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DCI: A year ago, when you were last interviewed by DCInsight, you said it was too early to tell how the revised URDG 758 were being received by guarantors, beneficiaries and public bodies. Now after a year has passed, do you have a better idea of how the market views the new rules?

Affaki: The new URDG have had a very good success in their first year. UNCITRAL endorsed the rules on 5 July 2011. Our members in Egypt, Iran and Turkey have done excellent work with regulators to ensure acceptance of the rules in their own countries*.

The World Bank and FIDIC are reportedly in the process of updating their general contract standards including the current reference to the URDG in their unconditional guarantee forms, to refer to the new 758 rules. In addition, 21 translations of the URDG have been published and numerous seminars and workshops on the new rules conducted in 44 countries were reported to ICC.

I am particularly happy to see the interest that the new URDG are meeting in the United States, where a number of URDG 758 guarantees were issued by US national banks and US branches of foreign banks. As the new Guide to the URDG indicates, demand guarantees and counter-guarantees governed by URDG 758 meet the regulatory requirements set by US bank regulators. More generally, all the big players in trade finance have achieved their transition from 458 to 758, and no instance of refusal of 758 was reported to ICC.

DCI: The old article 20 of URDG 458 was rewritten in the new rules to say that a supporting statement by the beneficiary is in breach can either be in the demand or in a separate signed statement. Do you think this change will eliminate the controversy surrounding the old article 20?

Affaki: There has never been any controversy in the first place. Old article 20 merely codified what we were witnessing in practice where demands spontaneously referred to the breach prompting the claim. This said, the new article 15, while building on the balance achieved by its predecessor in URDG 458, goes a long way in streamlining the statement requirement.

As you correctly remarked, the statement can be made on any support document, whether the demand itself or a separate document provided it refers to the demand. There are no magical words to be used when drafting the statement. Mere plain language is fine. The URDG booklet and the new Guide to the URDG 758 offer plenty of drafting examples. In addition, the statement need only indicate in what respect the applicant is in breach. The former requirement under URDG 458 to state that the applicant is in breach was sometimes taken as requiring those words to be precisely spelled out in the statement.

In a case where the statement indicated that the beneficiary was demanding payment because the applicant delivered defective goods, the guarantor reportedly rejected the demand because it did not also indicate that the "applicant is in breach". The statement requirement in the URDG 758 is in furtherance of transparency, certainty and good faith practice; it is not a trap. I am confident that new article 15 heralds a new era of pacified guarantee practice.

DCI: If you were to choose one or two changes in the rules that were the most significant, what would they be?

Affaki: Without any hesitation, articles 7 and 24. Both are brought from UCP 600 and are expected to be the linchpin of successful demand guarantee practice. Article 7 bans non-documentary conditions. A bank examining terms stated on the face of a document is a bank that is not dealing with the goods, services, performances or other facts relating to the underlying contract. This ensures that the guarantee is truly independent of the underlying contract.

Article 24 is expected to put an end to unfair practices where presentations were rejected piecemeal leaving the beneficiary no chance to remedy the discrepancies.

The URDG, like the UCP, protect the guarantor that acts diligently and in good faith. Any other behaviour will lead to preclusion in the sense that the guarantor will not be allowed to indicate further discrepancies concerning a presentation for which a notice of rejection was already issued.

In the past 18 months, I have addressed thousands of bankers, business people, regulators and lawyers on the new rules. They had different backgrounds and represented all the legal and economic systems. They all understood and agreed with the wisdom behind article 24. In fact, banks, traditionally guarantors, are the first to welcome the new rule in article 24, as it ensures a sound balance between the interests of all parties and protects them vis-à-vis the counter-guarantor as well.

DCI: Now that the rules are out, you and Sir Roy Goode have authored a Guide to the rules (ICC Publication 702). This is a comprehensive volume, more than three times as long as the Guide you wrote for URDG 458. Why the difference in length and content?

Affaki: With the rules and the model forms appended to the rules, the Guide completes the package that ICC offers demand guarantee users and issuers. It is the key to successful demand guarantee practice. Roy and I have put in this work the essence of our experience in researching, practising and teaching the law and practice of demand guarantees over a period of 20 years. We have divided the Guide into five chapters:

- Chapter 1 offers an overview of demand guarantees and counterguarantees. It explains the principles of demand guarantees and the differences from documentary credits, standby letters of credit, indemnities or accessory suretyships.

- Chapter 2 presents the main features of the URDG 758, their scope and the advantages they offer to each party.It also answers frequently asked questions about the nature of the URDG and their relationship with the applicable law.

- Chapter 3 tracks the seven key stages of the life cycle of a URDG guarantee and counter-guarantee: drafting, issue, changing of terms, making a presentation, examining the presentation, making payment and termination of the guarantee and counter-guarantee. In each stage, we present the particular rules of URDG 758 that apply to the selected situation and offer practical advice on how to make the most of the rules.

- Chapter 4 is the most substantial and offers an article-by-article commentary on URDG 758. The commentary under each article is supported by illustrative case studies.

- Chapter 5 includes a presentation of the use of the URDG by international organizations and comparative tables of URDG 758, UCP 600 and ISP98. It also features a selection of international case law applying the URDG and a detailed index which will enable the reader to pinpoint the places where a particular issue is discussed.

I hope that the Guide becomes the reliable companion to all URDG users.

DCI: One of the features of the new Guide is a section for each URDG article entitled "Preparatory works". Can you tell us the rationale behind that section and why you consider it to be important?

Affaki: Over the two-and-a-half-year revision process leading to the new URDG 758, we have gathered considerable experience from the cases reported to the ICC Task Force on Guarantees and the wealth of comments provided to us by over 50 ICC national committees. This experience determined important policy choices and drafting decisions that we took while drafting the new rules. For instance, why five business days in article 20? Was a larger scope of guarantor's own records contemplated during the drafting? To what extent were eUCP considered when drafting the rules of the URDG on electronic presentations? How was "international standard demand guarantee practice" created and where can it be found? etc.

We wanted to share the background of those choices and decisions with the readers of the Guide. Experience shows that those insights are particularly helpful, for example in litigation and academic research, to understand the drafting choices that underlie each rule as ultimately adopted.

DCI: There is apparently still a misconception that there are laws in some countries forbidding the use of the URDG. Does your new Guide clear up that question?

Affaki: Yes, it does, once and for all. Let me say it loud and clear: there is no law, anywhere that outlaws the URDG. The URDG are the expression of the parties' contractual choice; they can go as far as contracts can go. This is the reason, for example, why we do not cover fraud and court injunctions in the URDG; both subjects are covered by mandatory laws which do not allow the parties to opt in or out of their rules.

Conversely, there is no reason to limit the effectiveness of the URDG in everyday guarantee practice where issues arise as to when a guarantee becomes irrevocable, when is an amendment binding, when is a guarantee independent, is there a duty for a guarantor advising a guarantee through an advising party to use the same party to advise any amendment, how to deal with an incomplete presentation that indicates that it will be completed later and many other heatedly debated practical questions.

DCI: Finally, now that the ICC Task Force on Guarantees have completed the URDG revision, what will be their main tasks in the coming months and years?

Affaki: The Task Force never rests! Its dedicated email address is probably one of the busiest at ICC. In addition to continuingly reporting national feedback on the URDG, monitoring their application and discussing their interpretation in challenging cases, it continues its mission as the expert body entrusted by ICC to monitor international guarantee practice.

An example of a recent discussion topic is a report made in July 2011 by our correspondent in India informing us of a recent court of appeal decision in his country underscoring the difference between the expiry date of a guarantee, which is upheld, and the statute of limitations which allows a party to file a claim before a court within the statutory time period. For nearly 15 years, international banks were left debating whether the Indian Contract Act as amended in 1997 outlawed expiry dates in guarantees. As a result, some bank guarantors required applicants to subscribe exorbitant indemnities should an Indian court prolong the guarantor's undertaking beyond its validity period. The controversy is now over, and our Task Force fulfilled its mission fully in examining the court response and spreading the news in the relevant circles. l

Dr Georges Affaki is a member of the Executive Committee and Head of Structured Finance, Corporate and Investment Banking, Legal Affairs at BNP Paribas in Paris. He is Vice-Chair of the ICC Banking Commission and was Chair of the URDG Drafting Group. His e-mail is georges.affaki@bnpparibas.com

The Guide to ICC Uniform Rules for Demand Guarantees URDG 758 is available at www.iccbooks.com

*The author would like to cite Dr Andrea Hauptmann, Vice-Chair of the ICC Task Force on Guarantees, who was instrumental in obtaining UNCITRAL adoption of URDG 758; Farideh Tazhibi, who worked to obtain Iranian regulators' approval of their use by Iranian national banks; Amr Kamal, who has worked with Egyptian bank regulators on the rules; and Haluk Erdemol who will do the same in Turkey, as well as all members of the Task Force who put in the time and effort to bring these rules to fruition.