International Chamber of Commerce Uniform Rules for Contractual Guarantees and Model Forms

Author: China Council for International Chamber of Commerce
Publisher:
Publish Date: 2005-04-01
Features: All rights are reserved. Without the written permission of the International Chamber of Commerce Press, no part of this book may be reproduced or copied in any form or manner—graphically, electronically, or mechanically, including photocopying, recording, or information extraction systems. The Chinese and English versions of this book have been exclusively published by China Democracy and Law Press under the authorization of the China Council for International Chamber of Commerce. Any unauthorized reproduction may be subject to legal action.
1. In 1978, the International Chamber of Commerce (ICC) formulated a set of uniform rules to govern applications commonly referred to as "contractual guarantees." These rules, known as the "Uniform Rules for Contractual Guarantees of the International Chamber of Commerce" (ICC Publication No. 325), apply to guarantees where the guarantor is obligated to pay when a claim is made, as well as when other conditions are met, such as the submission of an arbitral award.
2. In response to changes in practical practices and perspectives in the international business community after 1978, the ICC developed a set of rules governing the use of "on-demand" or "unconditional" contractual guarantees. Under these rules, the beneficiary is entitled to compensation without needing to prove breach or damages. Therefore, the ICC published the "Uniform Rules for On-Demand Guarantees" (ICC Publication No. 458). According to these rules, banks and guarantors are obligated to pay upon the submission of appropriate documents.
3. It is understandable that contractors (also referred to as "guaranteed parties" in this guide) are concerned about the improper use of on-demand guarantees, as there is inevitably room for unreasonable claims and the use of such tools to exert commercial pressure in good-faith trade disputes. To address this, the ICC Insurance Committee, in active cooperation and participation with the International Credit Insurance Association (ICIA) and its members, established a working group to draft a set of rules for "conditional" guarantees. Unlike the "Uniform Rules for On-Demand Guarantees," these rules emphasize that the guarantor's liability is subordinate to and consistent in scope with the contractor/guaranteed party's obligations under the contract to which the guarantee pertains. Clearly, such tools will provide greater protection for contractors/guaranteed parties, as the space for unreasonable claims and the use of claims to exert commercial pressure is significantly reduced. The employer (also referred to as the "beneficiary" in this guide) must prove that a breach has occurred and that damages have been suffered to be entitled to compensation under a conditional guarantee. However, the guarantee still provides valuable protection to the beneficiary, as if the beneficiary is entitled to payment from the contractor/guaranteed party under the contract or at the time of breach, they can receive that payment from the guarantor without losing any contractual recovery rights if the contractor/guaranteed party lacks funds or is unable to pay due to other legal reasons.
4. Contracting parties will be able to clearly select the type of guarantee they wish to use as a security for the performance of their international contract obligations to supply goods or services. Using an on-demand guarantee issued in accordance with the "Uniform Rules for On-Demand Guarantees" of the ICC will provide the employer/beneficiary with a tool similar to an irrevocable letter of credit, allowing them to draw funds within the validity period of the guarantee without further evidence or conditions, simply by submitting a properly formatted claim and any required documents (even if the contractor/guaranteed party raises any objections).
5. In contrast, a contract guarantee issued in accordance with these rules will provide the employer/beneficiary with a guarantee of the obligations under the underlying contract, obligating the guarantor to pay the amount calculated under the contract upon the establishment of a breach.