• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.51
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• pp.241-261
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• 2011

URDG 758 tracks UCP 600 in format and style. This makes it easy for practitioners to understand various terms with a lot more clarity than in URDG 458, since practitioners see things in a format and style they are accustomed to. It is a fact that the provisions of the national law will prevail over the URDG 758. In many countries there is only limited written law concerning abstract guarantees; therefore any conflict between URDG 758 and the national law will be unlikely. In many instances the instructing party is different from the applicant - the party whose obligation is supported by the guarantee. And provision for amendment is a new addition in URDG 758. Inspiration was taken from UCP 600 with some fine tuning: accpet, reject or do nothing - and the implications of each of these. Chief among the innovations in the URDG 758 is the one banning non-documentary conditions. The consensus is that the new URDG 758 is a major improvement on URDG 458 in both comprehensiveness of scope and contents of rules. The URDG 758 is likely to become the international standard in the field of demand guarantees.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.51
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• pp.263-283
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• 2011

There are two typical international rules in issuing guarantee for obligations of party which is responsible to provide some duties such as services, construction, plants, loan repayment, etc. The two internationally recognized rules are currently ISP98 and URDG758. ISP98 was firstly introduced in 1998 for American banks to issue standby letter of credit domestic and overseas for the area where UCP does not cover. URDG was introduced first in 1991 in the name of URDG458 but it has not been widely used and therefore new URDG named URDG758 came out in 2010 to accommodate more standard guarantee practice. At the face of these two prevailing international rules, the users are sometimes confused which rule would be more suitable for their individual transaction. This led us to conduct a comparative analysis on these two rules. Our study suggests that URDG758 is more adequate for construction, ship-building and plants-supply obligations whilst ISP98 is for financial obligations. Also attentions are required when issues such as counter guarantee, governing rule, presentation period, document examination period and default statement exist. This is because ISP98 and URDG758 have different view points.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.50
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• pp.109-136
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• 2011

Bank Guarantee system is commonly used as useful financial instruments to support various overseas and domestic business activities by providing bank guarantees. Therefore, it will be able to develop as a useful socio-economic useful system. However, some procedural problem can arise from the processes under demands for payment. Therefore, it is very important to review the requirements of the demand for payment and compliance standard for the examination of a presentation under the guarantee system. It is necessary to examine main issues under the revised URDG 758. The URDG introduced the same examination principle of "need not be identical to, but shall not conflict with' as that of UCP 600. The main changes of the URDG 758 like this imply the mitigation of the compliance standard for examination. So, This paper is to provide a comparative study of the regulations and laws for the examination standard and propose their implications and practical notes under bank guarantee system. For this purpose, this study will be examined the practical and legal issues focusing on the relative regulations of the revision URDG 758. It will also be reviewed and compared with the URDG, ISP98, UCP 600 and so on.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.51
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• pp.213-239
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• 2011

This article examines two important issues of the demand for payment by the beneficiary and the payment by the guarantor to the beneficiary under the revised Uniform Rules for Demand Guarantee (URDG) published by ICC, which are called URDG 758 and effected on July 1, 2010. Here, after first briefly defining the concept and nature of the demand for payment, this article discusses various issues surrounding the demand: By whom, where and how the demand has to be made; which documents are required in demanding the payment; how much amount can be demanded and paid; when and where the payment has to be made and which currency has to be used for the payment. The demand for payment has to be made by the beneficiary to the guarantor on or before expiry of the guarantee at the place of issuance of the guarantee unless any other place is specified in the guarantee. The demand has to be made in paper form unless the guarantee requires an electronic form. Unless otherwise expressly stipulated in the guarantee, the demand must be supported by a statement by the beneficiary indicating the applicant is in breach of the underlying contract. Also the demand must identify the guarantee under which it is made, and the time for examination by the guarantor starts on the date of identification. The demand cannot be for more than the amount available under the guarantee. When the demand is complying the guarantor must pay the amount demanded. The payment has to be made at the branch or office of the guarantor that issued the guarantee unless any other place is indicated in the guarantee. The payment has to be made in the currency specified in the guarantee, unless the guarantor is unable to make payment in that currency due to an impediment beyond its control or any illegality under the law of the place for payment. In case of "extend or pay" or "pay or extend" demands, the demand is deemed to be withdrawn if the extension is granted. But if not, the demand has to be paid without any further demand by the beneficiary.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.58
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• pp.215-236
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• 2013

It is quite true that the more Korean contractors receive overseas contracts, the more they need guarantees. The top market for them is the Middle East countries, consisting of more than the half of the total amount awarded last year and the trend is increasing as well. The problem, however, is that employers in these countries are reluctant to use international rules for guarantee such as URDG or ISP98 and easily make unfair callings. However, Korean contractors(applicants), especially small and medium sized enterprises(SMEs) tend to hurriedly enter a contract without looking into its contents as well as guarantees. They do not realize the importance of the guarantees until they receive callings from the employers(beneficiaries). Being independent from the underlying contracts, guarantee is the equivalent to cash in that it usually does not require any proof of demand when calling and the guarantor should make a payment within usually 5 business days after the request. It is often observed these days that several Korean SMEs go bankrupt due to liquidity risks after receiving unfair callings from employers in the Middle East countries. In retrospect, some cases could be obviated if contractors were a little more careful in checking the contents of a guarantee at the time of concluding a contract. For example, there is one case where the underlying contract includes a reduction clause in the Advance Payment bond and the guarantee does not have that clause. In the end, the Korean contractor had to take the whole burden of the bond amount though it had finished 81% of the project. Nobody could argue that contractors should take a full responsibility if they fail in their obligations. However, the employer's wrongful callings need to be prevented in the first place, if possible. As there shouldn't be a case where one party is at a disadvantage against the other like the case mentioned above, useful insight is being sought to minimize unfair calling risks for the benefit of the applicant. First, the applicant should carefully look into every detail of the potential guarantee before signing a contract, heeding especially that there is a reduction clause in the AP bond. Second, the governing principles for guarantee should be the ones that are internally used such as URDG758 that is objective in terms of callings given that, for example, it specifies that the requirement for a supporting statement when making a demand is a default rule. It is also recommended that the form of guarantees be the standard demand guarantee. Third, parties involved in issuing guarantees are advised to understand international rules for guarantee like URDG758 and ISP98 and to play a key role in guiding SME contractors in Korea so that they can protect themselves from possible wrongful callings, particularly from employers in the Middle East countries. I hope this study would give a wake-up call for Korean SMEs wishing to do business in the Middle East countries and remind them of the importance of guarantee itself and its governing principles.

• International Commerce and Information Review
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• v.16 no.2
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• pp.89-109
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• 2014

The purpose of price escalation clauses has the effect of increasing the L/C value subject to external pricing mechanisms. This will be found inter alia in metals and oil products transactions. Such a clause gives rise to a question. That is, whether it is enforceable or whether it constitutes a letter of credit. The problem is what to reference to a source outside the context of a letter of credit constitutes a non-documentary condition rendering the undertaking something other than a letter of credit. Reference to an objective and readily available index is not something that renders the undertaking obscure and is not "non-documentary in the sense that it is possible to make an objective verification of the data. The possible solution is that not every non-documentary condition will be disregarded. For example, an index specified in the credit will not be disregarded as stipulated in ISP98 and URDG758. If a non-documentary is "central and fundamental", it seems that the parties intended a dependent payment obligations. The most common means of overcoming this conflicts of interests is to issue an instrument incorporatingan escalation clause, but capping the bank's maximum payment obligation.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.61
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• pp.213-245
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• 2014

This study has significance in examining the formation requirements and notes for concluding the guarantee contract of minimizing interests and conflicts with the concerned parties by examining issues related to the legal relation and demand payment in the concerned parties and by figuring out the provisions of conformity related to the requirements for demand payment pertinent to the documentary provision in relation to characteristics of demand guarantee. What the concerned parties of using demand guarantee grasp the requirements for demand payment of being compliant with the essence and the guarantee condition of the demand guarantee will lead to possibly preventing a dispute caused by disagreement and being secured the fulfillment of underlying contract. To fulfill a underlying contract that is the objective of issuing the demand guarantee, an effort is needed that minimizes a contract-based risk and a cost by being fully aware of a relevant rule that will be recorded in the terms of payment in the demand guarantee, by reflecting the interests between the concerned parties, and by discussing the payment terms.

• International Commerce and Information Review
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• v.13 no.4
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• pp.275-295
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• 2011

Any attempt which requires banks to consider non-documentary conditions would destroy autonomy principle and increase the risks of the bank in L/C transactions. Therefore, non-documentary conditions are disregarded in the letter of credit. This provision was first introduced in UCP500, but later, ICC Position Paper No.3 added that if L/C requires documents related to non-documentary conditions, it cannot be disregarded. While the language in UCP600 is basically the same as that in UCP500, there is a difference between the two in that the former disregards the documents related to non-documentary conditions even if they are required by L/C. However, it should be remembered that international standard banking practice does not disregard all of non-documentary conditions. It recognizes the validity of some non-documentary conditions which it is not feasible to change into documentary conditions. That is, such non-documentary conditions as can be determined from an index specified in the guarantee or identified from the issuing bank's own records or their normal operations are recognized as valid in legal cases. ISP98 and UR00758 do not consider these as non-documentary conditions. The applicant should be cautious not to include non-documentary conditions in their applications.