Trade Finance Expertise

Guarantees are documentary in nature and purely based on the terms and conditions along with the rules and law as applicable. Let’s look at the article 8 of URDG-758 to understand the require parties and details which need to be mention to make it valid conditional undertaking. Article-8-URDG-758 Content of instructions and guarantees All instructions should be clear in the application received from either applicant or instructing party to issue the guarantee. When guarantee is being issued all the information must be clearly re-keyed as per application or the requirement. It should avoid excessive details which may make it lengthy and complicated. It is recommended that all guarantees should specify: Applicant with name and address. B eneficiary with name and address. Guarantor's name with issuing branch address. A reference number or other information identifying the underlying relationship on which guarantee may be based. A reference number or other information iden

Article 6 explains  us that guarantors deal with documents not with the goods, services or performance and article 7 gives an idea about non documentary conditions. URDG 758 - Article 6- Documents v. goods, services or performance This article is similar to UCP600 article-5. G uarantees  are documentary in nature guarantors deal with documents, not with goods, services or performance to which the documents may relate. URDG 758 - Article 7- Non-documentary conditions A guarantee should not stipulate a condition other than a date or the lapse of a period without specifying a document to indicate compliance with that condition. For an example it is best practice that guarantee states clearly such as “a demand can only be made after dated 01/01/2023. A guarantee may indicate lapse of period that guarantee will be expired after 15 days upon submission of certificate of compliance by XYZ Company. However, if guarantee does not specify any such document and the fulfilment of the c

A guarantee and counter guarantee both are separate undertaking and independent by nature, let’s first understand the terms guarantee, counter guarantee and underlying contract. Demand Guarantee: Is an irrevocable undertaking issued by the guarantor (bank or entity) to pay the beneficiary up to the maximum amount of the guarantee, upon presentation by beneficiary of a demand which complies with the terms of the guarantee. Counter‑Guarantee/Indirect Guarantee: Is a form of demand guarantee which is issued in the favor  of the issuer of a demand/local guarantee. It is usually used when two banks in different countries are involved.  It mitigates the country risk for beneficiary as usually be issued by the bank/entity where beneficiary is located. Underlying Relationship: As we know guarantees are used to cover the non-performance of the applicant, underlying relationship is the contract between applicants and beneficiary upon that a guarantee may be based. A guarantee is independ

This Article help us to understand the issuance and effectiveness of the guarantees .   URDG 758 - Article 4- Issue and effectiveness A. A guarantee is issued when it leaves the control of the guarantor. In most of the cases the date on which guarantee is sent, and the date when it leaves the control of the guarantor will be same. However, these could be different days as well. For example, if a guarantee prepared in paper format, it is possible that the guarantee may be signed and dated on Monday, but kept overnight by the guarantor until it is handed over to a courier on Tuesday. Now Questions arises, is guarantee issued on Monday or Tuesday? In the above scenario guarantee will be leaving the control of the guarantor on Tuesday so will deemed to be issued on Tuesday. B. A guarantee is irrevocable on issue even if it does not state this, there is no dedicated field like commercial letter of credit in guarantee, it means that even if guarantee does not state that “irrevocabl

Interpretation is the act of explaining, reframing, or otherwise showing understanding of terms used in URDG, let’s look at the article 3 of URDG. Artilce-3-URDG- Interpretation A. Branches of a guarantor in different countries are considered to be separate entities, for an example HDFC Bank, India and HDFC, London will be separate Banks. In case if issued Guarantee is not by bank instead any corporate then the branch of that guarantor in other country will be different entity. B. Except where the context otherwise requires, a guarantee includes a counter guarantee and any amendment to either, a guarantor includes a counter-guarantor, and a beneficiary includes the party in whose favor  a counter-guarantee is issued. Guarantee means counter guarantee or local guarantee, Guarantor means either the issuer of counter guarantee or local guarantee. Beneficiary means the party of the guarantee who is entitle to claim under the Guarantee. However, because counter guarantee is issued in

Parties involved in a contract must be properly identified. A contract should contain a contractual parties clause defining each party entering into the agreement, in this article we shall look upon the definitions of all the involve parties in a guarantee and counter guarantee. Definitions   Advising Party: Means the party that advises the guarantee at the request of the guarantor.   Sometimes, to expedite the process of advising instead of sending thru courier guarantor choses the SWIFT format and beneficiary may not be listed under SWIFT, wherein advising bank/advisor comes into the picture to advise the guarantee to beneficiary.   Applicant: Means the party indicated in the guarantee as having its obligation under the underlying relationship supported by the guarantee. The applicant may or may not be the instructing party. Guarantee is an instrument which backs up non-performance, an applicant is the party who has to perform under the contract and upon whose behalf guaran

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 dema