Ahmad Elayyan SVP – Head of Operations Ajman Bank 6th ICC-UAE TRADE FINANCE CONFERENCE Bank Guarantees Ahmad Elayyan SVP – Head of Operations Ajman Bank

Independence of Guarantees / Counter Guarantees Guarantees by nature are independent from the relationship between applicant and beneficiary or any contractual agreement in relation to the underlying project / tender …etc. though they are based on such relationships. Article 5 URDG Compromising the “autonomy rule” of bank guarantees would in turn disqualify this important instrument as one of the major trade finance tools. Compromising means having additional documentary or non-documentary conditions at the time a claim is lodged.

Independence of Guarantees / Counter Guarantees Such practice is evidenced in several litigation cases where issuing bank (guarantor) is requested to take extra validation steps to assess a rightful claim made by the beneficiary. As verdict is mainly based on expert reports, a holistic review of expert selection criteria of appointed experts has to be conducted. Issuing Banks have to find a way by which they can minimize excessive / non documentary conditions to avoid misinterpretation in subsequent invocation.

URDG vs. Local Law A bank guarantee (“Bank Guarantee”) is defined in Article 411 of the Commercial Transaction Law No. 18 of 1993 (“CTL”) as “An undertaking from the bank to settle the debt of the customer to a third party pursuant to the conditions to be agreed to and included in the guarantee. The guarantee can be for specific or unspecific period”. Bank Guarantees / Counter Guarantees are mostly issued subject to local laws and regulations. Most Legislations lack proper and sufficient stipulations in relation to the application of Bank guarantees and the associated governing rules of dispute resolution The fact that Issuing bank’s obligation is based on documents “on their face” is not adequately addressed in the articles of CTL.