URDG 758 - Article 1-Application of URDG

The Uniform Rules for Demand Guarantees, 2010 Revision, ICC Publication 758 became effective from July 1, 2010. It is designed to unify independent guarantee practice, this revised set of rules for demand guarantees replaces the old version Publication No.458 issued in 1992.

URDG 758 came strongly into the picture after the wide success of UCP 600. This is not a "law." It sets out the roles and responsibilities of all parties at each stage of the life cycle of a demand guarantee and reflects "best practice" in the guarantee business.

A Demand Guarantee usually issued in the form of MT799, MT760 or Paper Format, there is no dedicated fields in guarantees like a Letter of Credit.  

Let's look at Article-1

a. The Uniform Rules for Demand Guarantees ("URDG") apply to any demand guarantee or counter-guarantee that expressly indicates it is subject to them. They are binding on all parties to the demand guarantee or counter-guarantee except so far as the demand guarantee or counter-guarantee modifies or excludes them.
 
Explanations: This set of rules to be only applies and binds all the parties to any demand guarantee or counter-guarantee that expressly indicates it is subject to URDG-758 or similar words. A demand guarantee or counter guarantee can modify or exclude the rules, for example if guarantee indicates that "Article 15-a" will be excluded, it means that there is no need to present certificate of breach by the beneficiary which is a mandatory requirement at the time of making the demand.

b. Where, at the request of a counter-guarantor, a demand guarantee is issued subject to the URDG, the counter-guarantee shall also be subject to the URDG, unless the counter guarantee excludes the URDG. However, a demand guarantee does not become subject to the URDG merely because the counter-guarantee is subject to the URDG.

Explanations: Sometimes, a beneficiary wants a guarantee to be issued by local bank/guarantor to avoid the country risk of original guarantor/applicant. In such a case local guarantees are opened on the bases of counter guarantees, we can co-relate the situation from confirmation of a Letter of Credit, however, guarantees deal with applicable law as well.

If a local guarantee is issued subject to URDG-758 then a counter guarantee will also be subject to same rules whether or not indicated in the counter guarantee unless the text of the counter guarantee expressly excludes URDG. However, it can't be in reverse order and if a counter guarantee is subject to URDG it doesn't mean local guarantee will also be subject to URDG unless it indicates.

c. Where, at the request or with the agreement of the instructing party, a demand guarantee or counter-guarantee is issued subject to the URDG, the instructing party is deemed to have accepted the rights and obligations expressly ascribed to it in these rules.

Explanations: Instructing party is the the party whom behalf/instructions guarantee is issued, an instructing party may or may not be applicant. Once instructing party requests the guarantor to issue a guarantee subject to URDG-758 they deemed to have accepted the rights and obligations expressly indicated in these rules.

d. Where a demand guarantee or counter-guarantee issued on or after 1 July 2010 states that it is subject to the URDG without stating whether the 1992 version or the 2010 revision is to apply or indicating the publication number, the demand guarantee or counter-guarantee shall be subject to the URDG 2010 revision.

Explanations: Point to note here that old version of URDG could still be used upon express indications in guarantee, however, it may not be sufficient,updated to help and form an uniformity.

If a demand guarantee or counter guarantee issued on or after July 1, 2010 states simply that subject to URDG without stating the version then it will deemed to be subject to latest version.

Additional Points to Note:

Counter Guarantee: As indicated above a guarantee may be based on the counter guarantee.

For an example if an Indian applicant ask the guarantor in their country to issue a guarantee in favor of a Chines beneficiary which may not be acceptable to the beneficiary due to country risk and local Indian law. In such a case beneficiary may ask guarantor to arrange a guarantee thru local Chinese bank and an Indian bank/guarantor may arranges the guarantee thru beneficiary bank, text of the both guarantees usually be same. However, these will be two separate undertakings. If a guarantee does not expressly indicates which law to be applicable then the issuer branch/country law will be subject to the guarantee, a local guarantee usually subject to beneficiary country's law which favors them in case of dispute.