URDG 758 – A facelift for the Demand Guarantee Rules


Following what most observers feel has been a successful revision of ICC's Uniform Customs and Practice for Documentary Credits ("UCP 600") which, has led to a significant revival in the fortunes of the documentary credit, the ICC has launched on 1 July 2010 the revised Uniform Rules for Demand Guarantees ("URDG 758").

The new rules - why were they needed?

In a competitive market where the standby credit has, for many, become the demand guarantee of choice employing either UCP 600 or the International Standby Practices 1998 ("ISP 98") as its underlying rules, the URDG based demand guarantee has had relatively limited penetration. Part of its lack of popularity stems from a perception that the rules are pro-applicant/guarantor (generally the contract counterparty and its bank) and not user-friendly for banks. One issue of debate has been the requirement of a beneficiary to justify a demand by reference to a contractual breach (while UCP 600 for example distances the payment obligation in a standby credit from the facts of the underlying contractual performance). The rule was created to protect applicants and guarantors from unjustified calls on guarantees but is unattractive to beneficiaries. There is also anecdotal evidence that less than 5% of these instruments ever result in a pay out so it is unsurprising that the ICC felt it was time to give the old rules ("URDG 458" – a 1992 revision) a makeover.

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