there is any "hardest issue". All issues are solvable. For example, we have devoted substantial time to studying article 20. We have agreed to keep the crux of it, because we believe that this is a crucial provision that maintains the balance of interests among the three or four parties to the guarantee. Article 20 has two tiers: a statement that the applicant is in breach and precisely in what respect it is in breach. There have been misunderstandings about this article, and we hope to clarify them.

We will also try to clarify language on amendments and on counter-guarantees, among other issues.

We are going to try to align the URDG with much of the language in the new UCP 600. It is in our interest to have a common language, insofar as possible, in all ICC rules dealing with independent undertakings.

DCI You said that you hope to have a first draft for distribution to the Banking Commission in the spring. Do you think, in view of the progress you have made so far, that 18 months for a final vote on the URDG, from the time you started, is realistic?

Tazhibi We started our work on the revision in Singapore (May 2007), and we had a three-day meeting in July 2007 and another two-day meeting in October. If I consider what we have accomplished in the last six months, then, yes, our assumption is quite realistic.

Farideh Tazhibi's e-mail is ftazhibi@yahoo.com