Our contributor, Xavier Fornt, examines the risks arising from the absence of confirmation rules in URDG 758, and explores the legal protections available to beneficiaries where issuing banks fail to establish the confirmation process in the guarantee itself.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of ICC Academy or ICC.
What is confirmation in international trade?
Confirmation of guarantees and documentary credits is a well-established practice in international trade, particularly when the beneficiary is unfamiliar with the issuing bank, or when the issuing bank is located in a country considered high-risk.
Broadly, a beneficiary will seek confirmation when they have concerns about two things: the risk of the issuing bank itself – that is, its ability to honour its undertaking – and country risk, meaning potential political or economic instability of the country in which the issuing bank is domiciled, which can affect the flow of payment regardless of the bank’s own creditworthiness.
In such cases, it is entirely logical for the beneficiary to seek additional security by requesting that a well-known bank – or a bank in their own country with which they are familiar – add its confirmation to the undertaking of the issuing bank.
The ICC rules that govern these instruments each address this concept of confirmation, though with different terminology and scope.
Confirmation under ISP98: Standby letters of credit
While UCP 600 was designed primarily for commercial letters of credit, it was not built to handle the specific demands of standby instruments – a gap that ISP98 was created to address.
In the context of standby letters of credit, the Institute of International Banking Law & Practice (IIBLP) addressed the role of the confirmer directly when drafting the ISP98 (International Standby Practices). Rule 1.09 defines the confirmer as:
“A person who, upon an issuer’s nomination to do so, adds to the issuer’s undertaking its own undertaking to honour a standby.”
The confirmer’s obligations are further set out in Rule 2.01(d)(i), which states:
“A confirmer undertakes to honour a complying presentation made to it by paying the amount demanded of it at sight or, if the standby so states, by another method of honour consistent with the issuer’s undertaking.”
Confirmation under UCP 600: Documentary credits
In the context of documentary credits, UCP 600 also recognises confirmation as a distinct and defined concept. Unlike ISP98, however, UCP 600 was drafted primarily to govern commercial letters of credit – reflecting a different transactional context from that of demand guarantees, a distinction that becomes significant as we examine what happens under URDG 758.
Article 2 defines it as:
“A definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.”
The obligations that flow from this commitment are then addressed in full in Article 8, which is dedicated entirely to the responsibilities of the confirming bank.
The gap in URDG 758: No rules on confirmation
First demand guarantees, however, present a markedly different picture. The ICC rules governing them – URDG 758 (ICC Uniform Rules for Demand Guarantees, Publication 758) – make no provision for confirmation whatsoever.
This is because, unlike documentary credits, demand guarantees have traditionally been issued on the basis of the guarantor bank’s own credit standing, with beneficiaries relying directly on the guarantor’s undertaking rather than seeking an additional layer of confirmation.
Does this mean that a first demand guarantee subject to URDG 758 cannot be confirmed? Not at all.
These instruments can be and have been confirmed in practice. But if the rules are silent on the matter, what framework applies when confirmation does occur?
Certified URDG 758 Specialist (CURDG)
The ISDGP for URDG 758: When no confirmation process is defined
The ICC has addressed this gap directly. The International Standard Demand Guarantee Practice (ISDGP) for URDG 758, ICC Publication 814, states in paragraph 46:
“Confirmation of guarantees is not standard practice in demand guarantees. The URDG provide no rules in relation to confirmation. Where confirmation of a guarantee is sought, the guarantor should provide terms in the guarantee determining the entire process of confirmation.”
This makes two things clear: confirmation of a demand guarantee is entirely possible despite the silence of URDG 758, but the burden falls on the issuing bank to establish the full confirmation process within the text of the guarantee itself – including the confirmer’s obligations, presentation requirements, and any fee arrangements.
What happens, then, when an issuing bank fails to do this and simply adds a confirmation without setting out the process, as does occur in practice?
When the issuing bank stays silent: The risk of ambiguity
This is precisely where the issuing bank creates a clear risk of ambiguity.By adding a confirmation to a demand guarantee without establishing the governing process – no defined obligations for the confirmer, no presentation requirements, and no fee arrangements – the bank leaves a significant gap in the legal framework of the transaction.
In practice, this ambiguity can give rise to disputes over fundamental questions: whether the confirmer’s obligations mirror those of the issuing bank, whether the beneficiary can present a demand to the confirmer independently, and who bears responsibility if the confirmer declines to pay. Oversimplifying instrument terms leaves the door open to ambiguity – and with it, conflict is virtually guaranteed.
But if neither URDG 758 nor the guarantee itself addresses the confirmation, what legal protection does the beneficiary actually have?
Legal protection under the UN Convention on independent guarantees
Where neither URDG 758 nor the guarantee text itself establishes a confirmation framework, the United Nations Convention on Independent Guarantees and Standby Letters of Credit (1995) provides the legal foundation that fills the gap. Chapter II, Article 6 of the Convention defines the key terms:
“e) ‘Confirmation’ of an undertaking means an undertaking added to that of the guarantor/issuer, and authorized by the guarantor/issuer, providing the beneficiary with the option of demanding payment from the confirmer instead of the guarantor/issuer, upon simple demand or upon demand accompanied by other documents, in conformity with the terms and any documentary conditions of the confirmed undertaking, without prejudice to the beneficiary’s right to demand payment from the guarantor/issuer;
f) ‘Confirmer’ means the person adding a confirmation to an undertaking.”
It is the author’s view that the implications here are important. Even when an issuing bank has failed to establish the confirmation process within the guarantee itself, the beneficiary is not left without recourse. Under the Convention, the beneficiary retains the right to demand payment from the confirmer in place of the guarantor or issuing bank. The Convention’s scope of application, set out in Chapter I, makes clear that it applies to international undertakings as defined in Article 2 – which explicitly includes independent guarantees.
One important caveat, however: the Convention has received limited ratification internationally. Practitioners should verify whether the Convention applies in their jurisdiction – and where it does not, should ensure that the confirmation process is fully defined within the guarantee itself, precisely as the ISDGP recommends.
