South Korea

In the Winter 2010 DCInsight, I wrote in "International bulletin" about the formatting of the SWIFT MT760, which is at present in a free text format. As a reviewer of bank guarantee texts at our bank, I encounter many complicated bank guarantee texts with contents that have little relationship with what bankers do in a bank guarantee transaction.

Although I have recently had the occasion to study law for three years, many of the terms in the bank guarantees were not familiar to me. Fortunately, a few months ago, a former judge, now a lawyer in practice at a large law firm, called me and asked me about some terms in a book that he was studying for his LLM (Masters in Law) program. He kindly sent me the entire section of the book which was entitled "Guarantees".

At a first glance at the footnotes (that detail the source of the information in the text of the book), I noticed there were many English law cases on guarantees I had not seen before. On a closer look, I found that these cases dealt, not with bank guarantees, but with guarantees in general, which were mostly conditional guarantees.

It was a pleasant surprise to find in the book all of the terms used in bank guarantees that had not been familiar to me. The terms used in conditional guarantees had been imported into the drafting of the bank guarantee. However, these terms are not appropriate in bank guarantees that are independent guarantees, not conditional guarantees. In July 2010, I was informed by a colleague in charge of SWIFT matters that SWIFT had decided to undertake a revision of its bank guarantee formats.

As early as the first URDG in 1992, there were suggested standard forms for the different bank guarantees, which were excellent, but because beneficiaries usually dictated the text of the bank guarantees, these forms were not used as much as they should have been.

Although they were quite simple, the suggested bank guarantee texts of 1992 had all the information necessary to the banker dealing with these guarantees. They could well serve as the starting point for the revised formatting of the SWIFT MT760 messages.

Although the contractual relationship between the applicant and the beneficiary may be complex, the bank guarantee relationship between the issuing bank, the applicant and the beneficiary is not. A longer bank guarantee text is not necessarily more reliable than the simple texts of 1992 or the future formatted SWIFT MT760.

On a personal note, I am hopeful that beneficiaries will decide to choose the future SWIFT MT 760s rather than the often very complicated bank guarantee texts I come across daily in my work.

The revised SWIFT MT 760 formats are expected to be ready by the second quarter of 2011 and implemented in phased migrations in 2012/2013.

Chang-Soon Thomas Song
Attorney at Law (Arizona), First Expert, International Dispute Resolution (Letters of Credit), Trade and Services Division, Korea Exchange Bank, Seoul, Korea.
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United Arab Emirates

July 1, 2010 saw the URDG 758 revision ease into force. Two-and-a-half years of exhaustive joint effort by ICC's Commission on Commercial Law and Practice (CLP) and the Banking Commission represented through the national committees culminated in the unanimous approval of the revised rules in November 2009.

Dubai played a significant role in this historic launch, as the Banking Commission meeting in March 2009 hosted by the Dubai Chamber of Commerce saw the first comprehensive article-byarticle review of URDG 758, led by Dr George Affaki, Chair of the URDG Drafting Group.

The revised rules, hailed as being reflective of a broad consensus among bankers as well as other users of guarantees, were launched amid the usual fanfare associated with the launch of any ICC rules. Experts joined hands in touting URDG 758 as being clearer, precise and much more comprehensive than any of its predecessors.

The build-up created by the impending launch saw banks, in the months preceding its launch, gearing up to be ready for the revised rules. There was a need, not only to train the staff in the new rules, but also to ensure the revision of application forms and other documentation to cater to the revised URDG. Needless to say, this provided a boon for trainers.

Six months into the launch, the initial euphoria seems to be on the wane, especially in the UAE. Banks apart, the rules have thus far failed to attract acceptance from other players in the guarantee community. This is not surprising, since guarantee business in UAE is predominantly centered on contractual obligations involving government, semi-government autonomous bodies and large corporates. Historically, these bodies have their own guarantee formats that are heavily tilted in their favour, which do not allow for even a minor deviation from the established formats.

To add to the bankers' woes, there is a general perception that any set of ICC rules is likely to be tilted towards the banks. This poses a huge challenge for banks in the region to convince these bodies that URDG offer a fair balance for all the parties involved.

This is a dilemma faced by bankers across the entire Middle East and the Asian subcontinent. The URDG 758, as claimed by its advocates, may be "offering the fairest balance yet", but in my view it could well follow the same course as its predecessors - lack of general acceptance in the marketplace. Time will tell.

Khalid Iftikhar
Vice President, Mashreq Bank Dubai