Article-23, URDG-758- Extend or Pay

URDG 758 article 23 sets out detailed provisions for the handling of an extend or pay demand.

Article-23, URDG 758

a. Where a complying demand includes, as an alternative, a request to extend the expiry, the guarantor may suspend payment for a period not exceeding 30 calendar days following its receipt of the demand.

First thing to note is that the demand must be a complying demand for this reason. If it is not a complying demand, the guarantor should either reject the demand or ask for a waiver from the counter‑guarantor or instructing party, as the case may be.

In case it is a complying demand, the guarantor has the option either to pay the demand or to suspend payment for 30 calendar days following the day of the receipt of the demand. During this period of suspension, the guarantor may make a complying demand under the counter‑guarantee so that the counter‑guarantor would have the sufficient time to contact the applicant or instructing party to make the decision on the basis, point to note here, it is counter guarantor’s own discretion. However, in order to retain the business and considering the situation a counter guarantor may take the decision either to extend or pay.

b. Where, following such suspension, the guarantor makes a complying demand under the counter-guarantee that includes, as an alternative, a request to extend the expiry, the counter-guarantor may suspend payment for a period not exceeding four calendar days less than the period during which payment of the demand under the guarantee was suspended.

After that suspension a counter‑guarantor shall then inform the instructing party of the suspension of time and may suspend payment for a period of up to four calendar days less than the suspension period under the guarantee. A counter‑guarantor suspended for a shorter period than the guarantee is to ensure that the decision of the counter‑guarantor is made in advance of the deadline for the guarantor to make a decision.

c. The guarantor shall without delay inform the instructing party or, in the case of a counter-guarantee, the counter-guarantor, of the period of suspension of payment under the guarantee. The counter-guarantor shall then inform the instructing party of such suspension and of any suspension of payment under the counter-guarantee. Complying with this article satisfies the information duty under article 16.

The guarantor must need to inform the instructing party (or the counter‑guarantor where applicable) of the period of suspension without delay. This notification also satisfies the guarantor’s obligation under URDG 758 article 16 to transmit information.

d. The demand for payment is deemed to be withdrawn if the period of extension requested in that demand or otherwise agreed by the party making that demand is granted within the time provided under paragraph (a) or (b) of this article. If no such period of extension is granted, the complying demand shall be paid without the need to present any further demand.

Once the guarantor notifies the counter guarantor and further notified to applicant or instructing party on the basis of that a counter‑guarantor can either grant an extension of the counter‑guarantee or decide to pay the demand, the guarantor can be confident in granting an extension of the guarantee in case counter guarantor grants it. Conversely, if the counter‑guarantor pays under the counter‑guarantee, the guarantor may decide to pay under the guarantee.

e. The guarantor or counter-guarantor may refuse to grant any extension even if instructed to do so and shall then pay. 

Decision of the guarantor under the guarantee and the decision of the counter‑guarantor under the counter‑guarantee are independent. It is allowed for either of them to reject to grant an extension even if instructed to do so. However, if the guarantor or the counter‑guarantor neglecting to grant an extension, one must need to immediately pay the demand.

f. The guarantor or counter-guarantor shall without delay inform the party from whom it has received its instructions of its decision to extend under paragraph (d) or to pay.

Once the guarantor or counter‑guarantor have made their decisions, they must, without delay, inform the party from whom it has received its instructions of its decision to extend the guarantee or counter‑guarantee, or to pay.

g. The guarantor and the counter-guarantor assume no liability for any payment suspended in accordance with this article.

Important points to read:

• One difficulty with the procedure under this article is the timing of notifications from the guarantor to the instructing party. As the first step to be taken by guarantor upon receipt of any form of demand is to inform the instructing party or counter‑guarantor without delay in accordance with article 16. Once the guarantor determines that a demand is complying, the guarantor must, without delay, transmit a copy of the demand and any related documents to the instructing party or counter‑guarantor in accordance with article 22.
• Sub‑article 23 (c) states that, in the case of extend or pay demand, the guarantor must, without delay, inform the instructing party or counter‑guarantor of the period of suspension of payment and this notification satisfies obligation of giving information under article 16 as well. A guarantor can play smartly and can check the extend or pay demand within one or two business days and fulfil both the obligations respectively under article 16 and 23 (c) if it is complied demand.