Chapter Three

Timely Presentation of Documents

3.0 Introduction .......................................................................................................... 93

3.1 What is a “Presentation” and a “Presenter”?.............................................. 93
3.2 Where is Presentation to be Made? ................................................................ 94
3.3 To Whom is Presentation to be Made? .......................................................... 95
3.4 The Manner of Presentation: How ................................................................. 97
3.5 Incomplete Presentations .................................................................................. 99
3.6 Partial and Multiple Drawings ...................................................................... 100
3.7 Presentation After Normal Banking Hours ................................................ 104
3.8 Extend or Pay Demands .................................................................................. 104
3.9 Deadline When Bank is Ordinarily Closed................................................. 107
3.10 Closure When the Expiration Date is on a Business Day ........................ 108
3.11 Review Questions .............................................................................................. 118

3.0 Introduction

Chapter Three discusses the timely presentation of documents, which is the condition
on which the obligation of the Issuer/Guarantor and any Confirmer depends. It
discusses presentation as such, while Chapter Four (Examination and Compliance of
Documents Presented) addresses the process of examination to determine compliance
of the documents presented.

The questions and issues related to presentation treated in this Chapter include: 1)
what is a “Presentation” and a “Presenter”; 2) where is presentation made; 3) to whom
is presentation made; 4) how is presentation made; 5) incomplete presentations; 6)
partial and multiple drawings; 7) presentation after normal banking hours; 8) extend
or pay demands; 9) the deadline when the bank to which presentation is made is
ordinarily closed; and 10) closure on the business day of expiration.

3.1 What is a “Presentation” and a “Presenter”?

The term “Presentation” has more than one meaning in practice. It is used to signify
the act of delivering documents under an independent undertaking and also to signify
the documents that are delivered. Which meaning is intended must be determined by
the context in which the term is used.

ISP98 Rule 3.02 (What Constitutes a Presentation) provides “[t]he receipt of a

document required by and presented under a standby constitutes a presentation
requiring examination for compliance with the terms and conditions of the standby
even if not all of the required documents have been presented.” The Rule implies that
presentation does not occur merely by forwarding data or documents to an
Issuer/Guarantor or Nominated Bank but forwarding them for honour which, in turn,
requires examination to determine compliance with the terms and conditions of the
undertaking. While UCP600 does not contain this provision, UCP600 is consistent

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with the practice that ISP98 articulates. This meaning is also implied under the
URDG 758 Article 2 (Definitions) definition of “Presentation”.

The implication of these Rules is that a presentation places the Issuer/Guarantor or

any Confirmer in the position of having to examine, either honour or dishonour and if
the latter to provide timely and adequate notice of refusal. The sanction of preclusion
is an ever-present consequence in the event of a failure to do so in a timely and
adequate manner.

Two terms are important in understanding presentation, namely “Presentation” and

“Presenter”.

The term “Presentation” is defined in ISP98 Rule 1.09(a) (Definitions) as “depending

on the context, either the act of delivering documents for examination under a standby
or the documents so delivered.” UCP600 Article 2 (Definitions) defines the term as
“either the delivery of documents under a credit to the issuing bank or nominated
bank or the documents so delivered.” These definitions note the ambiguity in the use
of “Presentation” which can mean either the act by which documents are delivered or
the documents that are so delivered. URDG 758 Article 2 (Definitions) copies this
approach, but adds that “Presentation” also “includes a presentation other than for a
demand, for example, a presentation for the purpose of triggering the expiry of the
guarantee or a variation of its amount”. The implication of this broadening of the
definition of presentation will be discussed subsequently.

“Presenter” is defined in ISP98 Rule 1.09(a) (Definitions) as “a person who makes a

presentation as or on behalf of a beneficiary or nominated person.” UCP600 Article 2
(Definitions) defines it as a “beneficiary, bank or other party that makes a
presentation.” URDG 758 Article 2 (Definitions) combines the two approaches,
adding that presentation can be as or on behalf of the Applicant in parallel to the
URDG 758 definition of “Presentation”. It states, “[p]resenter means a person who
makes a presentation as or on behalf of the beneficiary or the applicant, as the case
may be”.

3.2 Where is Presentation to be Made?

ISP98 Rule 3.01 (Complying Presentation under a Standby) states that a standby
should identify the place, location within that place and the person to whom
presentation should be made. ISP98 Rule 3.04(a) (Where and to Whom Complying
Presentation Made) requires that “a presentation must be made at the place and any
location at that place indicated in the standby or provided in these Rules.” Where the
standby is silent, ISP98 Rule 3.04(b) (Where and to Whom Complying Presentation
Made) provides that it must be made “at the place of business from which the standby
was issued.” If confirmed, ISP98 Rule 3.04(c) (Where and to Whom Complying
Presentation Made) provides that presentation must be made “at the place of business
of the confirmer from which the confirmation was issued or to the issuer.” ISP98 Rule
3.04(d) (Where and to Whom Complying Presentation Made) contains default rules in
the event that no location at the place of presentation is indicated. Nomination of a

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bank to pay or negotiate also implies that presentation may be made to that bank
unless expressly excluded.

URDG 758 Article 14(a)(i) (Presentation) provides that presentation must be made to
such place as is indicated in the demand guarantee.

UCP600 Article 6(a) (Availability, Expiry Date and Place for Presentation) requires
that a credit “state the bank with which it is available”. It also provides that a credit
that is “available with a nominated bank is also available with the issuing bank.”
Being “available with” a bank is the UCP600 phrase for a place where presentation
can be made.

3.3 To Whom is Presentation to be Made?

There are several ways to indicate to whom presentation is to be made: 1) by

indicating that the credit is available for presentation with a Nominated Bank (or by
nominating a bank); 2) by indicating the name of the bank to which presentation must
or can be made; 3) by indicating the location at which presentation must be made and
naming the entity to whom it must be made in connection with stating its address; and
4) by issuing the independent undertaking in which case presentation can be made to
the Issuer/Guarantor unless such a presentation is expressly excluded.

Unless a standby expressly states that presentation cannot be made to a Nominated

Bank, nomination implies that presentation of documents may be made to the
Nominated Bank whether or not the Nominated Person elects to act on the
nomination.

Unless a standby expressly states that presentation cannot be made directly to an

issuing bank, presentation can always be made directly to the Issuer/Guarantor, thus
bypassing Nominated Banks (including the Confirmer). As indicated in Chapter Two
(Obligations of Parties to an Independent Undertaking), bypassing the Confirmer may
discharge the Confirmer’s obligation depending on the applicable practice rule and
the terms of the standby.

Since there is no provision in URDG 758 for Confirmers or other Nominated Persons,
presentation must be made to the Issuer/Guarantor unless the guarantee expressly
provides otherwise.

3.3.1 Providing for Exclusive Presentation to an Entity Other Than

the Issuer/Guarantor

Because practice rules can be varied, it is possible to provide either that presentation
may not be made to an Issuer/Guarantor or not made to a Nominated Person, but such
a provision should be express and leave no ambiguity. Consequently, a variation
should expressly state that presentation must be made to the desired entity and
negatively state that presentation may not be made to the entity to whom presentation
otherwise could be made but is not to be made. An example: “Presentation must be
made to [Nominated Bank] and may not be made directly to [Issuer/Guarantor]”.
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As indicated previously, only the Issuer/Guarantor or a Nominated Bank is entitled to
receive a presentation unless the standby/demand guarantee expressly designates
another person. For purposes of receiving a presentation, an Advising Bank is not a
“nominated” bank. However, the Advising Bank may also be nominated under ISP98
or UCP600 to confirm, pay, or negotiate, in which case it would be a Nominated
Bank for presentation in addition to being an Advising Bank. Likewise, a bank that is
not nominated (including the Advising Bank) can act as a presenting bank in that it
receives documents from the Beneficiary and forwards them to the Issuer/Guarantor
or a Nominated Bank. Delivery of documents to a bank that is not nominated does not
constitute “presentation” even though that bank is a “presenting bank” to whom any
notice of refusal must be sent and to whom the documents must be returned. Thus, if
the undertaking expires before the presenting bank presents the documents to the
Issuer/Guarantor or a Nominated Bank, the presentation comes too late in that the
standby/demand guarantee has ceased to be available.

3.3.2 Timely Presentation

To satisfy the terms of the undertaking on which the Issuer/Guarantor or Confirmer’s

obligations are conditioned, the Beneficiary must make presentation on or before the
expiry date. Presentation marks the date and time for purposes of determining
whether the Beneficiary has made timely presentation with respect to the expiry date.
The same principle applies to any deadline in the standby/demand guarantee.

Under URDG 758 Article 14(b) (Presentation), as long as the presentation indicates
that it is to be completed later, the Beneficiary has up to and including “expiry” to
present the missing document or documents. ISP98 and UCP600 treat this issue
differently. This topic is considered in more detail later in Chapter Three.

Although “expiry” marks the termination of the time when presentation may be made
in all three practice rules, a series of court decisions and governmental regulations
have from time to time sought to alter the meaning of the term. For example, they
sometimes interpret “expiry” to signify the last day for the occurrence of the event
entitling the Beneficiary to draw. Such interpretations are aberrations, distort standard
international practice, and, as such, should be resisted strongly.

3.3.3 Problems with Specifics Regarding Presentation

A standby/demand guarantee should provide sufficient specifics to enable the

Beneficiary to know where to make presentation. Standbys/demand guarantees often
contain specific provisions about the place for presentation and even the person to
whom presentation must be made. ISP98 Rule 3.04 (Where and to Whom Complying
Presentation Made) not only encourages specific details regarding presentation, but
also provides default rules in their absence. This approach is true particularly
regarding the place for presentation, for which the default rule is that the place of
presentation is the place of business from which the standby was issued or confirmed.
ISP98 Rule 3.04(d) (Where and to Whom Complying Presentation Made) also

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considers the location at that place, permitting presentation at the mail address, mail
room, or to any person apparently authorized to receive the presentation.

However, there is a downside to detailed specificity. Unlike commercial LCs,

standbys, or demand guarantees are often in place for long periods of time. As a
result, various factors with regard to the degree of specificity regarding presentation
have to be weighed in drafting a standby/demand guarantee. For example, should a
particular person be identified? People leave or they are promoted. Should the title of
the person be given? Sometimes the titles of positions change. Should a particular
location for presentation be identified? If a bank has multiple offices in a particular
location, a drafter would want to identify the place for presentation, although over
time offices move or close. The risk underlying these matters is that a presentation in
accordance with the terms of the standby/demand guarantee may be mislaid in the
event of a change, resulting in preclusion or repudiation of the obligation.

One solution to too specific information regarding presentation is to amend the

standby/demand guarantee. This method is less than satisfactory, however, because
the Beneficiary’s consent is required and most Beneficiaries ignore requests for
amendment.

It is also possible to structure the standby/demand guarantee to allow the

Issuer/Guarantor to provide the Beneficiary with a binding notice that presentation be
made to a new location. Such a term adds another layer of complexity that many
banks, Applicants, and Beneficiaries resist. Under UCP600 and URDG 758, these are
the only available options.

ISP98 Rule 3.14(b) (Closure on a Business Day and Authorization of Another

Reasonable Place for Presentation) provides a workable solution to this commonplace
problem. It provides, in effect, for “automatic amendment” on the Beneficiary’s
receipt of notice of another reasonable place of presentation. Under this provision, if
at least 30 calendar days notice is given that presentation must be made at another
place that is reasonable, the Beneficiary must make presentation to that place. What is
a reasonable place, of course, is a factual question to be determined, but in most cases
the answer will be obvious.

3.4 The Manner of Presentation: How

Since the commercial use of the telegraph in the 19th century, LC type undertakings
and amendments have been issued and advised electronically. However, because of
the common use of unique documents of title in commercial LCs, the normal mode of
presentation is paper. Such unique documents are rarely required by standbys/demand
guarantees. There are various means by which non-unique documents can be
presented, including paper, data transmission, email, and telefax.

Ideally, a standby/demand guarantee should indicate the manner in which documents

are to be presented. Where it does not, the question arises as to how presentation is to
be made and where it does, the question arises as to whether that manner is exclusive
or permissive.
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Where the standby/demand guarantee is silent, the default means of presentation is
paper. UCP600 does not address the means of presentation directly, but the eUCP—
its supplement for electronic presentation under the UCP—states that paper is the
norm under the UCP. URDG 758 Article 14(e) (Presentation) provides that
documents presented must be in paper unless otherwise provided. ISP98 Rule 3.06(b)
(Complying Medium of Presentation) also provides that paper is the default means
with one notable exception. ISP98 Rule 3.06(b)(i) (Complying Medium of
Presentation) provides that an electronic demand complies when it is presented by a
Beneficiary that is a SWIFT participant, a bank, or by some other authenticated
means. Moreover, under ISP98 Rule 3.06(b)(ii) (Complying Medium of
Presentation), the Issuer/Guarantor is given absolute discretion to honour a simple
demand presented electronically by a non-bank.

All three practice rules accommodate electronic presentation where the

standby/demand guarantee so provides. ISP98 Rule 1.09(c) (Definitions) contains
terms that could be used in drafting a provision in a standby permitting electronic
presentation. The eUCP also contains definitions accompanied by substantive rules in
the event that a UCP600 standby incorporates it. URDG 758 Article 14(c)
(Presentation) provides that the guarantee has to indicate the format of the system for
data delivery and the electronic address for that presentation and, by failing to do so,
any electronic format is suitable.

Under the practice rules, it is not always clear whether presentation can be made by
telefax. Where the transmission begins with a paper document that is scanned and
transmitted, it is likely that such a presentation would not be regarded as an electronic
presentation, but as an electronic copy of the paper original. On the other hand, a
telefax can originate in a purely data mode without a paper original, in which case it
would be an electronic presentation. If telefax is to be permitted, the standby/demand
guarantee should expressly so state for the avoidance of doubt, giving the telefax
number. If the standby/demand guarantee indicates a mode of presentation that does
not include such a number, it may be inferred that presentation by telefax is not
permitted.

3.4.1 Mode of Presentation

The “mode” of presentation is the medium by which it occurs. In a paper presentation,

the mode could be by courier, surface mail, physical delivery, or similar method.
Unless a standby/demand guarantee expressly mandates the exclusive manner in
which a paper presentation must be presented, any mode of presentation is acceptable.
In that case, the condition in the undertaking regarding presentation is that the
documents be presented to an Issuer/Guarantor or a Nominated Bank on or before the
expiration date or any other deadline. How it arrives would not matter unless the
standby/demand guarantee expressly mandates an exclusive mode. For that reason a
provision indicating the manner of presentation should not be construed to be
mandatory unless the undertaking expressly provides that it is mandatory and
exclusive. While this rule is stated in URDG 758 Article 14(d) (Presentation), the
same principle would apply under ISP98 or UCP600. Even if the undertaking
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indicates a mode of delivery, it should not be read as a condition to the
Issuer/Guarantor’s undertaking and should be overlooked where there is a commercial
difficulty in making presentation via the indicated mode unless there is a compelling
commercial reason for such a restriction.

3.4.2 Documents Lost in Transit

A problem arises when documents that have been presented are subsequently lost in
the process of forwarding them from the Nominated Bank to the Issuer/Guarantor. In
such a situation, the Beneficiary is entitled to have the presentation honoured if the
documents complied with the terms and conditions of the undertaking. Whether the
loss after presentation is to be borne by the Issuer/Guarantor, the Applicant, the
Nominated Bank, or another person forwarding the documents is unsettled.

UCP600 Article 35 (Disclaimer on Transmission and Translation) imperfectly

attempts to deal with the problem. It provides that the Issuer/Guarantor must
reimburse the Nominated Bank, a result that would apply even if the Nominated Bank
did not claim reimbursement, but merely acted on the Beneficiary’s behalf. This rule
would not apply, however, unless the documents had been timely presented (i.e.,
delivered to the Nominated Bank on or before the expiry date) and forwarded to the
Issuer/Guarantor. UCP600 Article 35 (Disclaimer on Transmission and Translation),
however, in its first paragraph seems to limit its application to a situation where the
bank forwarding the documents sends them in accordance with the requirements of
the credit. It remains to be seen how these provisions will be interpreted. The same
result would obtain under ISP98 even though there is no express rule. URDG 758
Article 28 (Disclaimer on Transmission and Translation) contains a general
disclaimer regarding transmission. It refers to the Issuer/Guarantor, and not any other
bank, and applies to the actions of the Issuer/Guarantor, which is consistent with the
fact that URDG 758 does not provide for Nominated Banks.

3.5 Incomplete Presentations

An incomplete presentation—as opposed to a partial drawing—is a delivery of less

than all the required documents under a standby/demand guarantee. For example, if
the undertaking requires presentation of a draft, a statement of default and a copy of
an arbitral award, there would be an incomplete presentation if the Beneficiary
presented the draft and statement of default, expecting the arbitral agency to present
the award later. This would be the case even if the Beneficiary informed the
Issuer/Guarantor or Confirmer that the award would be forthcoming shortly.

When there is an incomplete presentation, an Issuer/Guarantor or Confirmer must

determine how it should be treated. If it is a “presentation”, the documents must be
examined and honoured or refused within the timeframe permitted under the
applicable rules and under the sanction of preclusion.

There is no doubt that delivering two-thirds of the required documents is a

presentation. The documents were delivered to the Issuer/Guarantor or Confirmer
with the intent of drawing on the undertaking. The real problem is the effect of the
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Beneficiary’s request to the Issuer/Guarantor or Confirmer to hold the documents
until the presentation is complete.

ISP98 Rule 3.02 (What Constitutes a Presentation) requires that an incomplete

presentation be treated as a presentation requiring examination unless the
Issuer/Guarantor, in its sole discretion, elects at the request of the Beneficiary to treat
the documents as having been presented at a later date. Such an election would take
place under ISP98 Rule 3.11(a)(i) (Issuer Waiver and Applicant Consent to Waiver of
Presentation Rules). URDG 758 Article 14(b) (Presentation) permits the Beneficiary
to dictate to the Issuer/Guarantor whether it must hold documents presented under an
incomplete presentation. UCP600 does not address this issue.
If the Issuer/Guarantor or Confirmer examines the documents under ISP98 or
UCP600, the notice of refusal should not only note the missing document(s), but any
discrepancy in those document(s) that were presented. This action prevents the
Issuer/Guarantor or Confirmer from being precluded from asserting those
discrepancies under the applicable preclusion rule.

There are significant differences with respect to an incomplete presentation between

URDG 758 Article 14(b) (Presentation), ISP98 Rule 3.02 (What Constitutes a
Presentation), ISP98 Rule 3.11(a)(i) (Issuer Waiver and Applicant Consent to Waiver
of Presentation Rules), and UCP600.

Under the approach of URDG 758 Article 14(b) (Presentation), the Beneficiary
dictates whether the Issuer/Guarantor must hold the incomplete presentation until
such time as the balance of the documents are presented, presumably until the
expiration of the demand guarantee. In such a situation, the Issuer/Guarantor of a
URDG 758 undertaking would be required to store the documents presented at its
own risk which would include their loss or destruction. Nor is there a limit to one
document, so multiple documents could be presented in a piecemeal fashion, meaning
that the demand could be presented on one date, the statement of default on another,
and the arbitral award on a third date.

ISP98 confers discretion as to whether or not to hold the presented documents

pending presentation of the balance. Moreover, ISP98 Rule 3.11(a)(i) (Issuer Waiver
and Applicant Consent to Waiver of Presentation Rules) assures the Issuer/Guarantor
or Confirmer of its right to reimbursement from the Applicant if the Issuer/Guarantor
elects to hold the documents. The Rule also permits the Issuer/Guarantor or
Confirmer to examine the documents and send a notice of refusal even if the
Beneficiary requests that they be held.

Under all these rules, an Issuer/Guarantor or Confirmer should require that a request
to hold documents be made in writing and not orally. The difficulties with oral
requests are too obvious to require explanation.

3.6 Partial and Multiple Drawings

Can a Beneficiary make more than one complying presentation? Unless the
undertaking provides otherwise, the answer is “yes” under UCP600 Article 31(a)
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(Partial Drawings or Shipments), ISP98 Rule 3.08(b) (Partial Drawing and Multiple
Presentations; Amount of Drawings), and URDG 758 Article 17(b) (Partial Demand
and Multiple Demands; Amount of Demands).

Can a Beneficiary make a demand for less than the full amount or available balance
of the undertaking? Unless the undertaking provides otherwise, the answer is “yes”
under UCP600 Article 31(a) (Partial Drawings or Shipments), ISP98 Rule 3.08(a)
(Partial Drawing and Multiple Presentations; Amount of Drawings), and URDG 758
Article 17(a) (Partial Demand and Multiple Demands; Amount of Demands).

Problems and questions arise when the undertaking limits this general rule. There are
two different ways in which this general rule can be limited, namely stating that “no
partial drawings” are permitted or that “no multiple drawings” are permitted. These
two provisions have different consequences. For example, if a guarantee states that it
is in the amount of USD 1 million, but it also states “no partial drawings”, then a
drawing for USD 750,000 would not be permitted.

The statement that “no partial drawings” are permitted signifies that there may only
be one drawing and that it must be in the full amount of the undertaking. This
interpretation would apply under all three practice rules. ISP98 Rule 3.08(c) (Partial
Drawing and Multiple Presentations; Amount of Drawings) expressly provides for
this result. Under UCP600 Article 31 (Partial Drawings or Shipments) and URDG
758 Article 17 (Partial Demand and Multiple Demands; Amount of Demands) this
result is implied from the meaning of the term “partial”. If the drawing may not be for
less than the full amount of the undertaking, there cannot be a drawing for less than
the full amount or more than one drawing.

The clause “no partial drawings” makes little sense for most standbys/demand
guarantees. The Applicant and Issuer/Guarantor would typically prefer a drawing for
less than the full amount over a drawing for the full amount, particularly where less
than the full amount was due on the underlying transaction. The reference to “partial
drawings” in the UCP Rule was mechanically inserted into the provisions regarding
partial shipments without any appreciation of standby practice when the UCP was
expanded to encompass standbys.

If instead of stating “no partial drawings”, the guarantee or standby stated “no
multiple drawings”, a different result would follow under both URDG 758 and ISP98.
For example if a guarantee states that it is in the amount of USD 1 million, and also
states “no multiple drawings”, then a drawing for USD 750,000 would be permitted
even though it is less than the full amount of the guarantee. ISP98 Rule 3.08(d)
(Partial Drawing and Multiple Presentations; Amount of Drawings) provides that only
one drawing would be permitted which could be less than the full amount available.
URDG 758 Article 17 (Partial Demand and Multiple Demands; Amount of Demands)
tracks the ISP98 Rule. UCP600 does not address the “no multiple drawings”
provision.

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 3.6.1 Re-Presentation

Even if a standby/demand guarantee prohibits partial drawings or multiple drawings,

the Beneficiary can always cure a non-complying presentation by making a re-
presentation of the documents prior to the expiry of the undertaking. Such a re-
presented document would not constitute a prohibited partial or multiple presentation.

Likewise, a Beneficiary can withdraw a presentation before refusal, cure it, and re-
present without running afoul of the prohibitions.

The exceptions discussed here are inferred from practice rules rather than expressly
stated.

3.6.2 Installments

Under commercial LC practice, it is expected that there will be a shipment of each

installment of the goods ordered and a corresponding drawing on the related credit.
Where an installment is missed, UCP600 Article 32 (Instalment Drawings or
Shipments) provides that the credit should cease to be available because there has
been a failure to ship pursuant to the underlying transaction.

The UCP Installment Rule was expanded from its reference to shipments to include
drawings when the UCP was revised to encompass standby LCs. The drafters
probably did not appreciate that application of the installment rule to a standby made
no sense under standby practice. A standby supporting an obligation to pay in
installments would typically only be drawn when there was a failure to make a direct
payment. Accordingly, it would be normal under a standby not to make a drawing on
an installment. A rule that provided that the standby ceased to be available if there
was no drawing on every installment that was due would defeat the role of the
standby as a backup mechanism.

An example is an Applicant that agreed to pay USD 100,000 via a promissory note in
ten installments due annually every 1st April backed by a standby/demand guarantee.
The Applicant paid the Beneficiary directly on the 2012 installment, so that the
Beneficiary did not draw on the standby for the 2012 installment. In April 2013, the
Applicant defaulted on the April 2013 payment. If the standby/demand guarantee
were subject to UCP600, a drawing on the 2013 installment would be discrepant
because the standby would have ceased to be available when there was no drawing on
the 2012 installment. This result contradicts the Beneficiary’s expectation that the
standby would be available as a backup for non-payment of any installment.

On the other hand, ISP98 Rule 3.07(a) (Separateness of Each Presentation) expressly
disclaims applicability of the UCP Installment Rule to ISP98 standbys. URDG 758
does not address this issue.

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 3.6.3 Separateness of Each Presentation

There are situations where an Issuer/Guarantor honours a presentation that does not
comply with the terms and conditions of the standby/demand guarantee under which
it is presented. Such an honour can occur because the Issuer/Guarantor has decided
that the discrepancy is minor, the Issuer/Guarantor has made a mistake, or the
Issuer/Guarantor has obtained the Applicant’s waiver. In these situations, it may
appear to the Beneficiary that the documents comply because the Issuer/Guarantor
behaves as if they do.

Where the Issuer/Guarantor has honoured a non-complying presentation, can it refuse

to honour a subsequent, similar presentation under the same or a similar
standby/demand guarantee? The answer under LC practice is that it can refuse. The
undertaking of an Issuer/Guarantor is to honour complying documents. Past conduct
regarding a prior presentation is not a course of dealing or course of performance for
the current presentation because the express terms of the standby/demand guarantee
control each presentation.

ISP98 Rule 3.07(c) (Separateness of Each Presentation) reflects this practice. It

provides, “[h]onour of a non-complying presentation, with or without notice of its
non-compliance, does not waive requirements of a standby for other presentations.”

URDG 758 Article 18(b) (Separateness of Each Demand) similarly provides

“[p]ayment of a demand that is not a complying demand does not waive the
requirement for other demands to be complying demands.”

UCP600 does not address this issue.

3.6.4 Cure

When a Beneficiary makes a non-complying presentation that is dishonoured or

withdraws a presentation before dishonour the question arises whether the Beneficiary
can cure the presentation. This question, in part, was addressed in connection with
prohibitions of partial or multiple drawings earlier in Chapter Three, but is one that
arises in connection with every non-complying presentation.

The first factor to consider is whether the expiration date of the undertaking has
passed. If so, then it is too late to cure.

If the undertaking has not expired, then the Beneficiary can re-present whether or not
the standby/demand guarantee prohibits partial or multiple drawings or presentations.
This principle is embodied in ISP98 Rule 3.07(a) (Separateness of Each Presentation)
which provides:

Making a non-complying presentation, withdrawing a presentation, or failing

to make any one of a number of scheduled or permitted presentations does
not waive or otherwise prejudice the right to make another timely

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 presentation or a timely re­presentation whether or not the standby prohibits
partial or multiple drawings or presentations.

URDG 758 Article 18(a) (Separateness of Each Demand) follows the ISP98 Rule.
UCP600 does not address this issue, but ICC Banking Commission opinions have
articulated this principle.

3.6.5 Wrongful Dishonour

If the Issuer/Guarantor dishonours a presentation that complies on its face with the
terms and conditions of the standby/demand guarantee, it is liable for wrongful
dishonour of that presentation.

Wrongful dishonour of a presentation by itself, however, does not constitute

repudiation of the entire obligation embodied in the standby/demand guarantee. This
principle is stated in ISP98 Rule 3.07(b) (Separateness of Each Presentation). Neither
URDG 758 nor UCP600 address this issue.

It should be noted, however, that other actions or statements of the Issuer/Guarantor

besides refusal of a presentation can constitute repudiation or even anticipatory
repudiation of the obligation. For example, if the Issuer/Guarantor states that its
obligation has been terminated because the amount due has been fully paid and the
undertaking is exhausted, there would be repudiation (or anticipatory repudiation) if it
were determined that the amount due was not exhausted.

3.7 Presentation After Normal Banking Hours

UCP600 Article 33 (Hours of Presentation) states that a bank need not accept a
presentation after banking hours, but ICC Banking Commission opinions have treated
receipt in a bank’s mailroom which was open after hours as acceptance of a
presentation even when the bank is otherwise closed for business. There is no
equivalent rule in URDG 758. ISP98 Rule 3.05(b) (When Timely Presentation Made)
provides that a presentation made after hours is deemed to have been made on the
next business day. However, the Issuer can waive this Rule in its sole discretion and
without jeopardizing its right to reimbursement from the Applicant under ISP98 Rule
3.11(a)(iv) (Issuer Waiver and Applicant Consent to Waiver of Presentation Rules).

3.8 Extend or Pay Demands

An extend or pay demand arises in situations where the undertaking is about to expire
and the Beneficiary demands that the Issuer/Guarantor extend the undertaking or pay.
Often these demands are not accompanied by complying documents. The question for
Issuers/Guarantors is what to do in such situations. In particular, they must decide
whether to treat such a demand as a “presentation” that would require timely and
adequate notice of refusal with the possibility of preclusion overshadowing the failure
to give such notice. There are also a number of secondary issues such as the
consequences of an extension, e.g., whether the extension is an amendment requiring
Beneficiary consent, the implications of granting an extension on the demand, and
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how to address an extend or pay demand in a situation involving a Local Undertaking
and a counter undertaking or a confirmation.

A classic example of an extend or pay demand is a communication from the

Beneficiary to the Issuer/Guarantor immediately prior to the pending expiration date.
The communication effectively says “extend your undertaking or pay us the amount
due under it”. The problem for the Issuer/Guarantor which arises on receipt of such a
communication is how it should respond. Is this document a request for an
amendment extending the undertaking and what happens if the Issuer/Guarantor
proposes an amendment? Is it a demand? Is it merely something that can be ignored at
the Issuer/Guarantor’s discretion?

While UCP600 provides no guidance in such a situation, ISP98 and URDG 758 do.
URDG 758 Article 23 (Extend or Pay) is roughly modeled on ISP98 Rule 3.09
(Extend or Pay). The major difference is that ISP98 Rule 3.09 (Extend or Pay) applies
to all extend or pay demands whether or not they comply. On the other hand, URDG
758 Article 23 (Extend or Pay) applies only to a “complying demand”, and provides
no guidance for a non-complying presentation. A non-complying extend or pay
demand would therefore come within the scope of URDG 758 Article 16 (Information
About Demand), requiring the Issuer/Guarantor to, without delay, inform the
Instructing Party of the extend or pay request while refusing the discrepant
presentation. Therefore, URDG 758 Article 23 (Extend or Pay) places an unobservant
Issuer/Guarantor at risk of preclusion if it assumes that the extension provision of
URDG 758 Article 23 (Extend or Pay) is applicable or if it errs regarding the
compliance of the demand.

3.8.1 Consequences of Extension

If an extend or pay demand is to be treated as a presentation, then a number of other

questions follow whose answers depend on whether the standby/demand guarantee is
subject to ISP98, UCP600, or URDG 758.

None of the practice rules require an Issuer/Guarantor to accede to a demand to

extend or pay. Discretion to decide whether to extend or pay the complying demand is
inherent in URDG 758 Article 23 (Extend or Pay) and to extend or dishonour/honour
in ISP98 Rule 3.09(b)(ii) (Extend or Pay). UCP600 does not address this issue as
such, but UCP600 Article 10(a) (Amendments) requires Issuer/Guarantor consent for
an amendment to be effective.

How much time does an Issuer/Guarantor have to decide whether to accede to the
Beneficiary’s demand? The Issuer/Guarantor has the amount of time available in
which to give a notice of refusal before it is precluded, namely, five banking days
from the day of presentation under UCP600 Article 16(d) (Discrepant Documents,
Waiver and Notice) and seven baking days from the banking day of presentation
under ISP98 Rule 3.09(b)(iv) (Extend or Pay), which allows the Issuer/Guarantor the
maximum of seven banking days in an extend or pay situation.

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Where a complying extend or pay demand is made on a guarantee, URDG 758 Article
23(a) (Extend or Pay) permits the Issuer/Guarantor to suspend payment for “a period
not exceeding 30 calendar days following its receipt of the demand.” Following such
suspension, where the Local Bank makes a complying extend or pay demand on the
counter-guarantee running to it, URDG 758 Article 23(b) (Extend or Pay) allows the
Counter-Guarantor to suspend payment on the counter-guarantee for “a period not
exceeding four calendar days less than the period during which payment of the
demand under the [local] guarantee was suspended.” The Issuer/Guarantor must
“without delay” inform the Instructing Party or Counter-Guarantor, in the case of a
counter-guarantee, of the suspension under URDG 758 Article 23(c) (Extend or Pay).

While these time frames may seem bewildering with the period for suspension of the
counter-guarantee shorter than for the Local Guarantee, the context sheds some light.
Because the demand under the counter undertaking must comply in order for URDG
758 Article 23(b) (Extend or Pay) to be applicable—as is the case regarding the Local
Guarantee under URDG 758 Article 23(a)—the Counter-Guarantor must either pay or
extend the obligation.

Even if the Issuer/Guarantor accedes to the request to extend the undertaking, what
about the demand that has been made which is a presentation requiring honour?
ISP98 Rule 3.09(b) (Extend or Pay) provides that an extend or pay demand implies
that the Beneficiary retracts its demand if the request to extend is granted. URDG 758
Article 23(d) (Extend or Pay) has a similar rule. UCP600 does not address this issue.

What if the Issuer/Guarantor refuses to extend? If the Issuer/Guarantor refuses to

extend the undertaking as requested, the Issuer/Guarantor must examine the
documents presented and either honour or give a notice of refusal by the seventh
banking day following the banking day of presentation under ISP98 Rule 3.09
(Extend or Pay). Under URDG 758 Article 23(d) (Extend or Pay), it must pay since
the URDG 758 Rule only deals with complying presentations. The effect of the
URDG 758 Rule would be to enable the Issuer/Guarantor to suspend payment for up
to 30 calendar days although it has, in effect, admitted its obligation to pay. UCP600
does not address this issue.

Since any extension in response to a demand to extend or pay requires an amendment,

must the Issuer/Guarantor obtain the Beneficiary’s consent? Under ISP98 Rule
3.09(b)(i) (Extend or Pay), Beneficiary consent to the date requested is treated as
being implied. Neither URDG 758 nor UCP600 address this issue.

If the Issuer/Guarantor accedes to the request to extend or pay, none of the practice
rules indicates what should be done with the documents that were presented together
with the request to extend or pay. ISP98 Rule 5.07 (Disposition of Documents)
provides that documents presented must be disposed of in any manner reasonably
indicated by the presenter, but that the failure to do so does not give rise to preclusion.
URDG 758 Article 24(g) (Non-Complying Demand, Waiver and Notice) permits
return of paper documents to the presenter and disposal of electronic documents
without responsibility. UCP600 Article 16 (Discrepant Documents, Waiver and
Notice) requires a notice of discrepancy to state what is being done with the
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documents, but the Article does not indicate what must actually be done with the
documents or whether preclusion is applicable for the failure to act appropriately.
This issue is discussed in greater detail in Chapter Five (Honour and Dishonour).

3.9 Deadline When Bank is Ordinarily Closed

A problem arises when a presentation is made on the pendency of a deadline and the
place of presentation is closed because it falls on a non-business day.

All three practice rules provide for extension of the expiration of an undertaking when
it falls on a day on which there is closure due to a holiday or non-business day. In
such a situation, URDG 758 Article 25(d) (Reduction and Termination) provides that
the expiry date is extended to “the first following business day” at the place where
presentation would have been made. ISP98 Rule 3.13(a) (Expiration Date on a Non-
Business Day) provides:

If the last day for presentation stated in a standby (whether stated to be the
expiration date or the date by which documents must be received) is not a
business day of the issuer or nominated person where presentation is to be
made, then presentation made there on the first following business day shall
be deemed timely.

UCP600 Article 29(a) (Extension of Expiry Date or Last Day for Presentation)
provides “[i]f the expiry date of a credit or the last day for presentation falls on a day
when the bank to which presentation is to be made is closed . . . the expiry date or the
last day for presentation, as the case may be, will be extended to the first following
banking day.”

The Rules use two different terms, “business day” and “banking day”. UCP600
Article 2 (Definitions) defines “Banking day” as “a day on which a bank is regularly
open at the place at which an act subject to these rules is to be performed.” ISP98 and
URDG 758 refer to “Business day”. The terms are defined in each Rule. URDG 758
Article 2 (Definitions) defines “Business day” as “a day on which the place of
business where an act of a kind subject to these rules is to be performed is regularly
open for the performance of such an act”. ISP98 Rule 1.09(a) (Defined Terms)
defines “Business day” as “a day on which the place of business at which the relevant
act is to be performed is regularly open”. Where an Issuer/Guarantor or Confirmer of
a UCP600 standby/demand guarantee is not a bank, the rule would require
interpretation to make it applicable.

While the three practice rules operate similarly when the expiry date falls on a non-
business day, only ISP98 encompasses other deadline situations that fall on a day
when the Issuer/Guarantor is not regularly open for business and that may arise under
standbys/demand guarantees such as deadlines for presentation of demands in
installments.

Assume that the standby/demand guarantee requires presentation of the first

installment on Sunday 17 January (when the Issuer is closed). If the Beneficiary
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attempts to present the first installment on the next business day, ISP98 Rule 3.13(a)
(Expiration Date on a Non-Business Day) would extend the time for presentation to
Monday 18 January. This provision would make the presentation timely since the
extension rule applies to “the expiration date or the date by which documents must be
received”. On the other hand, presentation on Monday 18 January would not be
timely under URDG 758 or UCP600 because the scope of their extension rules
applies only to expiry dates and not to other deadlines.

As noted earlier, there would be an additional problem for the Beneficiary of a

UCP600 standby/demand guarantee. Under UCP600 Article 32 (Instalment Drawings
or Shipments), the failure of the Beneficiary to make a demand under the first
installment would result in the cessation of the availability of the standby for future
drawings although this result is absurd for most standby situations.

3.10 Closure When the Expiration Date is on a Business Day

A different problem arises when the place to which the Beneficiary is entitled to
present documents is closed on a business day on which it would be expected to be
open. Such closure is typically because of a supervening event. For example, an
electrical outage on Monday 18 March, 2013 would be a supervening event. The
question is whether the Beneficiary or the Applicant bears the risk of the inability of
the Beneficiary to make presentation on this day. Another question is whether the
Beneficiary has forfeited its right to make a presentation when the Issuer/Guarantor
re-opens on Tuesday 19 March, 2013 when the electrical power is restored.

The approach to this question under commercial LCs has been to place this risk on the
Beneficiary. Because the Applicant typically wants the documents, is probably
contractually bound to pay, and the Beneficiary typically retains control of the
documents which in turn give control of the goods, this approach has not caused
significant problems for Beneficiaries of commercial LCs. This approach has,
however, been a matter of significant concern to sophisticated Beneficiaries of
standbys who typically insist that a UCP standby vary the closure rule and provide for
an extension of the expiration date in such situation. If there is no variation, a
presentation where the Issuer/Guarantor re-opens after closure on the business day of
expiration under a UCP600 standby would not be timely under UCP600 Articles
29(a) (Extension of Expiry Date or Last Day for Presentation) and 36 (Force
Majeure).

Recognizing that the approach of the UCP to closure on a business day was inapt for
standbys/demand guarantees, ISP98 Rule 3.14 (Closure on a Business Day and
Authorization of Another Reasonable Place for Presentation) extends the expiration
date. URDG 758 Article 26 (Force Majeure) follows the ISP98 approach generally
but the manner in which they approach and solve this problem differs considerably.

3.10.1 Closure Due to Force Majeure

UCP600 and URDG 758 treat the problem of closure on a business day under the
concept of “force majeure”, that is an outside factor intervening to cause closure. The
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major problem with force majeure as a test for a practical problem is that it is an
abstract concept whose presence in a specific situation cannot readily be determined.

There is no formal definition of “force majeure” in UCP600 or in URDG 758.

UCP600 Article 36 (Force Majeure) is entitled “Force Majeure” and informally
explains the significance of the term, namely “the consequences arising out of the
interruption of its business by Acts of God, riots, civil commotions, insurrections,
wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its
control.” URDG 758 Article 26(a) explains it as “acts of God, riots, civil commotions,
insurrections, wars, acts of terrorism or any causes beyond the control of the
guarantor or counter-guarantor”.

The notion of a cause “beyond the control” of the Issuer/Guarantor decreases the
usefulness of the concept of force majeure. It is not always clear whether a closure is
caused by a force majeure event. For example, a strike may be a cause beyond the
control of the bank because it may not have control over those on strike (but again, it
may arguably be within its control). However, a lock out certainly is not a force
majeure because the bank itself is doing the locking out.

3.10.2 Inadequacy of Force Majeure as a Basis for LC Practice

An Issuer/Guarantor’s closure on a day it would otherwise be open for business due to

an electrical outage provides one illustration of the inadequacy of force majeure as a
basis for LC practice. Whether closure because of an electrical outage is caused by a
force majeure event depends on its cause. What if a mistake by a maintenance
employee of the bank caused the outage? If so, the closure is probably not a force
majeure event.

If the bank closure was not because of a force majeure event, it is unclear what
consequence would follow under UCP600. Under UCP600 Article 29(a) (Extension
of Expiry Date or Last Day for Presentation), the expiry date would be extended, and
the Beneficiary could either re-present on the next business/banking day when it re-
opened or sue the bank for repudiating its obligations by not being open when the
documents were tendered on a business/banking day. The same result would follow if
the bank refused due to expiry when it was later determined that the closure was not
due to force majeure. Under URDG 758, there would be no extension if there was no
force majeure event, but the Issuer/Guarantor would still be subject to the same
quandaries as it would under UCP600.

The problem is that the bank is closed on a day when it ought to be open. The
question that ought to be asked instead of whether closure was caused by a force
majeure event, is whether an Issuer/Guarantor or Beneficiary of a standby/demand
guarantee is prepared to take a chance on the interpretation of what is inherently an
ambiguous and highly debatable term. Reasonable business people would not accept
such a risk.

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 3.10.3 Solutions and Guidance to Closure from the Practice Rules:
UCP600

The UCP600 solution to the closure of the bank to whom presentation is made on the
expiry date is to shift the risk to the Beneficiary under the clumsy device of force
majeure. Assuming that there is a force majeure event, an attempt to present is not
timely and there is no extension of the time to present to a time when the bank is
opened. This approach is reflected in UCP600 Article 29(a) (Extension of Expiry
Date or Last Day for Presentation). While this notion may have made some sense
with respect to commercial LCs (where the discrepancy is probably waived and
presumably the Beneficiary controls the goods since it holds the documents), it makes
no sense under UCP600 demand guarantees or standbys where the Issuer/Guarantor is
unlikely to waive the discrepancy if the closure is not because of “force majeure” and
the documents do not typically represent control of goods. Because rational
Beneficiaries would not accept the UCP solution, it is regularly varied in
standbys/demand guarantees subject to the UCP. There is, however, little uniformity
in the format used for the variations as to the length of time, if any, or the
consequences of re-opening.

3.10.4 Solutions and Guidance to Closure from the Practice Rules:

ISP98

ISP98 recognized the need for an extension and sought to impose uniformity by
adopting a default rule based on the format used by more powerful Beneficiaries.
URDG 758 followed this general approach while differing in the particulars.

ISP98 takes a radically different approach than the UCP to treating closure due to
extraordinary events. As indicated, under ISP98 Rule 3.14(a) (Closure on a Business
Day and Authorization of Another Reasonable Place for Presentation), whether an
event is force majeure or not is irrelevant. Rather, the dispositive factor is whether the
deadline fell on a day on which the place for presentation is closed when it would
normally be open and presentation was not made because of the closure. If these
conditions are satisfied, the deadline is automatically extended until 30 calendar days
after the Issuer/Guarantor re-opened.

The period of 30 calendar days was picked because most Beneficiaries that varied the
UCP Rule for standbys chose a 30 calendar day extension. However, ISP98 Rule
3.14(a) (Closure on a Business Day and Authorization of Another Reasonable Place
for Presentation) is a default rule that can be varied by the terms of the standby that
can provide for a longer or shorter period of time for presentation after re-opening of
the place for presentation.

There are however, occasions when the Issuer/Guarantor is not content to wait until
the place for presentation re-opens, such as when a considerable length of time will
pass before the place for presentation re-opens. Indeed, the place for presentation may
not re-open at all.

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ISP98 Rule 3.14(b) (Closure on a Business Day and Authorization of Another
Reasonable Place for Presentation) allows the Issuer/Guarantor to designate a
“reasonable” alternative place for presentation. The alternative designation under this
Rule is not a proposal to amend and does not require the Beneficiary’s consent to be
effective. The provision functions as an automatic amendment. However ISP98 Rule
3.14(b) (Closure on a Business Day and Authorization of Another Reasonable Place
for Presentation) also provides important protections for Beneficiaries. First, it
requires that the Beneficiary must have received notice of this designation. Second, it
requires that the place designated must be “reasonable” (i.e., commercially
practicable for the Beneficiary to reach).

The ISP98 provision permitting the designation of an alternative place for

presentation is attractive for both the Issuer/Guarantor and Beneficiary where there
has been closure because of a supervening event. However, there does not need to be
a closure caused by a supervening event. ISP98 Rule 3.14(b) (Closure on a Business
Day and Authorization of Another Reasonable Place for Presentation) also permits
the Issuer/Guarantor to designate an alternative place for presentation in advance of a
closure, or relocation, without risking a repudiation of its obligations. As long as the
notice of an alternate, reasonably located place for presentation is received more than
30 calendar days before the change, it would be automatically effective under ISP98
Rule 3.14(b) (Closure on a Business Day and Authorization of Another Reasonable
Place for Presentation).

There is not a similar provision permitting designation of an alternative place for

presentation under UCP600 or URDG 758. Under these practice rules, the best that
the Issuer/Guarantor can do in a situation where it wishes to close or relocate a
facility is to propose an amendment and hope that the Beneficiary will consent.
However, most Beneficiaries simply ignore such requests and, in any event, need not
consent to them.

3.10.5 Solutions and Guidance to Closure from the Practice Rules:

URDG 758

While URDG 758 Article 26 (Force Majeure) uses the UCP600 concept of force
majeure, it does not shift the risk of closure onto the Beneficiary as does UCP600.
Although URDG 758 extends the time for re-presentation (as does ISP98 and unlike
UCP600), it operates quite differently than ISP98. URDG 758 Article 26(b) (Force
Majeure) is not restricted only to force majeure situations. The Rule expands its
application to situations where “presentation or payment under . . . [a] guarantee is
prevented by force majeure”, meaning where presentation is prevented, where
examination is prevented, and where payment is prevented.

3.10.5.1 URDG 758 Article 26 (Force Majeure): Force Majeure

Preventing Presentation

URDG 758 Article 26(b)(i) (Force Majeure) extends the date of expiration for a
guarantee and counter-guarantee for 30 calendar days from the applicable expiration
date.
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What if the bank is not re-opened within 30 calendar days? In some force majeure
situations, 30 calendar days is a reasonable time for the bank to re-open. However, in
many recent natural and human disasters, affected banks have not re-opened within
30 days. In the World Trade Center collapse and recent severe hurricanes, closings
have exceeded 30 calendar days.

Because URDG 758 Article 26 (Force Majeure) affords only partial protection to
Beneficiaries, they must consider whether they are prepared to risk that a force
majeure event will close the bank for more than 30 calendar days. This risk will be
unacceptable to prudent risk managers and counsel in its current form. If protection is
desired, there is little point in going halfway.

3.10.5.2 URDG 758 Article 26 (Force Majeure): Documents

Presented, but Force Majeure Preventing Examination

URDG 758 Article 26(b)(ii) (Force Majeure) also applies to documents that have
been timely presented, but not examined. Neither ISP98 nor UCP600 operates where
documents have been presented prior to the occurrence of the force majeure event.
Once presented under these rules, the risk shifts to the Issuer/Guarantor or Confirmer.
The URDG 758 Rule, however, suspends the time for examination under URDG 758
Article 20 (Time for Examination of Demand; Payment) until resumption of the
Issuer/Guarantor’s business. What constitutes the “resumption of the guarantor’s
business” is not explained. Does it mean the business of the place for presentation that
is affected? Moreover, what if the documents have been examined and no notice of
refusal has been sent?

URDG 758 Article 26(b)(ii) gives no indication of the consequence of a failure of the
location for presentation to re-open. It would appear that under this rule a Beneficiary
that has made a timely presentation would have no action against an Issuer/Guarantor
who had not honoured because it had not examined the presentation. It is unlikely that
a prudent Beneficiary would agree to such a result.

URDG 758 Article 26(b)(ii) (Force Majeure) also contains a potential trap for
Issuers/Guarantors because it refers to the time for examination under URDG 758
Article 20 (Time for Examination of Demand; Payment), but it fails to reference
URDG 758 Article 24(e) and (f) (Non-Complying Demand, Waiver and Notice).
URDG 758 Article 24(e) requires a refusal notice to be sent no later than the 5th
business day following the day of presentation. URDG 758 Article 26(b)(ii) (Force
Majeure) does not refer to this requirement, creating the possibility that the
Issuer/Guarantor will be precluded from asserting a discrepancy if it does re-open
within 30 calendar days and examines the documents.

3.10.5.3 URDG 758 Article 26 (Force Majeure): Force Majeure

Preventing the Issuer/Guarantor from Paying

URDG 758 Article 26(b)(iii) (Force Majeure) also applies to a situation where the
Beneficiary has made a timely presentation of complying documents, but where the
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force majeure event has prevented the Issuer/Guarantor from effecting payment.
Neither ISP98 nor UCP600 contain such a provision. Under these practice rules,
where complying documents have been presented (or timely notice of refusal not
given), the Issuer/Guarantor or Confirmer is obligated to honour or pay. However, the
URDG 758 Rule provides that the balance due is only to be paid when the force
majeure “ceases”. What the cessation of the force majeure means is not clear. Unlike
URDG 758 Article 26(b)(i) (Force Majeure) which turns on a fixed number of
calendar days, and URDG 758 Article 26(b)(ii) (Force Majeure) which turns on the
resumption of business, URDG 758 Article 26(b)(iii) (Force Majeure) turns on the
force majeure ceasing. It is unclear whether that signifies the resumption of business
or the end of the force majeure event.

The end of the force majeure event, however, does not necessarily mean that the
Issuer/Guarantor will have re-opened. Even though the event itself has ended (e.g. a
massive storm), the Issuer/Guarantor may not be able to re-open immediately. Is it in
breach of its obligation at the point the “event” ceases?

When cessation occurs, whether the Beneficiary would have an action for wrongful
dishonour against the Issuer/Guarantor that failed to pay may depend on the
interpretation of these provisions.

The Beneficiary must ask itself whether it is prepared to wait for payment and choose
the interpretation of these provisions until the force majeure ceases. In some cases,
cessation will be apparent. In others, it will not. Does that mean that the Beneficiary
will not have a claim against the Issuer/Guarantor until cessation occurs? As
indicated, some force majeure events can continue for long periods of time. In other
situations, the event will have ceased, but the Issuer/Guarantor may not be able to re-
open due to the consequences. And, will a prudent Beneficiary be prepared to assume
the risk that it cannot bring an action against the Issuer/Guarantor until cessation
occurs?

3.10.5.4 Closure and Extension in Counter Undertaking

Situations & Confirmation

When a transaction involves two or more related undertakings, the consequences of a

closure of one of the banks making the undertaking become very complex.

If the bank closed has issued the counter undertaking, then the problem is less
difficult. The claim of the Local Bank would fall within the practice rules to which
the counter undertaking was subject. The concern of the Local Bank, of course,
should be to protect itself in such a situation.

Where there is closure by the Local Bank on an expiry date, the problem becomes
more difficult. The undertaking to the Local Beneficiary will only be extended if the
local undertaking is extended which will depend, in part, on the practice rules to
which the local undertaking is subject. If the local undertaking is extended, the Local
Bank may encounter difficulties in claiming under the counter undertaking which
may have expired in the interim.
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Similar issues can arise under a confirmation if the confirmer is closed. In that case,
the Beneficiary would have an alternative place for presentation but is likely to face
practical problems in making presentation to the issuer.

3.10.5.5 ISP98 Approach to Closure in Counter Undertaking

Situations; UCP600

UCP600 does not anticipate a counter undertaking issued subject to it. Therefore, its
closure rules would apply to such a counter undertaking as well as to any local
undertaking subject to it. Nor does it address the application of its force majeure
closure rule to presentations by the Beneficiary to any Confirmer. On the other hand,
the Confirmer would be entitled to forward documents to the Issuer where it had
honoured its confirmation because the expiry of the standby is tolled by presentation
to the Confirmer.

ISP98 also eschews any attempt to regiment or anticipate the solutions to a counter
undertaking situation or to a confirmation. Nor does it expect that the two
undertakings are subject to the same rules. Because the interests of the bank issuing
the counter undertaking, the Local Bank, and the Local Beneficiary are adverse to one
another in such a situation, it was thought impossible to draft a rule that was neutral
or satisfactory. It is left to the parties to work out an appropriate regime.

3.10.5.6 URDG 758 Article 26 (Force Majeure): Application to

Counter-Guarantee Situations

URDG 758 Article 26 (Force Majeure), on the other hand, contains a parallel
structure to its rules for demand guarantees addressing the impact of a force majeure
closure on a counter-guarantee situation. Article 26(b) (Force Majeure) deals with the
impact of a force majeure closure of the Local Bank (as well as a situation where
there is no counter-guarantee) and Article 26(c) (Force Majeure) deals with the
impact of a force majeure closure of the Counter-Guarantor. As indicated, these
provisions apply to the inability of the Beneficiary under the Local Guarantee, or the
Local Bank under the counter-guarantee, to make presentation because of the force
majeure closure of the respective bank on the expiry date. The provisions also apply
to documents that have been presented and not examined and documents that have
been examined and deemed to comply, but not honoured.

The problems and questions discussed previously about URDG 758 are applicable to
a force majeure closure in a counter-guarantee situation. Moreover, there are
additional problems resulting from the complex nature of the arrangement which are
compounded by the drafting of URDG 758, the solutions adopted, and the failure to
develop adequate terminology that distinguishes the two situations.

URDG 758 Article 26(b)(i) (Force Majeure) addresses two different issues: notice of
closure and extension if there has not been presentation because of a force majeure
closure. These problems are distinct and can readily be confused. The requirement
that the Local Bank give notice of the closure to the Counter-Guarantor applies not

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only in the situation covered in Article 26(b)(i) (Force Majeure), but also to those
situations covered by Article 26(b)(ii) and (b)(iii) (Force Majeure).

If the Local Bank is closed on the expiry date because of a force majeure event,
preventing presentation, then URDG 758 Article 26(b)(i) (Force Majeure) extends the
expiry date of both the Local Guarantee and the counter-guarantee for 30 calendar
days from their respective expiry dates. The Local Bank is required to inform the
Counter-Guarantor “as soon as practicable”. If the Local Bank receives the
presentation, but examination has not been conducted, then URDG 758 Article
26(b)(ii) (Force Majeure) suspends the running of the time for examination until the
Local Bank resumes its business. URDG 758 Article 26(b)(iii) (Force Majeure)
addresses the situation where a “complying demand” has been presented before the
expiration date, but not paid because of the force majeure. It is not clear how this
provision is distinct from URDG 758 Article 26(b)(ii) (Force Majeure). Does URDG
758 Article 26(b)(ii) (Force Majeure) cover non-complying demands? Does it
envision that the Beneficiary would be entitled to cure the presentation, or does it
merely protect the Local Bank against operation of the preclusion rule? If so, then
why is the reference to URDG 758 Article 20 (Time for Examination of Demand;
Payment) and not to URDG 758 Article 24 (Non-Complying Demand, Waiver and
Notice) which contains the preclusion rule? What if the notice of note refusal is not
timely or adequate? Would that constitute a complying demand?

If the Counter-Guarantor is closed on the expiry date of the counter-guarantee due to

a force majeure, then URDG 758 Article 26(c) (Force Majeure) operates in a manner
roughly parallel to Article 26(b) (Force Majeure) with similar problems and
ambiguities.

The URDG 758 provisions on force majeure present significant issues and problems,
and given their untested character, parties should carefully review those provisions
before use. Where the Local Bank has not made a presentation to the Counter-
Guarantor because the Counter-Guarantor has been closed because of a force majeure
event, the expiry date is extended for 30 days from the date the Counter-Guarantor
informs the Local Bank that the force majeure has ceased. Notably, this provision,
unlike that of URDG 758 Article 26(b)(i) (Force Majeure) protects the Local Bank
where the Counter-Guarantor’s closure is lengthy since it only begins to run from the
“cessation” of the force majeure (although, as observed, that may not mean re-
opening).

Why give the Local Bank more protection than the Local Beneficiary or the
Beneficiary of a regular guarantee where there is a counter-guarantee? URDG 758
Article 26(c)(i) (Force Majeure) reveals that the drafters deliberately preferred Local
Banks over Beneficiaries, whether a Local Beneficiary of a counter-guarantee or a
Beneficiary of a guarantee where there was no counter-guarantee. Similar to ISP98,
the running of time for the Local Bank only begins when the force majeure has
ceased. This result is in contrast to the Issuer/Guarantor (where there is no counter-
guarantee) or Local Bank that has a flat 30 calendar period from the expiry date—
whether or not the force majeure has ceased or the bank has re-opened.

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URDG 758 Article 26(c)(ii) (Force Majeure) parallels Article 26(b)(ii) (Force
Majeure) and contains the same difficulties, namely whether it also suspends the
operation of the preclusion rule of URDG 758 Article 24 (Non-Complying Demand,
Waiver and Notice).

URDG 758 Article 26(c)(iii) (Force Majeure) does not parallel Article 26(b)(iii)
(Force Majeure) although both deal with a complying demand not paid before force
majeure closure. Like Article 26(b)(iii) (Force Majeure), Article 26(c)(iii) (Force
Majeure) does not address the effect of a notice of refusal that is not timely or
adequate. However, Article 26(c)(iii) (Force Majeure) requires that the Local Bank be
“paid when the force majeure ceases”, whereas Article 26(b)(iii) (Force Majeure)
only allows the Local Bank 30 calendar days to make a demand on the Counter-
Guarantor.

3.10.5.7 Does URDG Force Majeure Rule Affect Inability to

Present?

The drafters of the URDG 758 departed from the approach of the UCP with respect to
force majeure and did not follow the approach of the ISP98 which was based on long-
standing standby practice, thereby forging new ground. Both UCP600 and ISP98
focus on the closure of the bank at which the presentation is to be made. The URDG
takes a different and untried approach in its formula both in Article 26(b) (Force
Majeure) and Article 26(c) (Force Majeure): regardless of whether the undertaking is
a guarantee or counter-guarantee, the force majeure provisions are triggered if the
guarantee expires at a time when force majeure event prevents presentation.
“Presentation” is a defined term in the URDG, meaning either “delivery” or “the
documents delivered”.

The opening clause to URDG 758 Article 26(b) (Force Majeure) provides “[s]hould
the guarantee expire at a time when presentation or payment under that guarantee is
prevented by force majeure”. What is the result if a force majeure event prevents the
Beneficiary’s presentation even though the Issuer/Guarantor is not closed? It is a
reasonable interpretation of the preface of Article 26(b) (Force Majeure) and Article
26(c) (Force Majeure) to suggest that the Beneficiary’s failure to deliver the
documents because of a force majeure event affecting only the Beneficiary, and not
causing the Issuer/Guarantor to be closed, might well fall within the scope of URDG
758 Article 26(b) (Force Majeure) and (c) (Force Majeure).

However, it is unlikely that drafters of URDG 758 intended an outcome that would
permit the Beneficiary to avail itself of the force majeure provisions where a force
majeure event prevented it from making a presentation. A Beneficiary that was unable
to get the documents to the Issuer/Guarantor because of a force majeure event might
well urge the application of URDG 758 Article 26 (Force Majeure). A recent example
would be the Icelandic volcano which did not close banks, but shut down air and air
courier traffic throughout Europe. Because of the structure of ISP98 and UCP600, this
argument would not prevail under those Rules. Issuers/Guarantors and Applicants
should consider whether they are prepared to accept this risk of the interpretation of
these provisions. Ultimately, it will be a matter for interpretation for the courts.
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 3.10.5.8 Closure Prior to Expiry

None of the practice rules address a situation where the bank obligated on the
independent undertaking is closed for whatever reason in the days immediately prior
to the expiry date. Even if the bank re-opens in time for the expiry date, there may be
disruption and uncertainty on the part of the Beneficiary in organizing a presentation
on or immediately before the reopening on or before the expiry date. In such a
situation, a conservative Beneficiary may wish to insist that the undertaking to it
provide for an extension and a right to present subsequent to the expiry date if there is
a closure that precedes the expiry date.

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3.11 Review Questions

3.1 What is a “Presentation” and a “Presenter”?

3.1.1.1 What is a “Presentation”?

3.1.1.2 What are an Issuer/Guarantor or Confirmer’s obligations on

presentation?

3.1.1.3 Is a required advance payment undertaking “presented” when

delivered to the Issuer/Guarantor as a pre condition of a drawing?

3.2 Where is Presentation to be Made?

3.2.1.1 Where must presentation be made?

3.3 To Whom is Presentation to be Made?

3.3.4.1 May presentation be made to the Issuer/Guarantor even if the

standby/demand guarantee indicates another entity to whom
presentation can be made?

3.3.4.2 Must presentation be made to the Issuer/Guarantor?

3.3.4.3 Can presentation be made to an Advising Bank?

3.3.4.4 Where should presentation be made if the standby/demand

guarantee is silent in regard to the specific location within the place
of presentation?

3.3.4.5 Where should a Beneficiary make presentation if the

Issuer/Guarantor’s location has moved from the one specified under
the standby/demand guarantee?

3.4 The Manner of Presentation: How

3.4.3.1 How must the Beneficiary make a presentation?

3.4.3.2 Which practice rules accommodate electronic presentation?

3.4.3.3 Who is liable if presented documents are lost in transit from

Nominated Bank to an Issuer/Guarantor?

3.5 Incomplete Presentations

3.5.1.1 If the Beneficiary requests an Issuer/Guarantor to hold the

documents in an incomplete presentation, can it do so?
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 3.6 Partial and Multiple Drawings

3.6.6.1 Can the Beneficiary of a standby/demand guarantee draw for less

than the full amount?

3.6.6.2 Can the Beneficiary of a standby/demand guarantee make more

than one drawing?

3.6.6.3 If a standby/demand guarantee provides that no partial drawings are

allowed, can the Beneficiary draw less than 100% of the amount
available?

3.6.6.4 Where a UCP600 demand guarantee indicates that it supports the

payment of installments, what is the result if the first drawing made
is on a default on the third installment because the Applicant paid
the first two installments directly to the Beneficiary?

3.7 Presentation After Normal Banking Hours

3.7.1.1 What is the effect of a presentation made after business or banking

hours?

3.8 Extend or Pay Demands

3.8.2.1 What should the Issuer/Guarantor of a UCP600 standby/demand

guarantee do if it receives a demand which states “extend this
undertaking one year or pay me the balance due”?

3.8.2.2 What should the Issuer/Guarantor of a URDG 758 demand

guarantee do if it receives a demand which states “extend this
undertaking one year or pay me the balance due”?

3.8.2.3 What should the Issuer/Guarantor of an ISP98 standby do if it

receives a demand which states “extend this undertaking one year
or pay me the balance due”?

3.9 Deadline When Bank is Ordinarily Closed

3.9.1.1 What is the deadline for presentation if the expiration date falls on a
holiday or non-business day at the place for presentation?

3.9.1.2 If an installment demand deadline falls on a holiday or non-business

day, when must presentation of that installment demand be made?

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 3.10 Closure When the Expiration Date is on a Business Day

3.10.6.1 If a UCP600 standby expires on a business day on which the place

for presentation is closed because of an extraordinary event beyond
the control of the bank, when it would otherwise be open, will the
Beneficiary have the right to make a presentation on the day when
the issuing bank re-opens?

3.10.6.2 If a URDG 758 demand guarantee expires on a business day on

which the place for presentation is closed when it would otherwise
be open, will the Beneficiary have the right to make a presentation
on the day when the issuing bank re-opens?

3.10.6.3 What if a force majeure event occurs after a presentation is made

under a URDG 758 demand guarantee, preventing the
Issuer/Guarantor from examining the presentation?

3.10.6.4 What if a force majeure event occurs after a complying demand is

made under a URDG 758 demand guarantee, but the
Issuer/Guarantor has not honoured?

3.10.6.5 If an ISP98 standby expires on a business day on which the place

for presentation is closed when it would be expected to be open,
will the Beneficiary have the right to make a presentation when the
issuing bank re-opens?

3.10.6.6 Can the Issuer/Guarantor designate an alternative place for

presentation?

3.10.6.7 If a URDG 758 counter-guarantee expires at a time when

presentation or payment under that counter-guarantee is prevented
by force majeure, for how long is the counter-guarantee extended?

3.10.6.8 If a presentation is made under a URDG 758 counter-guarantee, but

has not yet been examined because of force majeure, for how long
is the running of the time for examination suspended?

3.10.6.9 If a complying demand is made under a URDG 758 counter-

guarantee, but has not yet been paid due to force majeure, when
shall payment occur?

Suggested Answers to these Questions Appear Starting at Page 232

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