Comparative Analysis of URDG758 and URDG458 Rules

Abstract: As a revised version of the URDG458, the URDG758 has made great improvements in the layout style and specific content. In particular, it refines the provisions of the counter-guarantee letter, clarifies the failure mechanism of the guarantee, distinguishes between the two modes of transfer of the guarantee and the transfer of funds, and sets up a special chapter to provide for the force majeure clause. Through these amendments to fill the gaps and deficiencies in the URDG458, so that the URDG758 is more in line with the needs of the letter of guarantee practice. By comparing and analyzing the differences between URDG758 and URDG458 rules, this paper highlights the progress of URDG758, aiming to contribute to the understanding and practical application of URDG758 in practice.

Key words: URDG758;URDG458; counter-guarantee; transfer of guarantee

In order to meet the needs of the development of demand guarantees, the ICC Committee on Banking Technology and Practices completed its URDG758 after more than two years of revision on the basis of the URDG458 (see the Uniform Rules for demand guarantees). It has made significant improvements in form and content. Compared with the URDG458, it is more precise, clearer and more comprehensive, and has carried out a lot of innovations to make up for the gaps and defects in the URDG458. A detailed comparison of the two reveals significant differences in the context of the formulation, the style of the arrangement, and especially the specific content of the terms. The purpose of this paper is to further clarify the advantages of the URDG758 through the comparative analysis of the two, which is helpful to the practical practice of pay-as-you-go guarantee.

1. Development Background Comparison

In view of the globalization of the international economy and the need for ease of trade, the need for guarantees for international payments is increasing. Especially in the field of large-scale transactions such as project financing, project contracting and bidding, due to risk factors such as long term, high risk and large amount, there is an urgent need for third-party guarantee to provide protection in transaction payment and contract performance. However, due to the different provisions of national laws on guarantees, guarantees in the sense of domestic law cannot meet the needs of international economic development. In order to coordinate, guide and unify the rules of guarantee, the International Chamber of Commerce and other international organizations published the Uniform Rules for Contract Guarantees (URCG325) in 1978 in Publication No. 325. This rule is the first uniform rule on guarantees developed by the International Chamber of Commerce.

However, because the URCG325 overemphasizes the balance of interests between the parties to the guarantee, it does not meet the requirements of the buyer (beneficiary) in international trade to use the guarantee to protect its interests to the maximum extent. It is therefore not widely accepted by States. In the international economic environment of the buyer's market, the buyer's attitude dominates the market, and the URCG325 does not reflect the buyer's dominant position in the letter of guarantee, which is the main reason why the URCG325 is abandoned.

Later, in order to make up for the lack of URCG325, the International Chamber of Commerce formulated the Uniform Rules on Guarantees in 1988, but for various reasons, the rules could not be published in the form of an official publication. In order to develop the uniform rules for guarantees required for the development of the international economy at an early date, the ICC Committee on Banking Technology and Practices and the Committee on International Business Practices, after extensive work, prepared the Uniform Rules for Guarantees on demand, or URDG458, which were approved by the ICC Executive Board in 1991.

After the formulation of the URDG458, it has been recognized and widely used by the banking and business circles of various countries. After 17 years (1992-2009), it has been proved that URDG458 rules meet the requirements of international economic development. With the wide application of URDG458 and the needs of economic development, the shortcomings and deficiencies of URDG458 are becoming more and more obvious. The clarity of rules, the certainty and accuracy of specific facts, and the comprehensiveness of content can no longer meet the needs of economic development. Therefore, on the basis of URDG458, the ICC Committee on Banking Technology and Practices, drawing on the practical experience of the guarantee business, revised the URDG458 after four large-scale solicitation of opinions around the world. The revision task force, chaired by Dr. Georges Affaki and composed of 40 experts from 26 countries, reviewed several drafts and made important recommendations to revise the final draft, the URDG758, over a period of two and a half years. On November 24, 2009, it was approved by a high vote at the autumn regular meeting of the International Chamber of Commerce Banking Technology and Practice Committee and entered into force on July 1, 2010.[1]

According to the background of the formulation of the two, both are formulated to meet the needs of the development of international economic globalization. The convenience and efficiency of the demand guarantee in international trade promotes the probability of the use of the demand guarantee in practice. However, the demand guarantee itself also has high risks. Therefore, after 11 years of use, the URDG458 can no longer meet the needs of the current international economic development, which led to the introduction of the URDG758.[1]

Comparison of 2. URDG758 and URDG458 Arrangement

As a revised version of the URDG458, the URDG758 not only expands and refines the rules and adds new content, but also makes major adjustments in the layout.

The overall arrangement of the URDG458 style is relatively simple, and the use of large chapters to define the category of clauses leads to inaccurate chapters and articles, more merged clauses, and unclear and unclear contents. The URDG758 draws on the style of UCP600, refines the content, clarifies the category of terms, and places the definition of content in the same chapter. Its biggest feature is to refine the classification of clauses, and refine the secondary clauses under each major clause, so that the entire rule framework is reasonable and orderly, and it is easier to read and understand.

In addition, the URDG758 has also added an appendix section. Include the applicable URDG758 of the demand guarantee template and the counter-guarantee template in the appendix to provide a standard format for the use of the demand guarantee. The ICC Working Group on Guarantees and DOCDEX: Rules on Professional Services for the Resolution of URDG Disputes are included in the Appendix to provide guidance on the resolution of URDG disputes.

Comparison of 3. URDG758 and URDG458 rules

1. The URDG758 rules clarify and detail the application of the counter-guarantee letter.

The URDG458 only provides a definiteness explanation of the counter-guarantee letter in article 2 (c) and does not clearly URDG458 the validity of the application of the counter-guarantee letter, resulting in controversy over the application of the counter-guarantee letter.

In the scope of application of article 1, the URDG758 expressly states that "the uniform rules on demand guarantees shall apply to any demand guarantee or counter-guarantee letter that expressly indicates the application of these rules." And in paragraph (B), the application of the URDG758 to the counter-guarantee letter is strengthened, "if the demand guarantee issued at the request of the counter-guarantor applies to the URDG, the counter-guarantee letter shall also apply to the URDG".

2, the URDG758 clarified the failure mechanism of the guarantee.

The URDG458 does not provide for an unspecified expiration date and an expiration time for the failure event guarantee. If the guarantee itself does not specify an expiration period and an expiration event, the validity of the guarantee will be extended indefinitely. This is an indefinite risk for both the applicant and the guarantor as a result of the issuance of the guarantee. The guarantor is more likely to be tied up in capital for a long time as a result.

URDG758, in order to remedy the above-mentioned shortcomings of the URDG458, it is stipulated in article 25c that "if the guarantee or counter-guarantee provides for neither a date of expiry nor an event of expiry, the guarantee shall be terminated three years from the date of issuance and the counter-guarantee shall be terminated 30 calendar days after the termination of the guarantee". This clause solves the problem of revocation of the guarantee. It helps the applicant to avoid the potential risk of being claimed indefinitely. At the same time, it avoids the long-term occupation of the guarantor's guarantee funds, which affects the effective use of capital.

This provision also balances to some extent the rights and obligations of the parties to the guarantee and counter-guarantee letter and strengthens the recognition of the parties to the guarantee and counter-guarantee letter. It is conducive to the expansion of URDG758 and the use of pay-as-you-go guarantees.

3, URDG758 added the guarantee letter and counter-guarantee letter of the standard template.

The URDG458 does not provide a template reference to the format and specific content of the guarantee, but only specifies the necessary content of the guarantee in Article 3 "... As required, all guarantees shall specify: a) the guarantor, B) the beneficiary, c) the guarantor, d) the underlying transaction for which the guarantee is required, e) the maximum amount payable and the currency of payment, f) the maturity date of the guarantee and/or the cause of maturity, g) the conditions under which payment is required, and h) any provision to reduce the amount of the guarantee".[2] Prior to URDG758, the guarantor shall, without violating the URDG458, use different forms of guarantee according to his own needs. Domestic banks also have their own guarantee format. Although these guarantees do not violate the provisions of the URDG458 in terms of content, the guarantors, in their respective interests, add terms in their own favor, which to some extent leads to confusion in the format of the guarantee.

Article 8 of the URDG758 makes the necessary adjustments to the content requirements on the basis of insisting on the URDG458 requirement that the guarantee itself should be clear and accurate and avoid adding too much detail. Form requirements have been added, such as the requirement to "indicate the number or other information of the underlying relationship" and "indicate the number or other information of the counter-guarantee issued in the case of the letter of guarantee or counter-guarantee issued". In addition to the above-mentioned requirements on the form of the guarantee, the physical content of the guarantee has also been added, including the formal requirements for the submission of claim documents (I. whether the claim or other documents should be submitted in paper and/or electronic form), the language requirements for the claim documents (j. the language used in the documents specified in the guarantee), and the cost-bearing issue (k. the cost-bearing party). These are not required by the URDG458 to be included in the guarantee. URDG758 adjustment of the content requirements of the guarantee makes the rights and responsibilities of the parties to the guarantee clearer and more uniform, reducing the disputes arising from the guarantee itself.

In addition to the above changes, the URDG758's provisions on the content of the guarantee also set up the "applicable URDG758 of the guarantee format" in the appendix Secondary specialized school, providing a standard template for the guarantee to regulate the format and content of the guarantee. In the form of the guarantee, the order of the necessary contents of the guarantee is listed, and the important content of "place of delivery" is added. In addition to the mandatory elements of the rules, the URDG758 guarantee format template provides optional clauses that can be added to the guarantee format, including model clauses such as time requirements for filing claims, amount change clauses, and supporting statements submitted by beneficiaries.

4, URDG758 force majeure provisions will be clarified.

The non-performance or suspension of performance of a guarantee or counter-guarantee due to external factors is often an important cause of dispute between the parties to the guarantee. Thus, important treaties, conventions and rules have force majeure clauses that clarify the definition, scope and allocation of remedies and liability for failure to perform as a result of force majeure. The provisions of the force majeure clause can reduce the disputes arising from the parties' inability to perform their obligations due to external factors, and is conducive to the settlement of disputes.

The URDG458 does not have a special chapter to provide for force majeure and remedial measures for the non-performance of the guarantee due to force majeure. Article 13 only provides that "the guarantor and the instructing party shall not be liable for the consequences of the interruption of the business of the guarantor and the instructing party due to natural disasters, riots, riots, rebellions, wars or any other reasons beyond the control of the guarantor and the instructing party, or due to strikes or lockouts or industrial acts of any nature". The article is not very rigorous about force majeure and the consequences it entails. First of all, the failure to specifically define and regulate "force majeure" can easily lead to disputes between the parties over the identification of external factors that lead to the failure to perform, I .e., whether the external factors that lead to the failure to perform are force majeure. Secondly, a careful analysis of the article, which is actually an exemption clause for the guarantor and the instructing party, does not provide for remedies after the occurrence of force majeure, which is not conducive to the resolution of the problem. Finally, the article is only a provision on the guarantee, does not provide for the application of the article when the counter-guarantee letter encounters force majeure, and does not provide for the liability and relief measures of the parties to the counter-guarantee letter.

In response to this defect in the URDG458, the URDG758 provides for "force majeure" and remedies for the non-performance of guarantees and counter-guarantees due to force majeure in the chapter dedicated to article 26. The URDG 758 clarifies the scope of "force majeure" and excludes "strikes or lockouts or industrial acts of any nature" from force majeure. According to the needs of social development, "terrorist acts" will be included in the scope of force majeure. That is, "force majeure" includes "acts of God, riots, riots, rebellions, wars, terrorism or any other cause beyond the control of the guarantor and the instructing party".

In URDG758, the article is no longer simply an exemption clause for the guarantor or counter-guarantor, but as a relief clause in the event of force majeure in the event of a guarantee or counter-guarantee. This article details the remedies for the failure to perform the guarantee or counter-guarantee after the occurrence of force majeure and the lapse during this period. For example, the provision for an extension of 30 calendar days after expiration, the provision for the suspension of audits that have been submitted but not reviewed, the provision for payment that has been submitted but not paid, etc.

The URDG758 force majeure clause also expressly provides for the application of the counter-guarantor (article 26a) and the instructing party (B), and provides for the remedy Secondary specialized school paragraph c for the failure of the counter-guarantee due to force majeure.

From the provisions of the force majeure clause in article 26 of the above-mentioned URDG758, it includes the definition of the scope of force majeure, the relief measures for the failure of the guarantee and counter-guarantee, the exemption of the guarantor and the counter-guarantor, and focuses on the relief provisions for the failure of the guarantee and counter-guarantee during the occurrence of force majeure. This improvement is not only conducive to the common determination of force majeure, but also conducive to the solution of problems that may arise in the letter of guarantee and counter-guarantee after the occurrence of force majeure. This has positive implications in practice for the parties to the letter of guarantee and counter-guarantee.

5. It is URDG758 to distinguish between the transfer of guarantee and the transfer of funds.

Compared to the URDG458 issue of the transfer of the guarantee and the transfer of the guarantee payment, the URDG758 further refines the relevant content. Article 4 of Chapter B of the URDG458 provides that "the beneficiary's right to demand payment under the guarantee shall not be transferred unless expressly provided in the guarantee or its modification. However, this provision shall not affect the right of the beneficiary to transfer the amount to which it is entitled under the guarantee to another person." This article confirms that if the guarantee does not expressly provide for "transferability", the beneficiary may not transfer the right to demand payment from the guarantor, I .e. the beneficiary's right to demand payment may not be transferred. However, the money obtained from the exercise of the right to request payment may be transferred to another person. As a clause that provides for the transferability of the guarantee, it only provides for the non-transferable conditions and does not provide for the performance of the transferable guarantee after its transfer. In practice, this leaves a gap in the question of performance after the assignment of a negotiable guarantee. In addition, the URDG458 does not provide for the transferability of the counter-guarantee letter, which also leaves a gap for the transfer of the counter-guarantee letter.

The URDG758 further concretizes and enriches the transfer of guarantees, taking into account the URDG458 provisions on the transfer of guarantees and the transfer of funds. And itemize the difference between the transfer of guarantee and the transfer of funds. Article 33 of the URDG758 specifically provides for the transfer of guarantees and the transfer of funds in detail.

In the case of the transfer of a guarantee, article 33 provides for the formal requirements for the transferability of a guarantee, I .e. only a special statement that it is "transferable" and makes it clear that "the counter-guarantee is not transferable" (article 33 (a)). In order to refine the provisions of the negotiable guarantee, the URDG758 provides for the rights of the guarantor of the negotiable guarantee: unless the transfer is made to the extent and in the manner expressly agreed by the guarantor, the guarantor is not obliged to carry out the requirements of the transfer of the guarantee (B); The assumption of the cost of the transfer of the guarantee (e); The documentary requirements for claims after the transfer of the guarantee (f); it also highlights two important prerequisites (d) for the transfer of a negotiable guarantee: first, that the transferred guarantee should include all amendments to the guarantee that have been agreed between the transferor and the guarantor as of the date of the transfer; and second, that the transferee has acquired the transferor's rights and obligations under the underlying relationship in order to be transferred. These two conditions are necessary for the guarantee to be transferable.

As for the alienation of funds, the URDG758 places the necessary restrictions on the alienation of funds by the beneficiary on a URDG458 basis, I .e., "the guarantor is not obliged to make payments to the alienated person unless the guarantor agrees". This is a balance of the rights of the guarantor and prevents the arbitrary alienation of the beneficiary from adding unnecessary liability to the guarantor.

From the URDG458 and URDG758 provisions on the transfer of guarantees, both rules tend to restrict the transfer of guarantees. The transfer of the counter-guarantee letter is even more negative. The demand guarantee itself is a guarantee business formed on the basis of credibility and trust, and the rights and obligations of the parties to the guarantee are relatively balanced. From the original intention of the International Chamber of Commerce to formulate URDG458 and URDG758 is to facilitate trade, balance the rights and obligations of the parties to the letter of guarantee, and maintain the stability of the relationship between the parties to the letter of guarantee. Therefore, frequent transfer of guarantee is beneficial to the beneficiary, but it will increase the burden on the guarantor and the applicant, which is undoubtedly unfair. Therefore, the rules prefer the non-transferability of the guarantee.

While the URDG758 provides detailed provisions on the transfer of the guarantee and the conditions for the transfer of the guarantee, it does not specify whether the transferable guarantee is re-transferred. According to the literal meaning of article 33 of the URDG758, the author considers that the negotiable guarantee is transferable again.

6. Comparison of other details.

Compared with URDG458, the URDG758 has specified the notification requirements of the letter of guarantee or amendment, and has made more precise and clear provisions on the claim procedure, payment procedure and cost assumption, and is committed to achieving the clearer, more precise and more comprehensive objectives proposed by Dr. Georges Affaki.

4. epilogue

The URDG758 came into effect on July 1, 2010. As a revised version of the URDG458, it has made great adjustments compared with URDG458 and added some new contents. More adapted to the needs of today's international economic and trade development. The comparative analysis of URDG758 and URDG458 will help to better understand and apply the URDG758, and better discover the development and changes of the demand guarantee and the new requirements of the demand guarantee in the new period.

This article won the third prize of Jinan lawyer's business paper selection in 2011

(A total of 5269 words)

References:

[1] International Chamber of Commerce See Uniform Rules for Payment-on-demand Guarantees (URDG758)(2010 Revision), Beijing: China Democracy and Legal System Press, 2010 edition, p. 5

[2] ICC See Uniform Rules for Payment-on-demand Guarantees (URDG458), Beijing: China Democracy and Legal System Press, 2004, p. 5.