Guarantees in the Arab world

by Mohammad M. Burjaq

In my article published in DCInsight (Vol. 16 No.2 April-June 2010), I focused on how guarantees are treated in the Middle East, particularly in the Arab countries. In view of the positive responses I received from several readers and practitioners in Europe and Eastern Asia, I thought it would be useful to write an article highlighting how guarantees are treated in the laws in the Arab world in order to give readers a more complete picture.

As I mentioned in my previous article, with regard to guarantees the situation in the Arab world is not uniform. Some Arab country codes address guarantees using the same approach as ICC's Uniform Rules for Demand Guarantees (URDG), particularly in terms of the independent nature of guarantees. This is the case in the commercial codes of Egypt, Oman, the UAE, Qatar, Yemen, Iraq, Bahrain, and Kuwait. Other civil codes, such as those in Jordan and Syria, do not cover guarantees at all, but only address suretyships.

Definition of guarantee

Most Arab commercial codes, except for those in Jordan and Syria, define the guarantee essentially as follows: "[A] Letter of Guarantee is a written undertaking issued by a bank upon a request from a person called 'the instructing party' to pay a specific amount or can be specified to another person called 'the beneficiary' if requested to do so within the period specified in the guarantee and regardless of any objection." The Iraqi, Yemeni and GCC Commercial codes add: "and illustrates the purpose for which the letter of guarantee is issued".

Both the Kuwaiti and Iraqi commercial codes state that payment will be made to the beneficiary without restrictions or conditions, whereas the UAE commercial code states that payment is to be made without restriction or condition unless the guarantee is conditional. Qatari law adds that the guarantee is an irrevocable written undertaking [emphasis added in all cases].

Consequently, insofar as Arab law is concerned, one can conclude that:

1. The guarantee is a written undertaking to be issued by a bank.

2. It should specify an amount and an expiry date.

3. Once requested by the beneficiary, payment is to be made regardless of any objections. This is a clear reference to the independence principle.

4. In most Arab codes, the guarantee should specify the purpose for which it is issued.

Independence principle

The commercial codes of GCC, Iraq, Yemen and Egypt state that a bank may not refuse to honour a beneficiary's claim for reasons related to the bank's relationship with the instructing party or the instructing party's relationship with the beneficiary. This approach is similar to the approach in URDG 758, reflected in articles 5 and 6.

Documentary nature

The commercial codes of GCC, Iraq, Yemen and Egypt state that the bank guarantor's responsibility toward the beneficiary will be discharged if it does not, during the validity period of the guarantee, receive a demand from the beneficiary to pay - unless it has been expressly agreed to renew the guarantee automatically, or unless the bank has approved a request to extend. This reflects the documentary nature of the guarantee.

The UAE commercial code no. 18/1993 article 417 (2) states: "In exceptional cases the court may at the request of the instructing party hold the guarantee amount at the bank, provided that the instructing party's claim is based on serious and certain reasons", whereas the Qatari Commercial Code article 410 states the contrary and says: "It is not allowed for any reason to hold or sequester the value of the letter of guarantee at the bank."

Place of presentation

The Iraqi commercial code no. 30/1984 was ahead of its peers in determining the place of presentation in its article 291, which states: "If the bank has more than one branch, the claim is to be delivered to the issuing branch." This article is equivalent to sub-article 14 (a) of URDG 758.


Unlike other Arab laws, the Yemeni Commercial Code took the lead in determining the expiry date in its article 408 (2), which uses the same approach as sub-article 25 (c) of URDG 758. The Code states that the guarantee may be issued for a non-specific period. In article 411 (2), the code says that if the guarantee is issued for a nonspecific period, it will expire after the lapse of three years from the date of issue.

Assignment of proceeds

Most Arab codes state that unless otherwise consented to by the guarantor, the beneficiary is not allowed to assign its rights under the guarantee. This approach is similar to sub-article 33 (g) (ii) of URDG 758.

Matters not covered

Both the Egyptian Commercial Code no. 17/1999 article 355 and the Qatari Commercial Code no. 27/2006 article 406 state that with regard to all matters not otherwise provided or covered in the Code, the rules prevailing in international transactions on the letter of guarantee apply. The existence of such a provision allows for the application of international rules like URDG as an integral part of the applicable laws

As mentioned earlier, none of Arab codes, except those in Egypt and Qatar, address issues such as the time for examination, the standard for examination, the refusal of a non-complying demand, extend or pay, etc., although clearly these subjects are important if disputes between parties to the guarantee are to be avoided.

Jordanian and Syrian laws

The situation in Jordan and Syria is different, since neither country covers guarantees in their commercial codes nor have they adopted the UN Convention on Independent Guarantees and Standby Letters of Credit.

In Jordan, neither the old Banking Act no. 24 of 1971 nor the updated Act no. 28 of 2000 define or regulate banking operations. Though the Commercial Act no. 12 of 1966 contains some limited provisions covering banking operations, it does not cover guarantees. Article 122 in Part V of this Act, reads as follows: "The banking operations not listed in this section shall be subject to the provisions of civil law relevant to different contracts resulting from the operations or contracts that characterize these processes."

As a consequence, several jurisdictions deal with guarantees as a surety (accessory guarantees) according to the Civil Code No. 43 of 1976 in Part V (personal contracts), articles 950 to 992.

In Syria, the Commercial Code dates from 2007. It appears that the Syrian legislature adopted the same principle as that in Jordan's Commercial Code in that the Syrian Civil Code does not cover guarantees, even though it refers to documentary credits and says these are subject to international uniform rules issued by ICC. Some believe this could be interpreted as leaving an opening to issue letters of guarantee subject to ICC's uniform rules as well, since ICC rules refer to irrevocable independent undertakings however named or described.

Two articles in the Syrian Code refer to sureties. These are the following:

Article 738: "The surety (accessory guarantee) is a contract whereby a person pledges to perform an obligation by undertaking to fulfil this obligation to the creditor if it is not fulfilled by the debtor himself."

Article 748: "(1) Once the debtor is discharged the guarantor is discharged as well."

These provisions and others also cannot be applied to guarantees.


Though there is a certain uniformity in the treatment of guarantees in various Arab laws, except for those in Jordan and Syria, there are some minor differences, country by country. It pays to read these laws carefully and to be aware of the differences.

Mohammad M. Burjaq is Chief Central Operations at Union Bank in Jordan. He is a member of the UCP 600 Consulting Group and the ICC Task Force on Guarantees.
His e-mail is