ICC UNIFORM RULES FOR DEMAND GUARANTEES URDG 758 PDF

The ICC Uniform Rules for. Demand Guarantees URDG Advantages of a standardised approach in international business. s Affaki. Uniform Rules For Demand Guarantees – URDG refers to a set of The ICC worked on URDG for more than two years prior to its release. For more information on URDG , see Practice note, Bonds, guarantees and standby credits: overview: International Chamber of Commerce Uniform Rules.

Author: Dajinn Araktilar
Country: Grenada
Language: English (Spanish)
Genre: Personal Growth
Published (Last): 27 February 2013
Pages: 127
PDF File Size: 13.17 Mb
ePub File Size: 14.55 Mb
ISBN: 368-6-23868-777-6
Downloads: 27824
Price: Free* [*Free Regsitration Required]
Uploader: Akinosar

In May, the Nigerian government announced the deregulation of the oil and gas sector which involved the removal of fuel subsidy 1 and the freedom of oil importers to source for foreign exchange FX from the secondary sources to facilitate their international trade.

Laudable as this deregulation policy may seem, the decline in world crude oil prices and Nigeria’s depleting foreign reserves means that the positive impact has not been readily felt by Nigerians, particularly importers, due to their inability to access the FX needed to open Letters of Credit LCs for importation of petroleum products. In a bid to mitigate the challenges posed by the FX crisis, the Central Bank of Nigeria CBN has attempted several intervention mechanisms, and the jury is still out on the determination of the effectiveness of these mechanisms and their potential to resolve the FX scarcity.

An example of such intervention mechanism is the creation of a priority list for accessing the available FX, including to the manufacturing and oil and gas sector. Despite the CBN’s efforts, the fact remains that importers are still unable to meet up with their FX demands to facilitate the importation of goods. Potentially, the offshore market may create a financing stop gap in meeting Nigerian importers’ FX requirements and offshore financiers in sponsoring FX backed LCs, may require Nigerian importers to provide demand guarantees from Nigerian banks.

The URDG consists of 35 Articles which in clear, simple and precise terms set a balance in the legitimate and competing interests of the applicant, the guarantor and the beneficiary; limit the risk of unfair calls and demands on guarantors and counter-guarantors; and explain the various important phases in the lifecycle of a demand guarantee, just like the ICC’s Uniform Customs and Practice for Documentary Credits UCP 4 which is used for Letters of Credit LCs and other documentary credits.

The URDG, being a voluntary instrument, lacks the force of law, and must thus be expressly incorporated by the parties in order for it to apply to a demand guarantee or counter-guarantee. Likewise, parties are free to exclude provisions they are not comfortable with. It is important to note that the URDG may apply without the parties expressly including it in certain instances, including where it is in the general usage of a particular trade; 7 where the applicable law provides for its application; or where it has been in consistent use in the course of a transaction or dealings between the parties.

Being a standard form of contract, once incorporated, there is little need for parties to draft a long form contract. The provisions of the URDG are limited to the scope of the matters upon which the contracting parties are free to contract on, and is subject to mandatory national laws of the governing jurisdiction, which is the law and jurisdiction of the guarantor or counter guarantor, unless otherwise agreed by the parties.

Under the URDG, demand guarantees are completely independent of any underlying relationship between the applicant and beneficiary, and subject to only the terms contained in it, thereby limiting the liabilities and rights of the guarantor bank to only matters it voluntarily commits itself to.

The maxim “pay first and argue later” best describes one of the key principles underlying demand guarantees. The demand guarantee also differs from LCs in that the LC is in itself a means of payment by the applicant in the normal course of the transaction; whereas the demand guarantee is an assurance of payment in the event that the applicant fails to make payment under the actual means of payment, as agreed. However, the demand guarantee is similar to the Standby Letter of Credit, as the payment obligations are alike but differing only in structure.

The actual structure would however depend on the complexity and other features of the transaction. There are many reasons why a Nigerian bank should adopt the URDG in their demand guarantees, some of which are highlighted below:.

Article 5 of the URDG expressly provides that the obligations of a guarantor and counter-guarantor is independent of any issues in the underlying contract. This provision is rather favorable to the banks because guarantor and counter-guarantor banks are not usually parties to such underlying contracts, hence, it is unreasonable to have them entangled in issues emanating from such contracts. The URDG limits the guarantor’s responsibility and role in the agreement to dealing with, 11 and examining presented documents on their facial appearance of conformity only, without any need to verify the authenticity.

The guarantor thus has a discretion on whether or not to accept an instruction to amend a guarantee. Article 12 of the URDG limits the liability of the guarantor to only the terms contained in the agreement, hence further alienating and protecting the guarantor bank from liabilities emanating from other agreements entered into by the other parties to the contract of which it may or may not even be aware. Article 15 of the URDG provides that where a beneficiary makes a demand on a guarantor, the demand shall be accompanied by the documents specified in the guarantee and also by a supporting statement which indicates in what respect the applicant is in breach of its obligations under the underlying contractual relationship.

This rule undoubtedly stands in favour of the guarantor bank because it provides an opportunity or a basis upon which the guarantor may challenge a demand in court by claiming that an accompanying statement is false. Article 21 of the URDG ensures that a guarantor bank is not held in default in the event that it is unable to pay the beneficiary in the currency specified in the demand guarantee, due to an impediment beyond its control or because it is illegal under the law of the place for payment, by providing that the guarantor may make payment in the currency of the place for payment, which need not be the same as the place where the presentation was made.

  HYPERLEARNING MCAT SCIENCE WORKBOOK PDF

This provision also works in favour of the beneficiary, as it can rest assured that irrespective of unforeseen disruptions, payment can be made in a different currency that is, the currency of the place of payment according to the applicable rate of exchange prevailing there when payment or reimbursement is due.

In a country beset by unpredictable currency fluctuations, the ability to pay in a currency other than the currency stipulated in the guarantee must have considerable advantages. Hopefully, the financier should have in place a Certificate of Capital Importation, which then entitles it to purchase foreign exchange in the official exchange market for remittance offshore. Where no extension is granted, the guarantor must pay after the 30 calendar days have elapsed without any further demand being required.

But if the extension is granted during that time, the demand is deemed to be withdrawn, 14 and the guarantee and counter-guarantee will need to be amended to effect this change.

In practice, extend or pay requests which result in an extension happen far more frequently than actual payment of the guarantee.

In favour of the guarantor bank, the URDG entitles a guarantor and counter-guarantor to a discretion on whether or not to accept an extend or pay request. Articles 27 to 30 of the URDG exempts the guarantor from liability on the quality of documents presented to it; 16 foor errors it may make in the transmission of documents; 17 or the acts of its agents and subagents 18 and any act or omission carried out by it ixc the course of carrying out the applicant’s directives where it acts in good faith.

Uniform Rules for Demand Guarantees (URDG) | Practical Law

Article 31 of the URDG provides for unlimited indemnity in favour of a guarantor and counter-guarantor with regard to all obligations and responsibilities imposed on them by foreign laws and usages. These obligations or responsibilities may include foreign regulations obligating guarantor to indemnify other third parties or pay fees or charges outside the scope of the transaction or impose a validity period on guarantees.

The URDG backed guarantee ensures that the guarantor and counter guarantor banks are indemnified for their loss in such instances. Article 33 of rukes URDG provides that a guarantee is transferable only if it specifically uniforn that it is “transferable”, in which case it may be transferred more than once for the full amount available at the time of transfer.

However, a counter-guarantee is not transferable. It further provides that a ursg may refuse a request by a beneficiary for the transfer of a guarantee and assignment of proceeds. Hence such transfers can only be done to the extent that a guarantor has expressly consented to it, failing which the guarantor has a right to refuse to pay the proposed assignee.

This provision is highly beneficial to the guarantor, who can withhold its consent to guuarantees transfer or assignment of a guarantee, even if the guarantee provides that it is transferable.

Guide to ICC Uniform Rules for Demand Guarantees (URDG 758)

This protection is important for various reasons amongst which are: Articles 34 and 35 of the URDG provide that except the parties agree otherwise, the guarantor’s law and jurisdiction applies to the demand guarantee and in the case of a counter guarantee, the counter guarantor’s law and jurisdiction applies to the counter guarantee.

Thus, where a Nigerian bank gives a guarantee, Nigerian law automatically governs the guarantee and the courts of Nigeria have jurisdiction over any dispute, without any need for the guarantee to provide to that effect.

As a practical matter, foreign financiers typically prefer that English law govern their financing instruments except with respect to security located in Nigeria, which must be governed by Nigerian law as the lex situs. Incorporating the URDG automatically swings the balance of negotiation in favour of the Nigerian bank, who may rely on the default provisions.

While the foregoing Articles seem to be mainly in favour of the guarantor, it is useful to mention that Article 4 b of the URDG appears to swing in favour of the beneficiary to the disadvantage of the guarantor, by providing that a demand guarantee issued subject to the URDG is deemed irrevocable, even though the guarantee declares itself to be revocable. In our view, this rule is not as dis-advantageous as it appears.

In reality, a bank is not likely to issue a revocable guarantee in international trade as the probability of beneficiaries accepting revocable guarantees is very low because of the little protection it affords them. As a matter of practice, demand guarantees issued by Nigerian banks tend to be bespoke and differ largely from bank to bank.

We are of the view that since the URDG offers more protection to Nigerian banks, negotiating bespoke guarantees can be more trouble than it is worth. By adopting the URDG, demand guarantees issued by Nigerian banks can be much simpler documents, as all the protection found in a standard Nigerian bank guarantee are included in the URDG, while the URDG has additional protection which may not necessarily be found in bespoke bank guarantees.

ICC Uniform Rules for Demand Guarantees (URDG) Including Model Forms | ICC Store

These widespread acceptance and endorsements are mainly due to the fact that adopting the URDG brings on board the benefits of adopting a standardized agreement, especially in cross border transactions, as it:. Finally, banks should remember that the terms and conditions of the URDG are not cast in stone, and they are free to exclude any terms they find not suitable or amenable to their appetite. The content of this article is intended to provide a general guide to the subject matter.

  0112D MCI PDF

Specialist advice should be sought about your specific circumstances. Introduction In May, the Nigerian government announced the deregulation of the oil and gas sector which involved the removal of fuel subsidy 1 and the freedom of oil importers to source for foreign exchange FX from the secondary sources to facilitate their international trade.

What is the URDG? There are many reasons why a Nigerian bank should adopt the URDG in their demand guarantees, some of which are highlighted below: Independence from underlying contracts Article 5 of the URDG expressly provides that the obligations of a guarantor and counter-guarantor is independent of any issues in the underlying contract. Role The URDG limits the guarantor’s responsibility and role in the agreement to dealing with, 11 and examining presented documents on their facial appearance of conformity only, without any need to verify the authenticity.

Entire Agreement Article 12 of the URDG limits the liability of the guarantor to only the terms contained in the agreement, hence further alienating and protecting the guarantor bank from liabilities emanating from other agreements entered into by the other parties to the contract of which it may or may not even be aware.

Demand Article 15 of the URDG provides that where a beneficiary makes a demand on a guarantor, the demand shall be accompanied by the documents specified in the guarantee and also by a supporting statement which indicates in what respect the applicant is in breach of its obligations under the underlying contractual relationship. Currency Payment default Article 21 of the URDG ensures that a guarantor bank is not held in default in the event that it is unable to pay the beneficiary in the currency specified in the demand guarantee, due to an impediment beyond its control or because it is illegal under the law of the place for payment, by providing that the guarantor may make payment in the currency of the place for payment, which need not be the same as the place where the presentation was made.

Indemnity Article 31 of the URDG provides for unlimited indemnity in favour of a guarantor and counter-guarantor with regard to all obligations and responsibilities imposed on them by foreign laws and usages. Transfer and Assignment Article 33 of the URDG provides that a guarantee is transferable only if it specifically states that it is “transferable”, in which case it may be transferred more than once for the full amount available at the time of transfer.

Applicable law and Jurisdiction Articles 34 and 35 of the URDG provide that except the parties agree otherwise, the guarantor’s law and jurisdiction applies to the demand guarantee and in the case of a counter guarantee, the counter guarantor’s law and jurisdiction applies to the counter guarantee. Irrevocability While the foregoing Articles seem to be mainly in favour of the guarantor, it is useful to mention that Article 4 b of the URDG appears to swing in favour of the beneficiary to the disadvantage of the guarantor, by providing that a demand guarantee issued subject to the URDG is deemed irrevocable, even though the guarantee declares itself to be revocable.

Should Nigerian Banks adopt it as a matter of course? Various editions of the Uniform Rules for Demand Guarantees have been in use by banks and other guarantors around the world for over 24 years 23 and have proven to be advantageous and dependable, as it creates a reasonable balance between the competing interests of the contracting parties, tilting in favour of the guarantor; The URDG has been endorsed by various bank regulators, financial institutions 24international organizations such as the World Bank and the United Nations Commission on International Trade Law UNCITRAL 25 as well as a number of professional bodies Following the widespread acceptance and application of the URDG on demand guarantees all over the world, relevant regulators and institutional bodies in Nigeria like the Central Bank of Nigeria and the Nigerian National Committee of the ICC, have supported the adoption of URDG by organizing and conducting various seminars to reflect and disseminate information on the URDG to authorized dealers and stakeholders.

Do you have a Question or Comment? Interested in the next Webinar on this Topic? Click here to register your Interest. Events from this Firm. More from this Firm. More from this Author. Profit is the motive of every business and for any business owner to realize profit from an undertaking the production cost must be less than the sales cost. Ghana is endowed with abundant natural resources, which have played a key role in the development efforts of the country.

Ghana has a long history of mining especially for gold. Mineral extraction and revenues in Tanzania have made very little positive impact on the lives of most Tanzanians. The Saudi Arabian Mining Code.

It has been well publicized that it is the intent of the Government of the Kingdom of Saudi Arabia KSA to establish mining as the third pillar of the Saudi economy alongside hydrocarbons and petrochemicals. Energy and Natural Resources. Worldwide Europe European Union U. Food, Drugs, Healthcare, Life Sciences. Media, Telecoms, IT, Entertainment. Real Estate and Construction.