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Professor Sir Roy Goode is Emeritus Professor of Law in the University of Oxford and Emeritus Fellow of St John's College, Oxford. Author of numerous textbooks in the field of commercial law, and a former Chairman of the ICC Commission on Commercial Law and Practice, he was for many years a solicitor before moving to the academic world and later becoming a barrister and Queen's Counsel. Though now retired he continues to be involved with work on international instruments, in particular the Cape Town Convention on international interests in mobile equipment and associated protocols, on which he is the author of two official commentaries.

DCI You were intimately involved with the revision of the Uniform Rules for Demand Guarantees (URDG) some 16 years ago. How would you compare the two processes - the one that took place in the early 1990s and the one that is going on now?

Goode I think the process that is being adopted now is a better one. It is more inclusive. We had a joint working group from two ICC commissions to create the present URDG 458, and the working group did a good job. But there was not the same degree of outside consultation as we have had for this revision. In the early 1990s, we did not have a task force, and there was an impasse. I was asked to chair a small group to resolve the impasse, which we finally did. I think the groups together did a good job, but the process for the present revision has shown the importance of a very widespread consultation, using the task force as a sounding board, which gives a steer before drafts go out to ICC national committees.

DCI It is clear that the present drafting group is trying, insofar as possible, to align the principles of the URDG with those of UCP. Is this a wise course, considering that guarantees arise in a default situation and letters of credit are a means of payment?

Goode We are trying to steer a balance here. We are not trying to emulate the UCP because, as you have said, they are different instruments. Demand guarantees are for default and, in the case of documentary credits, the credit is the primary instrument for payment. However, what we have tried to do, when the rules deal with similar things, is to adopt some of the same language. For example, concerning the examination of documents, we have tried at least to fit the wording to the wording of the UCP, where appropriate. We have not hesitated to deviate from that wording where it is not appropriate, but it seemed to us that where the rules were dealing with the same things, it was desirable to have a broadly uniform mode of expression.

DCI In that connection, let us talk about nondocumentary conditions. As you know, there is an Opinion from the ICC Banking Commission in response to wording in the UCP that says that data in a document must not be identical to, but must not be in conflict with, data in any stipulated document or in the credit. With regard to non-documentary conditions in the URDG, some people have said that these conditions are not to be looked at for any reason, including questions of consistency. What is your view on this?

Goode I tend to take the latter view myself. However, I can see arguments on the other side. I can understand how the Banking Commission reached its Opinion that, for the purpose of determining consistency, it is necessary to look at all of the documents presented. And this is one of the issues that we have to consider. We have to consider whether the same rule should apply to demand guarantees or whether, for the most part, since they do not concern shipping documents, this would justify taking a different approach.

DCI Should the URDG apply only by express incorporation or should they also be applied on the basis of trade usage?

Goode Of course, they already can apply by trade usage or course of dealing. No rules can actually be exhaustive as to the scope of their own application, because it is always for a court to say, even if they were not expressly incorporated, that they would be applied as a matter of trade usage or, alternatively, because they have been consistently adopted by the parties in previous transactions and the parties must have intended them to apply to the last transaction. The provision in the present draft does no more than reflect what the law is in many countries, and we are not imposing it. We are simply saying that nothing precludes the application of the rules from trade usage or from a consistent course of dealing.

DCI I asked you this because the UCP has no language like that and says that the UCP applies "when the text of the credit expressly indicates that it is subject to these rules".

Goode I know that is what the UCP says. Of course, it does not actually reflect the legal position. It may say that, but if there is trade usage or a course of dealing, then a court can apply, and no doubt in some cases has applied, the rules regardless. Just as an example of that, the current URDG 458 also say that they will apply where expressly incorporated, but there have been at least three decisions in China where the rules have not been incorporated but the court applied them as a matter of trade usage.

DCI One of the issues that have come up during the revision is this whole question of whether the rules should cover payment as well as non-payment guarantees ...

Goode I think we cannot exclude them, because they are, to some degree, used as payment instruments. In other words, they are used in much the say way as documentary credits in that the parties want examination of documents and so on in the same sort of way. On the other hand, we are proceeding on the assumption that they are used perhaps in a relatively small percentage of cases; therefore, we do not want to replicate all of the detailed provisions of the UCP governing different types of documents. We are steering a midway course. We accommodate payment guarantees, but we have avoided going into the kind of detail that is appropriate for documentary credits.

DCI So, should the URDG apply generically to all kinds of independent guarantees - tender guarantees, advance payment guarantees, payment guarantees, and so forth and so on?

Goode Yes, they do at the moment and we think that they should continue to do so.

DCI There seems to a considerable difference of opinion as to whether the term "international standard guarantee practice" should appear in the new URDG. Are the URDG so universally accepted and is there really a standard guarantee practice so that we can talk about such practice?

Goode The URDG are becoming more widespread. So far as the content of the URDG is concerned, if they are incorporated, then the parties are not dependent on a standard guarantee practice. That would only be used as a supplement to the URDG, and we recognize that, at the moment, there is a relatively limited degree of international trade usage that one could identify. But we are looking forward to the time when practice would develop, and we want to encourage that to happen, because the rules cannot foresee every eventuality.

We did not want a situation in which, because of a gap in the rules, people would be deprived of finding an answer to their problem. Clearly, the only answer if something is not covered by the rules is to look for international demand guarantee practice, assuming that it could be established. That is going to take some time, we recognize that. But as the rules develop and are more and more being applied, then we think that practice will evolve and then the parties will be able to resort to it.

DCI The old article 20 of the present URDG 458 was perhaps the most controversial in that a demand for payment required a written statement that the principal was in breach and stating the manner in which it was in breach. Do you believe the present drafting in the revision will alleviate that controversy?

Goode I think that most people now accept the concept of a statement of breach and the respect in which there has been a breach. That is not a view universally held, but a great majority of the responses that we have had so far seems to indicate the acceptance of it. The comments we have received indicate that most ICC national committees accept the text of what is now article 16. If banks are concerned - and there are one or two jurisdictions where the courts may say that their law requires conditions to appear on the face of the guarantee - then the remedy for banks is quite simple, and that is to incorporate the actual requirements of article 16 into their guarantee forms and the problem disappears.

DCI Should the URDG provide separate wording for guarantees and counter-guarantees or rely on the general interpretation that guarantees include counter-guarantees and guarantors counter-guarantors?

Goode We have given quite a lot of thought to this, and the answer is, in general, that we should define demand guarantees as including counterguarantees. But there are some articles where that does not fit, because the requirements for counter-guarantees are not quite the same as for guarantees. And in these cases we have had to separate them and have one rule for guarantees and another rule for counter-guarantees. This happens, for example, with regard to the articles on the requirements for a demand and on applicable law and jurisdiction.

DCI My understanding is that the general objective of the Drafting Group is to have a final text approved by the ICC Banking Commission in November 2009. Considering the present state of the revision, is that a realistic objective?

Goode We think it is. Our next draft will be the third draft. There will be an extensive discussion and consultation. We have already received comments indicating that people feel that where we are is already a great improvement on what we started with. Each draft seems to attract fewer objections, and we think the objective is realistic. Our concern is not to rush things but to allow everyone, every ICC national committee, as well as both of the ICC commissions and their task forces, to feel they have had adequate opportunity to make their points. We envisage a fourth and final draft in May 2009.

Professor Sir Roy Goode's e-mail is roy.goode@sjc.ox.ac.uk