Banks underpin more than a third of global trade transactions, representing trillions of dollars each year. And if trade needs financing to flow smoothly around the world, banks in turn need common rules and guidelines to deal with their counterparts from other countries in order to avoid the confusion that comes with conflicting national rules. Having companies across the globe voluntarily abide by the same guidelines also levels the playing field, making it easier for small- and medium-sized enterprises to integrate foreign markets and global value chains, and ensuring that trade is more inclusive. This leads ICC to continually adjust and overhaul our rules to reflect the changing nature of banking in trade. ICC also develops guidelines for fields, such as forfaiting, demand guarantees and supply chain finance—all ways that banks work with companies to mitigate the risks involved in trade.
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Over 17 years of practice - , URDG proved to be both successful and reliable. They were used by banks and businesses across continents and industry sectors. URDG were endorsed by international organizations, multilateral financial institutions, bank regulators, lawmakers and professional federations.
In contrast to the failed Uniform Rules for Contract Guarantees URCG , URDG reflected the reality of the international demand guarantee market and struck the most reasonable balance between the interests of all the parties involved.
By choosing to instruct a guarantor to issue a demand guarantee subject to URDG, applicants renounced their ability to obstruct payment for reasons derived from their relationship with the beneficiary.
Finally, because a demand guarantee is an independent undertaking, guarantors were assured that their commitment was subject to its own terms. They were insulated from the performance contingencies of the underlying relationship. Their incremental use, backed by the support of ICC, enabled URDG to make a critical contribution towards levelling the playing field among demand guarantee issuers and users regardless of the legal, economic or social system in which they operate.
Over the years, the application of their provisions shed light on the need for drafting adjustments, clarifications, expansion of scope or clear corrections of the adopted standard.
The ICC Task Force on Guarantees, the standing expert body created by ICC in to monitor international guarantee practice, acted as a consultative body to a Drafting Group that produced five comprehensive drafts during the two and a half year revision process. Each draft was submitted for review and comments to ICC national committees. Over sets of comments were received from a total of 52 countries and were thoroughly examined. These comments were instrumental in shaping the new rules.
Regular progress reports were presented to meetings of each of the ICC commissions considering the rules and were comprehensively debated. This method ensured that the revision takes into account views received from a broad cross-sector of concerned parties. They will come into force on July 1, The new rules apply to any demand guarantee or counter-guarantee where incorporated by reference in the text. They can also apply as trade usage or by implication from a consistent course of dealing between the parties to the demand guarantee or counter-guarantee where so provided by the applicable law.
The new URDG do not merely update URDG ; they are the result of an ambitious process that seeks to bring a new set of rules for demand guarantees into the 21st century, rules that are clearer, more precise and more comprehensive.
Clearer URDG. The new URDG aim for clarity. They also bring a much needed clarification of the process according to which a presentation will be checked for conformity. More precise URDG. A number of the standards contained in URDG left a margin for interpretation that varied according to the particular facts of the case. This was particularly true for the terms "reasonable time" and "reasonable care". The new URDG have excluded all imprecise standards with an aim to foster certainty and predictability.
Examples are time durations for the examination of a demand, the extension of a guarantee in the case of force majeure, and the suspension of the guarantee in the case of an extend or pay demand. More comprehensive URDG. Important practices were left out of URDG This was particularly the case for the advice of a guarantee, amendments, standards for examination of presentations, partial, multiple and incomplete demands, linkage of documents, and transfer of guarantees.
In addition, there was only fragmentary treatment of counter-guarantees. What was understandable at the time of the first attempt to codify demand guarantee practice can no longer be accepted 17 years later.
The new URDG now cover all of these practices and make clear that provisions governing guarantees apply equally to counter-guarantees.
Balanced URDG. The new URDG expect the guarantor to act diligently. For instance, a guarantor is expected to reject a non-complying demand within five business days by sending a rejection notice that lists all of the discrepancies; otherwise, the guarantor will be precluded from claiming that the demand is non-complying and will be compelled to pay. Largely accepted in documentary credit practice under the UCP, the preclusion sanction is necessary to discipline unfair practices that work to the detriment of the beneficiary.
However, this information should not be a prerequisite for payment when a complying demand is presented. Innovative URDG. The new URDG feature a number of innovations dictated by the development of practice and the need to avoid disputes. An example is the new rule that proposes a substitution of currencies when payment in the currency specified in the guarantee becomes impossible.
Another example is the new termination mechanism for guarantees that state neither an expiry date nor an expiry event. The Guide. The new URDG package. The new rules are accompanied by a model guarantee and counter-guarantee form featured at the end of this publication. They are destined to evolve into an indispensable companion to the new URDG and their users. Experience shows that a comprehensive ready-to-use package that combines both the rules and model forms is more attractive to users than the previously separate ICC publications Nos.
It should also be conducive to more harmonized a practice. In drafting the new URDG model guarantee form, a unitary approach was preferred to one that would have consisted of multiple forms linked to the purpose of each guarantee. Tender, performance, advance payment, retention money, warranty and other types of demand guarantees share the same nature and have similar features.
This was evidenced by the five nearly identical basic model guarantee forms in ICC publication No. Of course, URDG users have the option of enriching the unitary model form with one or more of the clauses proposed at the end of this publication such as the reduction of amount clause for advance payment guarantees or even drafting any other clause outright. A final message: the need for clear drafting.
Clear drafting is the linchpin of a successful international demand guarantee practice. This has proven to be the case over time and across cultures and industry sectors.
Using the new URDG model guarantee form levels the playing field and avoids misunderstandings. As such, it will hopefully significantly curb the worrying tendency that a few courts have shown in recent years to re-characterize demand guarantees as accessory suretyships - or the reverse. While sometimes warranted by the ambiguous terms used by the parties, such interference has considerably destabilized the international guarantee market by adding a particularly prejudicial element of uncertainty.
Such a regrettable situation can be remedied by a consistent use of URDG and their accompanying model form in any type of demand guarantee or counter-guarantee or, indeed, any other independent undertaking.
It was my privilege to chair the Drafting Group that undertook the revision. Rarely has a chairman been blessed with a group whose members are so experienced and enthusiastic about the subject at hand, animated by team spirit, complementary in their regional and sectoral experience and able to endure with admirable patience the inevitable challenges of a fast-track revision process.
The result is the new URDG , which we proudly offer to the world. Georges Affaki.
Uniform Rules for Demand Guarantees