ICC announces new rules for demand guarantees

The revised rules, the first in 18 years, were formally adopted by the ICC Executive Board at its meeting in New Delhi and will enter into force on 1 July 2010.

The URDG have gained increasing worldwide acceptance over the years. They were adopted by the International Federation of Consulting Engineers in their model guarantee forms and later incorporated by the World Bank in all of its unconditional guarantee forms. The rules have also been endorsed by the United Nations Commission on International Trade Law, and national lawmakers have used them as a model for independent guarantee statutes.

“The revised URDG rules are the latest example of ICC’s leadership in writing the rules that govern some $14 trillion of international trade,” said ICC Chairman Victor K. Fung. “Since its founding in 1919, ICC has been writing rules to facilitate cross-border trade and investment. ICC rules are globally accepted in the fields of banking, customs, marketing, advertising and trade finance.”

Comprising 35 articles, the URDG rules set out the liabilities and responsibilities of the parties at each key stage of the lifecycle of the guarantee. The changes include innovative treatments of payment contingencies and more precise language for determining whether a presentation made under a guarantee or counter-guarantee, whether paper-based or electronic, is a complying presentation. These changes are expected to curb the rate of rejection of demands and increase the certainty of the instrument.

“This collective effort has borne fruit as it has produced rules that reflect a broad consensus among bankers, users, and all members of the guarantee community,” said ICC Secretary General Jean Rozwadowski. “It is the result of an ambitious project to create a new set of rules for the 21st century that is clearer, more precise, and more comprehensive, offering the fairest balance yet between the parties’ competing interests and doing so in innovative ways.”

In international sales, whereas a documentary credit assures the exporter of being paid upon the presentation of complying documentation showing that shipment is made, a demand guarantee provides protection to the importer against non-performance, or late or defective performance, by the exporter.

The revision of the URDG spanned two and a half years and was a cooperative effort by ICC’s Banking Commission and its Commission on Commercial Law and Practice, which are made up of representatives from banks, companies and law firms worldwide.

It was conducted under the stewardship of the ICC Task Force on Guarantees, a standing body of experts from 26 countries. “The new rules are destined to become the international standard for demand guarantee practice,” said Georges Affaki, BNP Paribas, who chaired the task force.