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.
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The guarantor thus has a discretion on whether or not to accept an instruction to amend a guarantee. There are many reasons why a Nigerian bank should adopt the URDG in their demand guarantees, some of which are highlighted below:. 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.
While the foregoing Articles seem to guaantees 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 guaantees the guarantee declares itself to be revocable.
The maxim “pay first and argue guarahtees best ic one demabd the key principles underlying demand guarantees. The actual structure would however depend on the complexity and other features of the transaction. 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.
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This rule undoubtedly stands in favour of the guarantor bank because it provides an opportunity or a basis upon which the guarantor may unifodm a demand in court by claiming that an accompanying statement is false. 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:. 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 unifor not be the same as the place where the presentation was made.
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 kniform found in bespoke bank guarantees.
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.
ICC Uniform Rules for Demand Guarantees (URDG) Including Model Forms | ICC Store
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. 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.
Events from this Firm. 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. Case studies throughout the Guide support and enliven the comprehensive analytical commentary on the rules.
Uniform Rules for Demand Guarantees (URDG)
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. Food, Drugs, Healthcare, Life Sciences. Real Estate and Construction. 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.
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.
Drafting Issuance Changing of terms Guaranteees a presentation Examining the presentation Making payment Termination of the guarantee and 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.
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.
Guide to ICC Uniform Rules for Demand Guarantees (URDG ) | ICC Store
Click here to register your Interest. Incorporating the URDG urrg swings the balance of negotiation in favour of the Nigerian bank, who may rely on the default provisions. Interested in the next Webinar on this Topic? In favour of the guarantor bank, the URDG entitles a guarantor and counter-guarantor to a demanr on whether or not to accept an extend or pay request.
Further, this publication tracks in detail the seven key stages of a guarantee’s lifecycle: More from this Firm. Drafting and Negotiating International Commercial Contracts.
Demand Article 15 of the URDG provides that where a beneficiary makes a demand on a guarantor, the demand shall be accompanied by ifc 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. Articles 27 to 30 of the URDG exempts the guarantor from liability on the quality of documents presented to it; 16 on 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 in the course of carrying out the applicant’s directives where it acts in good faith.
The URDG backed guarantee ensures that the guarantor and counter guarantor banks are indemnified for their loss in such instances. This provision is highly beneficial to the guarantor, who can withhold its consent to a transfer or assignment of guarantese guarantee, even if the rulex provides that it is transferable.
Article 33 of the URDG provides that a rulfs 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.
It further provides that a guarantor may refuse a request by a beneficiary for the transfer of a guarantee and assignment of proceeds. 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. There are many reasons why a Nigerian bank should adopt the URDG in their demand guarantees, some of which are highlighted below: Specialist advice should be sought about your specific circumstances.
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. Sign up for our newsletter: This protection is important for various reasons amongst which are: He is a Fellow of the British Academy and was knighted in for services to academic law. The content of this article is intended to provide a general guide to the subject matter.
Guide to ICC Uniform Rules for Demand Guarantees (URDG 758)
Media, Telecoms, IT, Entertainment. 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.
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. 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.