International Construction: On-Demand Bonds & Guarantees - First Judicial Guidance On URDG 758

• Published date: 30 May 2020
• Author: Mr Hamish Lal, Josephine Kaiding, Brendan Casey and Léa Defranchi
• Subject Matter: International Law, Litigation, Mediation & Arbitration, International Trade & Investment, Trials & Appeals & Compensation
• Law Firm: Akin Gump Strauss Hauer & Feld LLP

In Leonardo S.p.A v. Doha Bank Assurance Company LLC¹ the Appellate Division of the Qatar Financial Centre in a Judgement handed down by Lord Thomas of Cwmgiedd, Justice Chelva Rajah SC and Justice Ali Malek QC stressed the fundamental importance of incorporating by reference Uniform Rules for Demand Guarantees (URDG) 758 into so-called on-demand bonds and guarantees. This is an important judgement. The URDG International Chamber of Commerce (ICC) Publication 758, known internationally as URDG 758, became effective on July 1, 2010, but there were no reported cases dealing with its application and practical effects. In Leonardo S.p.A the court explained:

• As URDG 758 is intended to be an instrument underpinning international trade and commerce and to harmonize international demand guarantee practice, it is important URDG 758 is not interpreted in a literalistic manner or by adoption of rules of national law.
• Courts must interpret URDG 758 in accordance with its underlying aims and purposes reflecting international practice and the expectations of international bankers and international traders.
• Courts worldwide ought to follow the same approach, not least because demand bonds and guarantees incorporating URDG 758 "are the lifeblood of commerce. Their purpose is to provide security for payment which can be called on promptly."

Leonardo S.p.A v. Doha Bank Assurance Company LLC will be monitored in Singapore and Malaysia. This is because in these jurisdictions the courts have routinely restrained calls on on-demand bonds and guarantees on the basis that the call was unconscionable. Incorporation of and following the procedures in URDG 758 coupled with the court's jurisprudence in Leonardo S.p.A may, now, give beneficiaries in such jurisdictions more certainty that a call will be paid out and the autonomy principle will be upheld.

What is URDG 758?

The URDG 758 are a set of contractual rules that apply to demand bonds and guarantees and counter-guarantees. As the URDG are contractual by nature, they apply only if the parties to a demand bond, guarantee or counter-guarantee incorporate the URDG 758 into such instruments. The URDG 758 has been endorsed by the World Bank, the International Federation of Consulting Engineers (FIDIC), the Organization for Harmonization of Business Law in Africa (OHADA), the U.N. Commission for International Trade Law, the Bankers' Association for Finance and Trade (BAFT) and the International Financial Services Association (IFSA).

...