New ISDGP in Town – From Local to Global
At the ICC Banking Commission 2021 Annual Meeting held 31 March the ICC Banking Commission National Committees voted to approve the International Standard Demand Guarantee Practice (ISDGP) for URDG 758.
The ICC National Committee's votes were as follows:
Approve: 56
Abstain: 0
Against: 2
Only Switzerland and Tunisia voted against the ISDGP.
Just as the ISBP documents best practice for commercial Documentary credits subject to UCP 600, the ISDGP does the same for Demand Guarantees subject to the Uniform Rules for Demand Guarantees (URDG 758).
The approval of the ISDGP is the end of a three-year journey – and surely the beginning of a new journey.
The drafting has been done by the ISDGP Working Group and its co-chairs Georges Affaki and Glenn Ransier. The drafting has been based on the comments received from the ICC Banking Commission National Committees to the three drafts for comments that has been circulated during the three years.
In ICC Denmark a dedicated working group was established. I had the privilege of chairing the group and - not least - working with some of the best guarantee experts in Denmark. The group spend many hours on Teams discussing the newly drafted paragraphs aiming to provide constructive feed-back to the ISDGP Working Group allowing them to understand demand guarantee practice as it is understood in Denmark. It is fair to say that many (of course not all) of our comments were taken into account and are reflected in the final draft of ISDGP.
The reason for giving this “Danish Angle” is to illustrate how the ISDGP has turned local demand guarantee practice (as provided by the ICC Banking Commission National Committees) into global international demand guarantee practice (as now reflected in the ISDGP). The reason is also to illustrate the magnitude of the work that went before the approval of the Final ISDGP Draft. Of course, the ISDGP Working Group have spent many hours - but so have the ICC National Committees. And bear in mind also, that each local expert represents a bank or other organization that have aligned their views. Again, going from very local to global!
Unlike the landscape when ISBP was drafted, there was only little documented practice to base the ISGDP on. For example, there are only 5 opinions covering URDG 758 (including TA.914rev approved at the ICC Banking Commission 2021 Annual Meeting 30 March). For that reason (and I am sure others) the structure of ISDGP is different from ISBP. Where ISBP is structured based on the documents to be presented under a documentary credit, ISGDP is structured based on the various phases a demand guarantee may or will run through during its lifetime.
The ISGDP Includes the following main chapters:
* Application of ISDGP
* Definitions
* Drafting the guarantee
* Issuing the guarantee
* Advising a guarantee
* Amendments
* Presentation
* Demands
* Extend or pay demand
* Examination
* Payment
* Non-complying demand, waiver and notice
* Reduction and expiry of a guarantee
* Force majeure
* Transfers
* Assignment of proceeds
* Miscellany
As can be seen from the names of the chapters, ISDGP covers – as mentioned – all phases of a demand guarantee. Most of the content is in fact not a surprise as it really is documenting existing practice but is really good to have it documented finally. During the drafting, there were of course issues that were heavily discussed. One of those was the question when the demand guarantee is issued. The final result is outlined in paragraphs 67 through 71. Paragraph 70 is interesting and important - and reads:
“For the purpose of article 4(a), control is not restricted to the physical possession of the guarantee. The guarantor’s transmission of the original, signed guarantee in paper form to its agent, with instructions for transmission to the beneficiary, does not meet the requirement for issue, as the agent acts under the guarantor’s control. Unless otherwise specified in the guarantee, external legal counsel representing the guarantor and courier companies entrusted with the delivery of the guarantee are generally deemed to be an agent of the guarantor, whilst the applicant or the instructing party is not the guarantor’s agent.”
For this and others, it has been interesting to follow the drafting - seeing how it has matured from draft to draft.
In any case. The final draft of ISDGP has been approved, and I want to express my heartfelt congratulation to the ISDGP Working Group and its co-chairs Georges Affaki and Glenn Ransier for the good and hard work done.
This is indeed a great achievement – for the demand guarantee product and the Trade Finance community.
Kudos!