Bank of America, N.A. - Moses & Singer, LLP

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D ocumentary Credit World, (DCW), is published monthly by Letter of Credit Survey, Inc. Opinions expressed in it do not necessarily reflect the official positions of the publishers of DCW, its Editorial Board, Editorial Advisory Board, or the organizations with which they are associated. Authors, editors, members of DCW’s Editorial Board and Editorial Advisory Board, and the institutions with which they are associated often are actively involved in the field as lawyers, advisers, parties, consultants, or expert witnesses in many of the matters addressed in DCW. The publication often reflects and sometimes adopts their views. Notwithstanding positions expressed in DCW, every effort will be made to publish differing viewpoints and contributions expressing such views are welcomed. Documentary Credit World 20203 Goshen Road., No. 343 Gaithersburg, MD 20879 USA phone: +1-301-330-1970 fax: +1-301-926-1265 e-mail: info@doccreditworld.com website: www.doccreditworld.com Editor-in-Chief Professor James E. Byrne Contributing Editor Vincent Maulella Managing Editor Christopher S. Byrnes Editor Associate Jay Byrne Production Assistant Christopher Sandler Associate Case Editor Peter Traisak Scam Survey Editor Jacob A. Manning Trade News Editor Arushi Sharma Editorial Advisory Board Sue E. Auerbach (DC) Michael Evan Avidon, Partner Moses & Singer LLP (NY) James G. Barnes* Baker & McKenzie (Chicago) Alan Bloodgood, Consultant* (retired, J.P. Morgan) Harold Burman, Senior Counsel, Office of Legal Adviser US Department of State Joseph Colleran, Consultant (retired, Irving Trust) Gary Collyer* Collyer Consulting LLP Dr. Alan Davidson, Senior Lecturer TC Beirne School of Law University of Queensland (Australia) Philip J. De Chiara (retired, Wells Fargo Bank) Professor E.P. Ellinger National University of Singapore Haluk Erdemol, Advisor, Int’l Division Akbank T.A.S. (Turkey) Roger D. Fayers, LLB Barrister (UK); Department of Trade & Industry, Soliciter’s Department (retired) Clyde Fletcher, Documentation Manager Fonterra Limited Dr. Gerold Herrmann (retired, United Nations Commission on International Trade Law) Heinz Hertl ICC-Austria (retired, Bank Austria/ Creditanstalt, Vienna) George Hisert, Partner Bingham McCutchen LLP (San Francisco) Professor Katsuto Iida Tezukayama University (Japan) Dean Rafael Illescas Ortiz University Carlos III de Madrid (Spain) Jin Saibo, Partner Beijing Commerce & Finance Law Offices (China) Carter Klein, Partner Jenner & Block (Chicago) Professor Boris Kozolchyk, Director* National Law Center for Inter- American Free Trade Arthur Lloyd, Consultant* (retired, Control Risks, Ltd.) Professor Salvatore Maccarone “La Sapienza” University - Rome David Meynell, Director Deutsche Bank London Neal Millard Musick, Peeler & Garrett LLP Adjunct Professor, USC Law School Dennis Noah* (retired, M&T Bank) Professor Yorng-Won Pae The University of Seoul (Korea) Janis S. Penton, Senior Counsel Union Bank of California, N.A. Jianbao Shan, Executive Vice President China Everbright Bank (China) Martin Shaw, Consultant (retired from Barclays and Lloyds) (London) Angelo J. Schiraldi, Consultant (retired, IntesaBci (NY) Donald R. Smith* President, Global Trade Advisory, Ltd. Soh Chee Seng, Technical Consultant, Trade Finance Issues, the Association of Banks in Singapore (Singapore) Joseph Sommer (NY) Chang-Soon Thomas Song, Manager Korea Exchange Bank (Seoul) Professor Jean Stoufflet University of Clermont - Ferrand (France) Alexander Zelenov, Director Bank for Foreign Economic Affairs of the USSR (Moscow) Litigation Board Stanley L. Lane, Jr., Member Otterbourg Steindler Houston & Rosen, P.C. (NY) Stanley McDermott III, Partner Piper Rudnick LLP (NY) Senior Student Research Associate J. Paul Ferman Student Research Associate Gordon D. Breuer *Denotes Editorial Board member James G. Munisteri Gardere Wynne Sewell & Riggs, L.L.P. (Houston) Published by Letter of Credit Survey, Inc. ISSN 1520-0221. Copyright © 2010 by Letter of Credit Survey, Inc. All rights reserved. No part of this journal may be reproduced in any form, including microfilm, xerography or otherwise, or incorporated into any information retrieval system, without the written permission of the publisher. Single subscription price: $595 per year. Global license information available upon request. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the service of a competent professional should be sought. 2 Documentary Credit World ■ September 2010
FEATURE A US PERSPECTIVE ON THE NEW URDG758 COMPARED TO ISP98, UCP600 AND THE NY UCC By Michael Evan AVIDON 1 Introduction The Uniform Rules for Demand Guarantees, 2010 Revision, International Chamber of Commerce Publication No. 758 (URDG), became effective on 1 July, 2010. 2 The URDG is a revised set of rules for demand guarantees and counterguarantees. 3 This article focuses on significant substantive differences between the URDG and ISP98, 4 UCP600 5 and New York Uniform Commercial Code Revised Article 5 (NY UCC), with an emphasis on possible stumbling blocks in the URDG and proposed work-arounds. Although the URDG addresses “demand guarantees” and “counterguarantees”, any signed undertaking that provides for payment against presentation of a complying documentary demand can be made subject to the URDG, if so desired. Regardless of its label, a typical demand guarantee or counter-guarantee would qualify as a “letter of credit” under the NY UCC as it is basically an engagement to pay upon a complying documentary presentation. 6 Accordingly, it is useful to compare the new URDG to established letter of credit practices and laws such as ISP98, UCP600, and the NY UCC to illustrate some advantages and disadvantages of using the new URDG. As a matter of convenience, this article follows the order of the URDG. 7 1. Michael Evan Avidon is a partner in the New York City law firm of Moses & Singer LLP, where he co-chairs the firm’s Banking and Finance Practice. He has extensive experience with letters of credit, including actively participating in the drafting of UCC Revised Article 5 and ISP98. He gratefully acknowledges the assistance of Joshua H. Zakheim, Esq. and Catherine Fang, Esq., also with Moses & Singer, in the preparation of this article. 2. The prior version of the URDG was published in 1992 and set forth in ICC Publication No. 458. This article does not compare new URDG758 to prior URDG458. 3. A counter-guarantee is a demand guarantee issued to one person to provide it with credit support to induce it to issue its own guarantee to another person. URDG Article 2. A typical pattern would be that Instructing Party A in Country A requests Bank A to issue its counter-guarantee to Bank B in Country B to induce Bank B to issue a demand guarantee to Beneficiary B, to whom Instructing Party A owes some underlying obligation. 4. The International Standby Practices 1998, ICC Publication No. 590 (ISP98). 5. The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 (UCP600). 6. NY UCC § 5-102(a)(10) (“Letter of Credit” means a definite undertaking … by an issuer to a beneficiary … to honor a documentary presentation by payment or delivery of an item of value). 7. Though the URDG is labeled “Uniform Rules”, the URDG is divided into “Articles” like UCP600, rather than into “Rules” like ISP98 or into “Sections” like the NY UCC. September 2010 ■ Documentary Credit World 23
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