Banking & finance
ICC to revise its Uniform Rules for Demand Guarantees
The ICC Banking Commission has given the go-ahead to begin a revision of the ICC Uniform Rules on Demand Guarantees (URDG). The rules, approved by ICC in 1991, have as their objective to balance the conflicting interests of applicants, beneficiaries and guarantors. In simplifying the drafting of demand guarantees, they serve as a model for guarantee practice worldwide.
Demand guarantees are irrevocable undertakings, independent from underlying contracts, issued by a guarantor on the instructions of an applicant to pay the beneficiary any sum that may be demanded up to a maximum amount determined in the guarantee. 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.
In recent years, the URDG have gained increasing worldwide acceptance. They were adopted by the International Federation of Consulting Engineers (FIDIC) in their model guarantee forms and later by the World Bank. National lawmakers have taken the URDG as a model for independent guarantee statutes. Seminars worldwide on the rules have attracted enthusiastic audiences.
Georges Affaki, chair of the ICC Task Force on Guarantees, said the time is ripe for a revision of the rules: “The rules were drafted two decades ago and need to keep up with current practice,” he said. He added that “a number of the provisions of the URDG would benefit from a rejuvenation that would make them clearer and more precise.”
The revision will be entrusted to a drafting group consisting of guarantee experts from a wide range of countries. Mr Affaki says he will put the revision process on a fast-track basis and expects the revised rules to be ready within two years.