The ICC has issued a revised version of the Uniform Rules for Demand Guarantees (URDG), which will apply to hundreds of billions of dollars of demand guarantees securing monetary and performance obligations in a wide array of international and domestic contracts.
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 July 1, 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 US$14tn of international trade,” says ICC chairman Victor 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.
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 (CLP), which are made up of representatives from banks, companies and law firms worldwide.
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