Revolving Letter of Guarantee

AugustineArulnesan · Post by **AugustineArulnesan** » Thu Jan 07, 2010 12:00 am

Has anyone ever handled a letter of guarantee which is revolving in nature (as in letter of credit) and subject to URDG 458. My take from a risk perspective is
a)such a condition (automatic reinstatement) is not covered by any of the articles of URDG.
b)In case of a dispute, URDG will not be able provide any guidance and hence it would be left to courts at the place of issuance, to decide.
c)It is not in the interest of the beneficiary to accept an instrument which is a hybrid of LC and Guarantee and which dosen’t comply with the articles of stated applicable ICC publication.

Appreciate your comments on it.

JimBarnes · Post by **JimBarnes** » Thu Jan 07, 2010 12:00 am

It should be possible to draft an independent guarantee to provide for reinstatement or the like, but all of the terms and conditions of that feature should be explicit and documentary. Note that ISP98 (Rule 1.10) says that the words "reinstate" and "revolve" have no single accepted and should be disregarded unless their context gives them meaning.

Financial standby LCs here often provide for reinstatement of a payment made under an LC supporting the payment of periodic interest on the underlying obligation (and they provide for non-reinstatement on the issuer's sending a timely notice).

A poorly drafted "revolving" undertaking can prove to be very ugly, as shown in the Nissho Iwai case, which I discussed in a 2003 DCI article.

Regards, Jim

AugustineArulnesan · Post by **AugustineArulnesan** » Mon Jan 11, 2010 12:00 am

Thanks Jim.