Views on ISDGP’s Explanation of URDG 758 Article 15(c)

ICC’s Uniform Rules for Demand Guarantees (URDG 758) are well known to include the requirement for the beneficiary’s demand to be accompanied by a written supporting “statement, by the beneficiary, indicating in what respect the applicant is in breach of its obligations under the underlying relationship.”

URDG 758 Article 15(a) states:

“A demand under the guarantee shall be supported by such other documents as the guarantee specifies, and in any event by a statement, by the beneficiary, indicating in what respect the applicant is in breach of its obligations under the underlying relationship. This statement may be in the demand or in a separate signed document accompanying or identifying the demand.”

Evidently, the drafters of URDG 758 felt that this rule is so important and characteristic for a URDG demand guarantee that it always applies unless it is expressly excluded, i.e. mere omission of the requirement for such supporting statement would not suffice. Consequently, URDG 758 Article 15(c) clearly sets forth this principle:

“The requirement for a supporting statement in paragraph (a) or (b) of this article applies except to the extent that the guarantee or counter-guarantee expressly excludes this requirement. Exclusion terms such as ‘The supporting statement under article 15[(a)] [(b)] is excluded’ satisfy the requirement of this paragraph.”

I am not a proponent of Article 15(a).[[1]] The default rule is that such supporting statement stipulating in what respect the applicant is in breach of its obligations under the contract (or other underlying relationship) must also be included in the demand, even if not stated in the demand guarantee. For instance, when the guarantee itself requires only statement that “the applicant is in breach of its contractual obligation(s)”, a supporting statement in what respect the applicant is in breach of its obligations is still needed.

Nowadays in demand guarantee practice, this rule is very well known. Nevertheless, if not acceptable to the parties, it can always be excluded, as Article 15(c) recognizes. Article 15(c) clarifies that such exclusion must be express; it cannot be implied (for instance, by omission of such requirement in the guarantee). Article 15(c) further offers an example of such exclusion: “The supporting statement under article 15[(a)] [(b)] is excluded”. It is evident that this quoted wording is only one example as it is preceded by words: “Exclusion terms such as”.

In my view, the possibility of excluding the Article 15(a) requirement is well-written in Article 15(c) and needs no further explanation. I would only recommend to formulate the example in the URDG’s wording a bit more precisely, i.e.: “The requirement for the supporting statement under article 15[(a)] [(b)] is excluded” (added wording in bold).  

Evidently, many others in the guarantee industry were of an opposite opinion as it was felt that the ICC publication ISDGP needed to provide further explanation on the matter. It seems that some practitioners wanted explicit guidance on the other acceptable wordings of an express exclusion of the requirement for the supporting statement stated in Article 15(a) (or 15(b)). Thus, ISDGP Paragraph 109 was formulated.

Explanation of URDG 758 Article 15(c)

Before delving into discussion of ISDGP Paragraph 109, I will first explain what I believe Article 15(c) in conjunction with Article 15(a) really means.