Uniform Rules For Demand Guarantees – URDG

What Does Uniform Rules For Demand Guarantees – URDG Mean?
A set of rules developed by the International Chamber of Commerce (ICC) and adopted in 1992. URDG provides a framework for harmonizing international trading practices and establishes agreed-upon rules for independent guarantees and counter-guarantees among trading partners. The guarantees specify uniform practices for securing payment and performance in worldwide commercial contracts.
Investopedia Says
Investopedia explains Uniform Rules For Demand Guarantees – URDG
The World Bank and the United Nations Commission on International Trade Law (UNCITRAL) have adopted the URDG into their standards for financing international trade. The ICC’s publication, Uniform Rules for Demand Guarantees, is considered an authoritative guide and reflects international practice in the use of demand guarantees, while preserving the goal of the original rules – to balance the interests of the trading parties and curb abuse in the development of international trade guarantees.

URDG758 (Uniform Rules for Demand Guarantees) in short:

The URDG758 (Uniform Rules for Demand Guarantees) are a set of contractual rules that apply to demand guarantees and counter-guarantees. As the URDG are contractual by nature, they apply only if the parties to a demand guarantee or counter-guarantee so choose.

The URDG can adequately provide an operational framework for any situation where a demand guarantee is required, whatever the situation is in the public or the governmental sector involved.

Agreeing to issue a guarantee according to URDG spares the parties the effort of drafting extensive clauses to describe the independence of the guarantee, its irrevocability, its non-assign ability and the guarantor’s duties and more.

The most popular articles in URDG from a banker’s point of view are:

Article 8: Content of instructions and guarantees
Article 8 works as a checklist, very useful both for the Guarantor as well as the Applicant when they negotiating the guarantee.

Article 10: Advising of a guarantee or amendment
A new article containing information and instructions for the advising bank/party when receiving instruction only to advise the guarantee without any representation from their own.

Article 11: Amendments
Also a new article containing instructions how to handle an amendment.

Article 14: Presentation and Article 19: Examination
The articles have been rewritten and are now very clear about how the guarantors shall treat a presentation and how they shall examine the documents presented.

Article 20: Time for Examination of demand; payment
Reasonable time has been prolonged from 3 days to 5 days following the day of presentation.

Article 23: Extend or pay
Where a complying demand have been presented, as a request to extend the expiry date, the guarantor is now allowed to suspend payment for a period not exceeding 30 calendar days following its receipt of the demand (instead of 3 days).

Article 24: Non-Complying demand, waiver and notice
A new article delaing with the situation when a demand has been rejected by the guarantor.

Guarantors deal with documents and not with goods, services or performance in general. This means that even if the applicant states that he has performed and consider that the guarantor should not pay, the guarantor should pay if the documents presented are in conformity. The only circumstance in which not to pay is if the applicant has strong proof that it is an unfair calling.

Benefits with using URDG 758
Once the URDG are incorporated in the guarantee or counter-guarantee text by contractual reference to the URDG, they are deemed to be entirely incorporated, unless specific article(s) are expressly excluded or amended.

When drafting a URDG guarantee or counter-guarantee, it is important to make achoice and avoid conditions whose occurrence can only be determined through a forensic examination of the underlying transactions. Guarantors and applicants should avoid using ambiguous terms in the guarantee. Sound practice can only be built upon transparency and good faith. It is in no one’s interest that the guarantee terms could only be understood through lengthy and costly litigation. Clear wording requires no judicial interpretation; therefore applicants can save considerable negotiating time and the cost of specialized legal assistance by benefiting from ready-to-use standard conditions in the model guarantee forms.

A URDG guarantee and counter-guarantee are irrevocable undertakings; this protects the beneficiary against the risk of revocation of the guarantee at a time when the guaranteed obligation is still to be completed.

A URDG guarantee and counter-guarantee enter into effect as from the date they are issued, unless their terms expressly postpone their entry into effect to agree with a later date or the occurrence of an agreed event. Accordingly, no demand for payment can be presented until the guarantee enters into effect following the occurrence of a specified date or event indicated in the guarantee.

The essential characteristic of a demand guarantee is that it is independent of the underlying transaction between the applicant and the beneficiary that prompted the issuance of the guarantee. Further, a demand guarantee is also independent of the instruction relationship pursuant to the applicant having requested the guarantor to issue the guarantee in favor of the beneficiary.