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ab

Landing safely
The targeted securing of performance and payment
with bank guarantees from UBS Trade & Export Finance
Feeling understood

Because we listen to you and address your specific needs,


your company always receives the right support at both the national
and international levels

How many banking services does a company need? Every busi- It doesn’t matter whether you’re a large or a small company,
ness is unique and has its own very specific requirements, which whether you manufacture products or provide services, or even
means that no two businesses make exactly the same demands whether your business is local, national or global in scale:
of their bank. we will provide you with exactly the banking services you need.
Which allows us to create added value for you – and that’s
Your business target is long-term, always good for business.

sustainable growth.
So just how many banking services does your company need?
It all comes down to the business you are in, and your organiza-
tion’s requirements. First, we’ll offer you sound advice, based
on your business’s needs, goals and processes. Then we’ll intro-
duce you to the comprehensive offering of products and ser-
vices available to you, and work with you to devise a solution
specifically tailored to your company’s requirements.

2
Securing and financing transactions

UBS Trade & Export Finance helps you reinforce your position as an attractive
­business partner and secure and finance your transactions properly

In large-scale transactions, especially in international business, Our range of services covers all kinds of bank guarantees,
it goes almost without saying that bank instruments which ­including sureties and standby letters of credit, payment
secure performance and payment obligations or which finance instruments such as documentary credits and collections, export
goods and services should be part of the deal. finance, supply chain solutions, forfaiting and discounting
services. Detailed advice from our experts tells you which instru-
When choosing such instruments, it will pay to look for a bank ment or combination of instruments is the right one for your
partner which has broad-based knowledge of Trade & Export particular case. You receive the appropriate solution promptly,
Finance, with a command of the fine detail as well as a broad and can count on smooth processing.
overview of the area.

Among nationally and internationally active companies, we


Securing and financing your transactions
are a bank of preference for Trade & Export Finance. There are properly with UBS Trade & Export Finance.
two main reasons for this. Firstly, we can provide our clients
with effective support anywhere and at any time, thanks to our Our specialists have comprehensive knowledge and long ex-
capacity, infrastructure and global network of connections. perience of the relevant Swiss legislation and international
Secondly, our in-house specialists can bring in-depth knowledge guidelines. With us as your guarantor bank, you can go about
and wide-ranging experience to bear on all aspects of Trade & your business with comprehensive security – to the benefit of
Export Finance. all involved. And if you can offer this security, then in many cases
you will be your clients’ first choice business partner.

3
Enjoying security, offering security

Bank guarantees provide targeted securing of


performance and payment obligations.

Whenever a contract is concluded, the contracting party is The standby letter of credit has its roots in past American bank-
expected to fulfill its obligations. If you are the supplier of ing law and can be used in lieu of a guarantee. It is used mainly
goods or services, however, it can sometimes be difficult for in import-export business with American states, but also fre-
you to assess the financial position of the buyer. And, if you quently in trade with the Far East. Standby letters of credit are
are the buyer, you may well lack information about your suppli- used instead of documentary credits and guarantees to secure
er’s ability to deliver. However, such uncertainties need not both payment and performance. US banks generally prefer the
be an obstacle to successful business transactions. That is the form of standby letters of credit to that of guarantees.
purpose of the bank guarantees provided by our bank.
A legal form of bank guarantee frequently used in and restrict-
With a guarantee, the bank undertakes to pay a certain sum ed to standard transactions amongst with Swiss contracting
to the beneficiary should the contracting partner fail to make partners is the surety bond. Here, the surety (guarantor) obliges
a payment or provide a service as agreed. himself towards the obligee (creditor) of the principal obligor
(main debtor) to answer for the latter’s obligation. Unlike a
Bank guarantees – securing performance guarantee, which is abstract in character, a surety bond estab-
lishes an accessory obligation towards the creditor and, as such,
and payment systematically. defences may be used against claims in respect of the underly-
ing transaction. One of the most common forms of surety is the
Bank guarantees are a way of providing security for a wide building contractor’s guarantee, which is used in dealings with
variety of performance and payment obligations entered into craftsmen.
when tendering offers or signing contracts in connection with
advance payments or goods deliveries against open account. We can show you the options and benefits of using bank
Guarantees can also serve as security for loans. guarantees in your commercial dealings.

This brochure summarizes what you need to know about bank


guarantees and the different types available. However, the bro-
chure is not exhaustive and cannot possibly take all conceiv-
able eventualities into account. So, here as elsewhere, the rule
is: for your own business dealings, customized advice from our
specialists is always the most likely path to success.

4
Contents

1 Bank guarantees as a security instrument   7 7 Enforcing a bank guarantee 18


7.1 Formal verification 18
2 Legal forms of bank guarantees   8 7.1.1 Verification of signatures 18
2.1 Surety (surety bond)   8 7.1.2 Enforcement claim form 18
2.2 Guarantee   8 7.1.3 Timely claim for enforcement 18
2.3 Confirmed payment order   9 7.2 Surety 18
2.4 Standby letter of credit   9 7.3 Guarantee 18
7.4 Assignment 18
3 Structure of a bank guarantee payable
upon first demand 11 8 Order to issue a guarantee and the
3.1 Introduction: preamble 11 contractual relationship between client
3.2 Main section: guarantee clause 11 and bank 19
3.3 Duration of the obligation: expiry clause 11 8.1 Client’s (letter of) indemnity 19
3.4 Applicable law and place of jurisdiction: 8.2 Commission and fees 19
choice of law and place of jurisdiction clause 11
3.5 Additional clauses 11 9 Guarantees according to the “Uniform
3.5.1 Reduction clause 11 Rules for Demand Guarantees” (URDG)
3.5.2 Identification clause 11 of the International Chamber of Commerce 21
3.5.3 Effective clause 11 9.1 Purpose and intent 21
9.2 Uniform Rules for Demand Guarantees,
4 Direct and indirect guarantees 12 Publication No. 758 of the ICC, Paris 21
4.1 Direct guarantees 12
4.2 Indirect guarantees 12 10 International Standby Practices ISP98 33
4.3 Scope of application 12
11 Appendix (sample texts) 49
5 Types of guarantees and sureties 13
5.1 Tender bond/bid bond 13 12 Index 65
5.2 Advance payment guarantee 13
5.3 Performance bond 13 13 Glossary 66
5.4 Guarantee for warranty obligations 14
5.5 Payment guarantee 14
5.6 Loan guarantee 14
5.7 Standby letter of credit 14
5.8 Builder’s guarantee 15
5.9 Other types of guarantees 15

6 Expiry of guarantees 17
6.1 Reasons for expiry of direct guarantees 17
6.1.1 Ordinary expiry on the expiry date 17
6.1.2 Payment of the guarantee amount 17
6.1.3 Early return of the guarantee deed 17
6.2 Reasons for expiry of indirect guarantees 17
6.2.1 Expiry date 17
6.2.2 Expiry of counter-liability and counter-guarantee 17
6.2.3 Payment of the guarantee amount 17

5
1 Bank guarantees as a
security instrument
Bank guarantee is the generic term for the legal forms
described below:

Bank guarantees

Confirmed payment Standby


Surety Guarantee
order letter of credit

Joint and several


Simple surety
surety

These legal forms are predominantly used to secure perfor- Guarantees are not usually confirmed, countersigned or
mance. They provide the contracting parties with the assurance endorsed. If a countersignature is required, the international
that the transaction they have entered into will be carried out. standard form of indirect guarantee should be used (see
This element of security is of central importance in international page 12). In the context of securing performance of the con-
trade, where agreements are entered into between parties from tract, letters of credit should also be mentioned as a means
different legal and cultural backgrounds. For most customers of securing payment. Further information on this topic may be
purchasing goods or services, it is difficult to assess the potential found in our brochure “Documentary Credits and Collections”.
expertise or financial prospects of a supplier. Purchasers there-
fore rightly require some guarantee that the seller will be able The main difference between a letter of credit and a guarantee
to perform as promised. To this end, the parties will often agree is that letters of credit are basically used as a payment instru-
to provide a bank guarantee for the purpose of securing per- ment, whereas guarantees provide assurance that contractual
formance. In international trade, the use of bank guarantees as obligations will be fulfilled.
a means of securing payment is basically restricted to (default)
payment guarantees. On the international scene, non-Swiss con-
tracting parties hardly ever accept sureties and payment orders
governed by Swiss law, as they are unwilling to deal with the
specifics of the Swiss Code of Obligations (SCO).

7
2 Legal forms of bank guarantees

2.1 Surety (surety bond) In accordance with Art. 496 para. 1 of the Swiss Code of Obliga-
The legal basis of a surety is defined in Art. 492 ff. of the Swiss tions, the joint and several guarantor can be ordered to pay
Code of Obligations: “In a contract of guarantee (i.e. surety), on behalf of the principal obligor if the latter is in arrears with
the guarantor obligates himself toward the obligee of the prin- his or her payment despite reminders or his or her insolvency
cipal obligor to answer for the latter’s obligation” (SCO Art. 492 is manifest. Due to the complexity of the law on sureties, espe-
para. 1). cially regarding the joint and several surety, this legal form is
rarely accepted outside Switzerland. Therefore and because of
The law as applied to sureties consists of numerous individual the inherent potential for disputes, also UBS, in principle, issues
provisions with complex interrelationships. In banking practice, sureties only in connection with standard transactions concluded
this has led to the use of standardized forms which contain amongst Swiss parties and which, from experience, do not hold
references to the text of the law. an increased potential for lengthy and costly disputes.

Unlike the abstract payment obligation or guarantee (see 2.2),


sureties are of an accessory nature. They presuppose a valid 2.2 Guarantee
principal obligation. The surety therefore shares the fate of the In legal and banking practice, the following definition is used:
principal obligation as far as existence, scope and enforceability
are concerned. If the principal obligation ceases to have effect, “A bank guarantee is a one-way contract between a bank as
then the surety also ceases to have effect. the guarantor and a beneficiary as the party to whom a guar-
antee is made. Under this contract, the bank undertakes to
According to Art. 502 para. 1 of the Swiss Code of Obligations, make payment to the beneficiary within the limits of a stated
“The guarantor has the right and the obligation to raise against sum of money, if a third party fails to effect performance or
the obligee the objections and defences belonging to the prin- if some other event materializes or fails to materialize.”
cipal obligor which are not based upon the principal obligor’s
insolvency.” Since a contract of guarantee, unlike a surety, is not explicitly
regulated by law, the following two interpretations are held to
This method of securing performance is hardly ever accepted apply in Switzerland:
abroad, as non-Swiss partners are unwilling to deal with the • where an agreement is used to create a binding obligation
specifics of the Swiss Code of Obligations. It is entirely in their on a third party (SCO Art. 111),
interest to obtain an instrument which guarantees them swift • where there is a confirmed instruction directing payment
enforcement of any claims. to a third party (SCO Art. 466 ff.).

In accordance with Art. 495 para. 1 of the Swiss Code of Obli- In this context, the “Uniform Rules for Demand Guarantees”
gations, the obligee can require the simple guarantor to pay (ICC Publication No. 758) of the International Chamber
only if the following conditions apply: of Commerce, Paris, governing guarantees, should be men-
• the principal obligor has gone into liquidation after the tioned, since guarantees may be made subject to these rules
surety has been entered into, (see chapter 9, page 21 ff.).
• the principal obligor has been granted an extension
of time to compound with its creditors, In each case, a contract of guarantee has the following char-
• the creditor (obligee) has exercised due diligence in taking acteristics: The contract of guarantee contains an abstract
proceedings to enforce payment pending issue of a final promise to perform and is a separate obligation independent
certificate of shortfall, of the underlying transaction. This means that the guarantee
• the principal obligor has transferred its domicile abroad and secures specific performance, independently of whether or
legal action may no longer be brought in Switzerland, or not such performance is actually owed.
• as a consequence of such transfer of domicile abroad,
there is a significant impediment to bringing legal action For this reason, the guarantor cannot raise any objections
against the principal obligor. based on the underlying transaction and is obliged to pay
in the event that the situation provided for in the guarantee
arises. In general, the text of the guarantee will include the
stipulation that the guarantor is obliged to pay upon first
demand by the beneficiary.

8
Unlike sureties, guarantees may be valid in principle without the 2.4 Standby letter of credit
existence of a written contract. In practice, all guarantees are The standby letter of credit has its origin in the earlier banking
recorded in writing to serve as formal evidence. If the principal legislation of the United States, which forbid US credit institu-
obligor defaults, the beneficiary can turn directly to the guaran- tions from assuming guarantee obligations vis-à-vis third par-
tor, who is obliged to pay. Since the guarantee is independent ties. To circumvent this rule, the US banks created the standby
of the underlying contractual relationship, it is easy for the ben- letter of credit, which is based on the Uniform Customs and
eficiary to handle and has become a widely used security instru- Practice for Documentary Credits. Like the guarantee, the stand-
ment, particularly in international trade. by letter of credit is of an abstract nature, i.e. legally separated
from the underlying transaction. To demand payment under
The wording of the guarantee is based on the purpose for a standby letter of credit, the documents stipulated in the claim
which it is to be used. Guarantee agreements may therefore clause must be submitted within the specified period. These
differ substantially from each other, owing to the special re- documents must usually state that the client (exporter) has not
quirements of the underlying transaction, local practices and the met or insufficiently fulfilled his or her performance obligations
legal position in the countries in which they were issued. or that the debtor has not met a payment on time. The standby
letter of credit basically fulfills the same purpose as a guarantee:
it is payable upon first demand and without objections or de-
2.3 Confirmed payment order (payment undertaking) fences from the underlying transaction. It is up to the beneficia-
Confirmed payment orders are perhaps better known as ry to decide whether a standby letter of credit may be given.
“payment undertakings.” Under SCO Art. 468, a payment under-
taking, like a guarantee, comprises an irrevocable, non- On 1 January 1999, the International Chamber of Commerce
accessory obligation to pay. This payment may be subject to introduced the “ISP 98” (International Standby Practices), new
certain conditions (conditionally confirmed payment order). guidelines which were drawn up especially for standby letter of
This means that the obligation to pay is effectively subject to credit business (see chapter 10, page 24 ff.).
compliance with the conditions referred to in the confirmed
instruction. In practice, however, most standby letters of credit are still
issued under the “Uniform Customs and Practice for Documen-
Under the Swiss Code of Obligations, the instruction amounts tary Credits”.
to a contract authorizing the transfer of money, securities
or other fungibles for the account of the authorising party to a
third-party beneficiary entitled to receive the same in its own
name (SCO Art. 466). More specifically, the client (“principal”)
authorizes the bank (“agent”) to pay a stipulated amount to a
beneficiary (“payee”) on its behalf. The instruction therefore
constitutes an indirect form of payment. Instead of a sum of
money, the instruction may direct the payment of securities or
other fungibles, such as precious metals. The principal may
instruct the bank to pay the beneficiary only under certain con-
ditions, for example against a statement by the beneficiary, or
on presentation of documents.

According to the Swiss Code of Obligations, the bank’s contrac-


tual obligation to pay does not arise from the instruction to pay,
but only from the bank’s unconditional statement of acceptance
in relation to the beneficiary (SCO Art. 468 para. 1). As far as
the principal is concerned, the instruction to the bank is also
only revocable if the bank has not confirmed its acceptance of
the instruction to the beneficiary (SCO Art. 470 para. 2). Unlike
sureties or guarantees, payment made following an instruction
to pay does not constitute indemnification for the nonperfor-
mance of a third party.

9
3 Structure of a bank
guarantee payable upon
first demand

As contracts of guarantee are not regulated by law, the con- tees are made subject to the applicable law at the place of the
tracting parties have a certain amount of leeway in wording guarantor, with the place of jurisdiction being at that place.
the contract according to the freedom of contract principle
under the Swiss Code of Obligations. The following features Indirect guarantees are an exception to this rule. Here, the
always have to be included in a bank guarantee: guarantee is not given directly to the beneficiary, but via a sec-
• introduction: preamble, ond bank authorized to do so – under the counter-liability and
• main section: guarantee clause, counter-guarantee of the first bank (see chapter 4.2, page 12).
• duration of obligation: expiry clause, Sometimes, foreign banks stipulate that this counter-guarantee
• applicable law and place of jurisdiction: choice of law and from the Swiss bank should also be subject to the law of the
place of jurisdiction clause. country in which the foreign bank is located. In this case, the
law of the relevant country will also apply in respect of claims
made by the foreign bank under the counter-guarantee of the
3.1 Introduction: preamble Swiss bank.
The contractual relationship between the obligor in the under-
lying transaction and the beneficiary is set out in the preamble.
3.5 Additional clauses
Besides the four main features mentioned above, guarantees
3.2 Main section: guarantee clause may contain additional clauses, depending on the type of
The guarantee clause is the core component of any guarantee. transaction to be covered:
It obligates the guarantor (bank), on behalf of the principal
obligor (bank client), to pay a sum of money to the benefi- 3.5.1 Reduction clause
ciary (generally, a contracting partner of the principal obligor This clause sets out the conditions for reducing the guarantor’s
in the underlying transaction). Payment must be made upon liability.
first demand and is independent of the underlying transaction
(abstractness). The guarantee clause contains the following Example:
elements: ”Our guarantee will be reduced by each payment made by us
• designation of the guarantor and the beneficiary, as a result of a claim.”
• amount of the guarantee (total, currency),
• definition of the circumstances under which the bank can 3.5.2 Identification clause
be required to pay. This clause ensures that the claim is being made by the legi-
timate beneficiary.
Since the bank guarantee is independent of the underlying
transaction, the guarantor does not need to verify whether a Example:
claim is justified. All the guarantor has to do is make sure that ”For the purpose of identification, your written request for
the demand for payment made by the beneficiary of the guar- payment must bear or be accompanied by a signed con-
antee, as well as any other documents described in the guar- firmation of one of our correspondent banks stating that the
antee, appear to correspond to the terms thereof. latter has verified your signature(s) appearing on the said re-
quest for payment.”

3.3 Duration of the obligation: expiry clause 3.5.3 Effective clause


The expiry clause governs the duration of the obligation en- This additional clause sets out more precisely when and under
tered into. Any demand for payment must reach the branch of what circumstances a guarantee enters into force, usually in
the guarantor named in the guarantee deed on or before the combination with the expiry clause (see 3.3).
specified date. Otherwise, the beneficiary will forfeit his or her
rights under the guarantee. Example:
”The present guarantee enters into force on ... and remains
valid until ... .” or “The present guarantee enters into force
3.4 Applicable law and place of jurisdiction: only after receipt of the amount ... , evidencing this guarantee
choice of law and place of jurisdiction clause no. ... , by ... into their account held with us, and remains
Agreeing on the applicable law as well as to the place of juris- valid until ... .”
diction brings clarity for all parties. In principle, bank guaran-

11
4 Direct and indirect guarantees

Direct guarantees Indirect guarantees

1. Underlying transaction 1. Underlying transaction

Principal Beneficiary Principal Beneficiary

2. Order 3. Guarantee 5. G
 uarantee 2. Order 4. Guarantee
advice

4. Advice order 3. Order and counter-guarantee

Principal’s bank Advising bank Principal’s bank Guaranteeing


bank

4.1 Direct guarantees 4.3 Scope of application


A direct guarantee arises when the client authorizes the bank to Direct bank guarantees are used both in domestic and cross-
issue a guarantee directly to the beneficiary. border business. In domestic affairs – especially in the con-
struction industry and towards public authorities – it is also
common that accessory securities in the form of sureties are
4.2 Indirect guarantees required which are issued directly to the beneficiary in the same
With an indirect guarantee, a second bank is involved. This bank way as direct guarantees. Guarantees, on the other hand, are
(usually a foreign bank located in the beneficiary’s country of always used where it is important that the bank’s undertaking
domicile) is requested by the initiating (Swiss) bank to issue a to provide security not be contingent on the existence, vali-
guarantee in return for the latter’s counterliability and counter- dity and enforceability of the principal obligation relationship.
guarantee. Thus, the initiating (Swiss) bank protects the guar- For this reason, beneficiaries mostly require guarantees, since
anteeing (foreign) bank from the risk of loss which could arise their abstract legal status means that the beneficiary is able to
from enforcement of the guarantee issued. It formally pledges enforce its rights rapidly. Furthermore, guarantees have the
to pay the amounts claimed under the guarantee upon first de- advantage of being more easily adapted to the individual situa-
mand by the guaranteeing bank. tion because they have no prescribed form.

Indirect guarantees are mainly issued in connection with export


business – in particular when government agencies or public
entities are the beneficiaries. In addition, many countries do not
accept foreign banks as guarantors due to legal provisions or
other form requirements (e.g. Middle-Eastern countries).

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5 Types of guarantees
and sureties
This chapter provides information on the most relevant types 5.2 Advance payment guarantee
of guarantees and sureties along with useful tips regarding:
• scope, Scope of application
• purpose of guarantee, In import-export business, but also in domestic commercial
• indication of the amount guaranteed and the lifetime of business, trade and industry.
the guarantee,
• special features. Purpose
To secure any claims by the buyer on the seller for reimburse-
The appendix contains the sample texts of the most common ment of the buyer’s advance payment on the contract price
guarantees. More model forms are available on our home- before delivery of the goods (or advance payment of the full con-
page ubs.com/tef tract price) – in the event that the seller has failed to meet
his or her contractual delivery obligations either partly or in full.

5.1 Tender bond/bid bond Amount


The amount of the installment or advance payment.
Scope of application
Primarily in export business, with project tenders. Duration
Up to the expected delivery date of the goods plus e.g.
Purpose 15 days.
To secure any claims by the party calling for tenders on the
bidder in the event of withdrawal of the bid before its expiry Special features
date or if the bid is modified unilaterally – or if the bidder, To permit the reduction in proportion to the value of the
upon being awarded the contract, refuses to sign the contract goods shipped, the advance payment guarantee often pro-
or to provide further guarantees on request. vides for a respective clause, for example: “The amount of
this guarantee will automatically be reduced in proportion
Amount to the value of each delivery upon receipt by us of copies
Stipulated in the terms of the call for tenders, usually 2% to 5% of the commercial invoice and the corresponding transport
of the value of the bid. document which we shall be entitled to accept as conclusive
evidence that such delivery has been effected.”
Duration
Usually short term.
5.3 Performance bond
Special features
The party calling for tenders often needs more time to Scope of application
evaluate the tenders than originally estimated. In general, In import-export business, but also in domestic commercial
the bidders are then asked to extend the duration of their business, trade and industry.
guarantees.
Purpose
The risks inherent in such an extension, e.g.: To secure any claims by the buyer on the seller arising from
• changes in the market, default in delivery or performance of the terms of the contract
• changes in price structures, (e.g. construction, assembly, execution).
• inflation,
• additional costs, etc., Amount
should not be underestimated! Stipulated in the contract. Frequently 5% to 20% of the value of
the contract.
Tender/bid bonds often entail additional obligations, e.g. ad-
vance payment guarantees and performance bonds. Duration
Until the expected date for the contract fulfillment.

Special features
In international business, “pay or extend” claims are relatively
frequently made with the goal of extending the validity of the
guarantees.

13
5.4 Guarantee for warranty obligations 5.6 Loan guarantee (credit security guarantee)
(warranty bond)
Scope of application
Scope of application Worldwide.
In import-export business, but also in domestic commercial
business, trade and construction industry, where it is more often Purpose
a surety. To secure any claims by the lender on the borrower due to a
credit (loan, etc.) not being repaid in accordance with the terms
Purpose of the contract.
To secure any claims by the buyer on the seller due to possible
defects appearing after delivery resp. after execution. Amount
Amount of the credit. Usually includes a margin to cover ac-
Amount crued interest and incidental expenses.
Stipulated in the contract. Frequently 5% to 20% of the value of
the contract. Duration
Expiry of loan plus e.g. 15 days.
Duration
Depends on business sector. Often one year after delivery or
commissioning. 5.7 Standby letter of credit

Special features Scope of application


Known as a builder’s guarantee in the construction industry, in In import-export and credit business, primarily with the Amer-
the form of simple or joint and several guarantees (see chapter icas and frequently in the Far East as well, or wherever the
5.8, page 15). May also be used in export business as a “reten- contracting parties decide to use this legal form as a security
tion money bond” (indemnity for retention of payment often instrument. In principle, all types of guarantees may be given in
5% to 10% of the value of the contract). the form of standby letters of credit.

Purpose
5.5 Payment guarantee To secure any claims by the obligee on the obligor due to non-
contractual delivery or performance or payment by the agreed
Scope of application date or credit repayment on the due date.
This type of guarantee is used in the domestic and international
market, for supply of goods on an open-account basis. In im- Amount
port-export business, it often substitutes the letter of credit. 5% to 20% of the value of the contract or in the amount of the
purchase price or of the loan, respectively part thereof.
Purpose
To secure any claims by the seller on the buyer for payment of Duration
the contract price by the agreed date. Contingent upon the purpose of the guarantee (see types of
guarantee described above).
Amount
Contract price or part thereof. Special features
Standby letters of credit are governed by the “Uniform Customs
Duration and Practice for Documentary Credits” issued by the Interna-
Payment date plus e.g. 15 days. tional Chamber of Commerce (ICC), Paris, or the “International
Standby Practices”, being ICC guidelines specifically created for
this instrument (see chapter 2.4, page 9). Unlike guarantees,
standby letters of credit can be confirmed (i. e. shifting country
and borrower risk), always under the condition that the terms
of the standby letter of credit provide for this.

14
5.8 Builder’s guarantee

Scope/purpose
Simple or joint and several builder’s guarantees are used to
secure claims of the principal of a building contract (beneficiary
of the guarantee) against building contractors for any potential
defects following supply and/or installation of goods or painting
or plastering work, etc.

Amount
The amount of a builder’s guarantee is determined by the con-
tract for services. This is frequently 5% to 10% of the value of
the contract.

Duration
Usually 2 to 5 years after completion of the work and/or
supply of the goods.

5.9 Other types of guarantees


• guarantee for the tax on capital gains on real estates,
• guarantee to avoid / remove a builder’s lien,
• guarantee for legal costs / compensation,
• credit card guarantee,
• letter of indemnity for missing bills of lading, etc.

For guarantees relating to Swiss Federal and cantonal govern-


ment and also the Swiss Federal Railways, the Swiss Post Office,
Swiss Federal Customs Administration and other public agen-
cies, their relevant standard wordings must often be used.

15
6 Expiry of guarantees

6.1 Reasons for expiry of direct guarantees 6.2 Reasons for expiry of indirect guarantees
A direct guarantee arises when the client authorizes the In the case of indirect guarantees, a Swiss bank requests a for-
bank to issue a guarantee directly to the beneficiary. A direct eign bank in the beneficiary’s country of domicile to issue the
guarantee expires in the following cases: guarantee, while guaranteeing to indemnify this bank for any
potential loss arising from enforcement of the guarantee.
6.1.1 Ordinary expiry on the expiry date
If the expiry date referred to in the expiry clause of the 6.2.1 Expiry date
guarantee deed has elapsed and if the beneficiary has As a result of the situation described above, indirect guarantees
not enforced the guarantee by that date, then the guarantee have two different expiry dates:
will expire. This applies irrespective of whether the guaran- • expiry of the bank guarantee issued by the guaranteeing
tee document was returned to the bank or not. (foreign) bank in favor of the beneficiary,
• expiry of the counter-liability and counter-guarantee issued by
6.1.2 Payment of the guarantee amount the initiating (Swiss) bank in favor of the guaranteeing
In the event of the definitive and final settlement of the foreign bank (usually 15 to 30 days after the above-mentioned
guarantee amount due to a claim by the beneficiary, the expiry date).
guarantee will expire.
For the instructing (Swiss) bank, the decisive date is the expiry of
6.1.3 Early return of the guarantee deed its counter-liability and counter-guarantee. Due to the possible
In the event of formal discharge by the beneficiary. application of foreign law, this expiry may be unclear.

6.2.2 Expiry of counter-liability and


counter-guarantee
In general, the guarantee issued by the foreign bank is subject
to foreign law. Some countries prohibit guaranteeing banks
from setting time limits on counter-guarantees. In such instances,
the initiating (Swiss) bank’s liability is only deemed to be extin-
guished if the guaranteeing (foreign) bank releases it from such
liability absolutely and in full.

6.2.3 Payment of the guarantee amount


If the guarantee is enforced by the guaranteeing bank and/
or the ultimate beneficiary, it will expire when the guarantee
amount is finally paid by the principal’s bank.

17
7 Enforcing a bank guarantee

“Enforcing a guarantee” means that the beneficiary exercises 7.2 Surety


its right to demand payment (or part payment) of the guarantee When making a demand for payment, the beneficiary must
amount. The bank checks whether the claim has been made in comply with the provisions of the Swiss Code of Obligations in
accordance with the conditions of the guarantee. addition to the terms of the surety. As a result, it should be
noted that since the surety is dependent upon the underlying
transaction, the guarantor is obliged to ascertain whether
7.1 Formal verification there are any objections in respect of the underlying transaction
and, if so, to raise them with the beneficiary.
7.1.1 Verification of signatures
In general, guarantees contain a clause (identification clause)
whereby the beneficiary’s bank has to confirm his or her 7.3 Guarantee
signature in the event of a claim. This procedure ensures that Due to the non-accessory nature of a guarantee and the fact
the claim is only signed by a person or persons authorized that it is payable on first demand, the guaranteeing bank is
to do so. bound to pay, provided that the payment terms stated in the
guarantee are met.
7.1.2 Enforcement claim form
This must usually be submitted in writing. The conditions of the
guarantee often permit claims to be made via authenticated 7.4 Assignment
SWIFT. Beneficiaries under the guarantee can normally assign their con-
tingent rights to the proceeds of the guarantee to a third party
7.1.3 Timely claim for enforcement (assignee). However, the assignee will not thereby automatically
The claim must be received in the specified form, before the acquire the right to draw on the guarantee. Only the beneficiary
expiry date, by the branch of the bank stipulated in the guar- specified by name in the guarantee document can claim under
antee. Usually, the beneficiary is responsible for the mailing risk the guarantee. Any change of beneficiary under the guarantee
and any other delays (force majeure). Subsequent procedure requires the consent of all parties involved, i.e. the previous ben-
depends on whether a surety or guarantee is involved. eficiary, the ordering party of the guarantee and also the guar-
anteeing bank. In contrast to the law concerning sureties, the
assignment of the guaranteed claim arising from the underlying
transaction does not result in the simultaneous transfer of the
right to claim under the guarantee.

18
8 Order to issue a guarantee and
the contractual relationship between
client and bank

The client’s instructions to the bank are the basis on which 8.1 Client’s (letter of) indemnity
a bank guarantee is issued. Our instruction form can be found The client’s indemnity comprises an undertaking to indemnify the
on our homepage at ubs.com/tef This form also contains the con- bank for all costs and expenses incurred in connection with issu-
ditions and information regarding the issuing of bank guarantees ing the bank guarantee.
which apply in addition to the bank’s general terms and condi-
tions. There may also apply specifically agreed conditions. Please
bear in mind that correct completion of the form enables smooth 8.2 Commissions and fees
execution of the order. In return for the bank issuing a guarantee or surety, the client
pays the bank a commission plus a one-off issuing fee. With
indirect guarantees, the full commission, fees and expenses of
the guaranteeing bank are charged on to the client. Guarantee
commissions are charged when the bank guarantee is issued and
for a certain period in advance. Commission is payable for the
period commencing on the date of issue until final cancellation
of the guarantee, even if the wording of the bank guarantee in-
cludes a suspensive condition (effective clause).

Example:
”The present guarantee enters into force on ... and remains valid
until ... .” or “The present guarantee enters into force only after
receipt of the amount ... , evidencing this guarantee no. ... by ...
into their account held with us, and remains valid until ... .”

19
9 Guarantees according to the “Uniform
Rules for Demand Guarantees”
(URDG) of the International Chamber
of Commerce
9.1 Purpose and intent 9.2 Uniform Rules for Demand Guarantees,
The International Chamber of Commerce (ICC), for the first Publication No. 758 of the ICC, Paris
time, issued guidelines, effective 1 January 1992, governing For reasons of copyright, the guidelines of the International
guarantees payable upon demand. These rules were revised, in Chamber of Commerce are reproduced only in the print version:
the meantime, and have entered into force in a new version as pages 21 to 31.
per 1 July 2010. The rules are intended to encourage uniformity
of practice. They are also a means of curbing misuse and ensur-
ing that due consideration is given to the interests of all parties
concerned. The Uniform Rules only apply if they are expressly re-
ferred to in the guarantee. Under the Uniform Rules for Demand
Guarantees, the beneficiary can only invoke the guarantee by
giving a qualified explanation for the claim. The beneficiary
must indicate in what respect the contractual obligations have
been breached. There are sample forms of wording in the ap-
pendix for the most common types of guarantee, which satisfy
the requirements of these uniform rules:
• tender / bid bonds, performance bonds, guarantees for
warranty obligations (warranty bond),
• advance payment guarantees.

The present version of the Uniform Rules of the International


Chamber of Commerce can be found in the following pages.
The “Uniform Rules for Contract Guarantees” (Publication
No. 325), issued by the ICC in 1978 already, are rarely observed
in international business and, as such, are hardly ever applied.

21
10 International Standby Practices ISP98

For reasons of copyright, the guidelines of the International


Chamber of Commerce are reproduced only in the print version:
pages 33 to 47.

33
11 Appendix

Sample texts

Bid bond  50

Advance payment guarantee  51

Performance bond  52

Guarantee for warranty obligations  53

Payment guarantee  54

Loan guarantee/
Guarantee securing a credit line  55

Indirect guarantee  56

Standby letter of credit UCP 57

Standby letter of credit ISP  59

ICC guarantees  61

ICC advance payment guarantee  62

49
Sample
Bid bond direct to the buyer

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Bid Bond No. dated
for amount (in words: )

We have been informed that submitted on


their offer no. for under your Bid Invitation no. dated
. According to the tender conditions a Bid Bond has to be supplied.

This being stated, we, UBS Switzerland AG, , irrespective of the validity
and the legal effects of the above mentioned bid and waiving all rights of objection and defense arising
therefrom, hereby irrevocably undertake to pay to you, on your first demand, any amount up to
maximum, upon receipt of your duly signed request for payment in original stating that

a) have withdrawn their offer before its expiry date without your consent, or

b) have failed to sign the contract awarded to them in the terms of their offer, or

c) have failed to provide the performance bond foreseen in the tender upon signing the contract.

For the purpose of identification your written request for payment must bear or be accompanied by a signed
confirmation of one of our correspondent banks stating that the latter has verified your signature(s)
appearing on the said request for payment.

Your claim is also acceptable if transmitted to us in full by authenticated SWIFT through one of our
correspondent banks confirming that said bank has verified your signature(s) appearing thereon.

In case that at the time of a request for payment under this guarantee, there is a client relationship between
you and a branch of UBS Switzerland AG with a valid list of authorized signatures regarding the persons
signing for you, the verification of signature(s) by a third bank is not required. In such case, your request for
payment must be presented to us duly signed in writing (SWIFT excluded).

Our guarantee is valid until

and expires in full and automatically, should your original written request for payment or the authenticated
SWIFT not be in our possession at our above address on or before that date.

Our guarantee will be reduced by each payment made by us as a result of a claim.

This guarantee is governed by Swiss law, place of jurisdiction and performance is .

UBS Switzerland AG

55546E 08.2015

50
Sample
Advance payment guarantee direct to the buyer

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Advance Payment Guarantee No. dated
for amount (in words: )

We have been informed that you concluded on with a contract no.


for at a total price of . According to this
contract, you are required to make an advance payment to of , being %
of the total price. Your claim for refund of this amount, should fail to comply with the
contractual delivery obligations, is to be secured by a bank guarantee.

This being stated, we, UBS Switzerland AG, , irrespective of the validity and the legal
effects of the above mentioned contract and waiving all rights of objection and defense arising therefrom,
hereby irrevocably undertake to pay to you, upon your first demand, any amount up to
maximum, upon receipt of

your duly signed request for payment in original stating that have failed to fulfill their
contractual delivery obligations.

For the purpose of identification your written request for payment must bear or be accompanied by a signed
confirmation of one of our correspondent banks stating that the latter has verified your signature(s)
appearing on the said request for payment.

Your claim is also acceptable if transmitted to us in full by authenticated SWIFT through one of our
correspondent banks confirming that said bank has verified your signature(s) appearing thereon.

In case that at the time of a request for payment under this guarantee, there is a client relationship between
you and a branch of UBS Switzerland AG with a valid list of authorized signatures regarding the persons
signing for you, the verification of signature(s) by a third bank is not required. In such case, your request for
payment must be presented to us duly signed in writing (SWIFT excluded).

Our guarantee is valid until

and expires in full and automatically, should your original written request for payment or the authenticated
SWIFT not be in our possession at our above address on or before that date.

The amount of this guarantee will automatically be reduced in proportion to the value of each delivery upon
receipt by us of copies of the commercial invoice and the corresponding transport document which we shall
be entitled to accept as conclusive evidence that such delivery has been effected.

The present guarantee enters into force only after receipt of the above mentioned advance payment,
evidencing this guarantee no. , by into their account held with us.

Our guarantee will be reduced by each payment made by us as a result of a claim.

This guarantee is governed by Swiss law, place of jurisdiction and performance is .

UBS Switzerland AG

55547E 08.2015

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Sample
Performance bond direct to the buyer

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Performance Bond No. dated
for amount (in words: )

We have been informed that you concluded on with a contract no.


for at a total price of . According to this
contract, are required to provide you with a performance bond.

This being stated, we, UBS Switzerland AG, , irrespective of the validity and the legal
effects of the above mentioned contract and waiving all rights of objection and defense arising therefrom,
hereby irrevocably undertake to pay to you, upon your first demand, any amount up to
maximum, upon receipt of

your duly signed request for payment in original stating that have failed to fulfil their
contractual obligations.

For the purpose of identification your written request for payment must bear or be accompanied by a signed
confirmation of one of our correspondent banks stating that the latter has verified your signature(s)
appearing on the said request for payment.

Your claim is also acceptable if transmitted to us in full by authenticated SWIFT through one of our
correspondent banks confirming that said bank has verified your signature(s) appearing thereon.

In case that at the time of a request for payment under this guarantee, there is a client relationship between
you and a branch of UBS Switzerland AG with a valid list of authorized signatures regarding the persons
signing for you, the verification of signature(s) by a third bank is not required. In such case, your request for
payment must be presented to us duly signed in writing (SWIFT excluded).

Our guarantee is valid until

and expires in full and automatically, should your original written request for payment or the authenticated
SWIFT not be in our possession at our above address on or before that date.

Our guarantee will be reduced by each payment made by us as a result of a claim.

This guarantee is governed by Swiss law, place of jurisdiction and performance is .

UBS Switzerland AG

55548E 08.2015

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Sample
Guarantee for warranty obligations direct to the buyer

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Warranty Bond No. dated
for amount (in words: )

We have been informed that you concluded on with a contract no.


for at a total price of . According to
this contract, are required to provide you with a guarantee for warranty obligations.

This being stated, we, UBS Switzerland AG, , irrespective of the validity and the legal
effects of the above mentioned contract and waiving all rights of objection and defense arising therefrom,
hereby irrevocably undertake to pay to you, upon your first demand, any amount up to
maximum, upon receipt of

your duly signed request for payment in original stating that have not fulfilled their
contractual warranty obligations.

For the purpose of identification your written request for payment must bear or be accompanied by a signed
confirmation of one of our correspondent banks stating that the latter has verified your signature(s)
appearing on the said request for payment.

Your claim is also acceptable if transmitted to us in full by authenticated SWIFT through one of our
correspondent banks confirming that aid bank has verified your signature(s) appearing thereon.

In case that at the time of a request for payment under this guarantee, there is a client relationship between
you and a branch of UBS Switzerland AG with a valid list of authorized signatures regarding the persons
signing for you, the verification of signature(s) by a third bank is not required. In such case, your request for
payment must be presented to us duly signed in writing (SWIFT excluded).

Our guarantee is valid until

and expires in full and automatically, should your original written request for payment or the authenticated
SWIFT not be in our possession at our above address on or before that date.

Our guarantee will be reduced by each payment made by us as a result of a claim.

This guarantee is governed by Swiss law, place of jurisdiction and performance is .

UBS Switzerland AG

55549E 08.2015

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Sample
Payment guarantee direct to the buyer

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Payment Guarantee No. dated
for amount (in words: )

We have been informed that you concluded on with a contract no.


for at a total price of . According to
this contract, payment of the goods supplied, up to ( % of the total price), has
to be secured by a bank guarantee.

This being stated, we, UBS Switzerland AG, , irrespective of the validity and the legal
effects of the above mentioned contract and waiving all rights of objection and defense arising therefrom,
hereby irrevocably undertake to pay to you, upon your first demand, any amount up to
maximum, upon receipt of

your duly signed request for payment in original stating that

a) you have supplied with the goods ordered in conformity with the terms of the contract
and

b) you have not received payment at the due date in the amount claimed under this guarantee.

For the purpose of identification your written request for payment must bear or be accompanied by a signed
confirmation of one of our correspondent banks stating that the latter has verified your signature(s)
appearing on the said request for payment.

Your claim is also acceptable if transmitted to us in full by authenticated SWIFT through one of our
correspondent banks confirming that said bank has verified your signature(s) appearing thereon.

In case that at the time of a request for payment under this guarantee, there is a client relationship between
you and a branch of UBS Switzerland AG with a valid list of authorized signatures regarding the persons
signing for you, the verification of signature(s) by a third bank is not required. In such case, your request for
payment must be presented to us duly signed in writing (SWIFT excluded).

Our guarantee is valid until

and expires in full and automatically, should your original written request for payment or the authenticated
SWIFT not be in our possession at our above address on or before that date.

Our guarantee will be reduced by each payment made by us as a result of a claim.

This guarantee is governed by Swiss law, place of jurisdiction and performance is .

UBS Switzerland AG

55550E 08.2015

54
Sample
Loan guarantee direct to the institution guaranting credit

a b

UBS Switzerland AG
Trade Finance

Bank Example AG

I M E N
E C
P.O. Box
CH-8000 Zurich

S P
Credit Facilities Guarantee No. dated
for amount (in words: )

As security for a credit line which you will grant to

we, UBS Switzerland AG, , irrespective of the validity and the legal effects of the above
mentioned credit relationship and waiving all rights of objection and defense arising therefrom, hereby
irrevocably undertake to pay to you, upon your first demand, any amount up to
maximum (including principal, interest and all other charges) upon receipt of

your request for payment duly signed in original or by authenticated SWIFT stating that
has not repaid the amount claimed under this guarantee on the due date.

Our guarantee is valid until

and expires in full and automatically, should your request for payment in writing and original or by
authenticated SWIFT not be in our possession at our above address on or before that date.

Our guarantee will be reduced by each payment made by us as a result of a claim.

This guarantee is governed by Swiss law, place of jurisdiction and performance is .

UBS Switzerland AG

55551E 08.2015

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Sample
Indirect guarantee

a b

UBS Switzerland AG
Trade Finance

Import & Trade Bank

I M E N
E C
P.O. Box
IN-New Delhi 100000

S P
Order and counter-guarantee no. dated
for amount (in words: )

Please issue under our responsibility in favour of the Beneficiary your guarantee under URDG 758 as per your
standard wording including the particulars below:

Type of guarantee: (type of guarantee)

Applicant:

Beneficiary:

Underlying relationship: The Applicant's obligation in respect of contract no. for

Guarantee amount and currency: (in words: )

Expiry of guarantee:

As Counter-guarantor (as defined hereinafter), we hereby irrevocably undertake to pay to you any amount up
to the Counter-Guarantee Amount, as defined and indicated below, upon presentation of your complying
demand, in the form of presentation indicated below, supported by your statement, whether in the demand
itself or in a separate signed document accompanying or identifying the demand, indicating that you have
received a complying demand under your guarantee.

Any demand under this Counter-guarantee must be received by us on or before Expiry (as defined
hereinafter) of this Counter-guarantee at the place for presentation indicated below:

Counter-guarantee No.:

Counter-guarantor: UBS Switzerland AG,

Guarantor: yourselves

Counter-guarantee amount and currency: (in words: ) (the "Counter-


Guarantee Amount")

Form of Presentation: duly signed in paper form or in electronic form by way of authenticated swift

Place of Presentation: Counter-guarantor's address as stipulated above or via swift , respectively

Expiry of Counter-guarantee: (the "Expiry")

You are requested to confirm to us the issuance of your guarantee and let us have two copies for our files.

This Counter-guarantee is subject to the Uniform Rules for Demand Guarantees (URDG) 2010 Revision, ICC
Publication No. 758.

UBS Switzerland AG

55624E 08.2015

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Sample
Standby letter of credit UCP

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Irrevocable standby-L/C no. dated
for amount (in words: )

We hereby issue our irrevocable Standby Letter of Credit as per following specifications:

Form of credit:
Irrevocable

Credit number:

Date of issue of credit:

Date and place of expiry:


/

Issuing bank:
UBS Switzerland AG,

Applicant and/or on behalf of party:

Beneficiary:

Amount:
maximum

Available with:
UBS Switzerland AG,

By:
Payment. We shall effect payment with a deferred value date of 3 (three) banking days after receipt of
documents strictly complying with the terms and conditions of this Standby Letter of Credit.

Documents – to be issued in english language:


Written demand purportedly signed by the beneficiary, indicating the amount drawn hereunder and
incorporating beneficiary's statement that (default declaration, e.g.that applicant has
failed to fulfill his contractual delivery obligations) .

Covering/relating to:

Partial drawings:

55553E 08.2015

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Sample
Standby letter of credit UCP, Page 2


ab Page 2 of 2

Additional conditions:

I M E N
C
Commission and charges:

PE
All commission and charges outside Switzerland are for beneficiary's account.

S
Period for presentation of documents:
Within credit validity

Confirmation instructions:
Do not confirm

Operative instrument:
Yes

Documents to be sent to us by registered mail or by courier service in one lot to the respective address stated
hereafter:

We hereby undertake that payment will be effected if documents tendered comply with the credit terms and
if all other conditions of this credit are fulfilled.

This Standby Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits, 2007
Revision, ICC Publication no. 600.

UBS Switzerland AG

55553E 08.2015

58
Sample
Standby letter of credit ISP

a b

UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Irrevocable standby-L/C no. dated
for amount (in words: )

We hereby issue our irrevocable standby as per following specifications:

Form of standby:
Irrevocable

Standby number:

Date of issue of standby:

Date and place of expiration:


/

Issuing bank:
UBS Switzerland AG,

Applicant and/or on behalf of:

Beneficiary:

Amount:
maximum

Available with:
UBS Switzerland AG,

Available by:
Payment. We shall effect payment with a deferred value of 3 (three) business and banking days after receipt
of documents strictly complying with the terms and conditions of the present standby.

Covering:

Documents:
Written demand purportedly signed by the beneficiary, indicating the amount drawn hereunder and
incorporating beneficiary's statement that (default declaration, e.g. that applicant has
failed to fulfil his contractual obligations) .

55556E 08.2015

59
Sample
Standby letter of credit ISP, Page 2


ab Page 2 of 2

Commission and charges:

N
All commission and charges outside Switzerland are for beneficiary's account.

C
Period for presentation of documents:
I M E
Within standby validity

Special conditions: S PE
if any

Operative instrument:
Yes

Documents to be sent to us by registered mail or by courier service in one lot to the respective address stated
hereafter:

We hereby undertake that payment will be effected if documents tendered comply with the standby terms
and if all other conditions of this standby are fulfilled.

This standby is issued subject to the International Standby Practices 1998 – ISP98, ICC Publication No. 590. In
this respect, article 3.14 of the ISP98 is hereby expressly waived.

UBS Switzerland AG

55556E 09.2014

60
Sample
ICC guarantees (tender/bid bond, performance bond, guarantee for warranty obligations) direct to the buyer

ab
UBS Switzerland AG
Trade Finance

Hans Muster AG

N
Postfach
CH-4000 Basel

C I M E
S PE
[e.g. Performance Bond] No. dated
for amount (in words: )

Guarantor: UBS Switzerland AG, ("GUARANTOR")

Applicant: ("APPLICANT")

Beneficiary: ("BENEFICIARY")

Underlying relationship: The APPLICANT's obligation in respect of contract no. for


("UNDERLYING RELATIONSHIP")

Guarantee amount and currency: (in words: ) ("GUARANTEE AMOUNT")

Form of Presentation ("FORM OF PRESENTATION"): Paper form or transmitted in full by authenticated swift
through one of the GUARANTOR's correspondent banks.
For the purpose of identification the BENEFICIARY's demand and supporting statement must bear or be
accompanied by a signed confirmation of one of the GUARANTOR's correspondent banks stating that the
latter has verified the BENEFICIARY's signature(s) appearing thereon. In case of a swift transmission through
one of the GUARANTOR's correspondent banks, the latter has to confirm having verified the BENEFICIARY's
signature(s) appearing on the demand and supporting statement.
In case that at the time of a demand under this guarantee, there is a client relationship between
BENEFICIARY and a branch of the GUARANTOR in Switzerland with a valid list of authorized signatures
regarding the persons signing for the BENEFICIARY, the verification of signature(s) by a third bank is not
required. In such case, BENEFICIARY's demand and supporting statement must be presented to the
GUARANTOR duly signed in paper form (swift excluded).

Place for presentation: GUARANTOR's address as stated above or swift , respectively ("PLACE
FOR PRESENTATION")

Expiry: ("EXPIRY")

As GUARANTOR, we hereby irrevocably undertake to pay the BENEFICIARY any amount up to the
GUARANTEE AMOUNT upon presentation of the BENEFICIARY's complying demand, in the FORM OF
PRESENTATION indicated above, supported by the BENEFICIARY's statement, whether in the demand itself or
in a separate signed document accompanying or identifying the demand, indicating in what respect the
APPLICANT is in breach of its obligations under the UNDERLYING RELATIONSHIP.

Any demand under this guarantee must be received by us on or before EXPIRY at the PLACE FOR
PRESENTATION indicated above.

This guarantee is subject to the Uniform Rules for Demand Guarantees (URDG) 2010 Revision, ICC
Publication No. 758.

UBS Switzerland AG

55567E 08.2015

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Sample
ICC advance payment guarantee

ab
UBS Switzerland AG
Trade Finance

Hans Muster AG

I M E N
E C
Postfach
CH-4000 Basel

S P
Advance Payment Guarantee No. dated
for amount (in words: )

Guarantor: UBS Switzerland AG, ("GUARANTOR")

Applicant: ("APPLICANT")

Beneficiary: ("BENEFICIARY")

Underlying relationship: The APPLICANT's obligation in respect of contract no. for


("UNDERLYING RELATIONSHIP")

Guarantee amount and currency: (in words: ) ("GUARANTEE AMOUNT")


The GUARANTEE AMOUNT will automatically be reduced by % of the value of each delivery upon
presentation to the GUARANTOR of copies of the commercial invoice and the corresponding transport
document.

Form of Presentation ("FORM OF PRESENTATION"): Paper form or transmitted in full by authenticated swift
through one of the GUARANTOR's correspondent banks.
For the purpose of identification the BENEFICIARY's demand and supporting statement must bear or be
accompanied by a signed confirmation of one of the GUARANTOR's correspondent banks stating that the
latter has verified the BENEFICIARY's signature(s) appearing thereon. In case of a swift transmission through
one of the GUARANTOR's correspondent banks, the latter has to confirm having verified the BENEFICIARY's
signature(s) appearing on the demand and supporting statement.
In case that at the time of a demand under this guarantee, there is a client relationship between
BENEFICIARY and a branch of the GUARANTOR in Switzerland with a valid list of authorized signatures
regarding the persons signing for the BENEFICIARY, the verification of signature(s) by a third bank is not
required. In such case, BENEFICIARY's demand and supporting statement must be presented to the
GUARANTOR duly signed in paper form (swift excluded).

Place for presentation: GUARANTOR's address as stated above or swift , respectively ("PLACE
FOR PRESENTATION")

A demand under this guarantee may be presented as from the crediting of to the
APPLICANT's account maintained with the GUARANTOR, provided such remittance identifies this guarantee.

Expiry: ("EXPIRY")

As GUARANTOR, we hereby irrevocably undertake to pay the BENEFICIARY any amount up to the
GUARANTEE AMOUNT upon presentation of the BENEFICIARY's complying demand, in the FORM OF
PRESENTATION indicated above, supported by the BENEFICIARY's statement, whether in the demand itself or
in a separate signed document accompanying or identifying the demand, indicating in what respect the
APPLICANT is in breach of its obligations under the UNDERLYING RELATIONSHIP.

Any demand under this guarantee must be received by us on or before EXPIRY at the PLACE FOR
PRESENTATION indicated above.

55566E 08.2015

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Sample
ICC advance payment guarantee, Page 2

ab Page 2 of 2

This guarantee is subject to the Uniform Rules for Demand Guarantees (URDG) 2010 Revision, ICC

N
Publication No. 758.

C I M E
UBS Switzerland AG

S PE

55566E 08.2015

63
12 Index

A R
Advance payment guarantee 13 Reduction clause 11
Assignment 18
S
B Simple surety   8
Bank guarantees  7 Standby letter of credit  9/15
Bid bond  13 Surety   8
Builder’s (or building contractor’s) guarantee 15
T
C Tender bond  13
Choice of law clause 11
Client’s (letter of) indemnity  19 U
Confirmed payment order   9 Uniform Rules for Demand Guarantees (URDG)
Credit security guarantee  14 URDG21

D W
Direct guarantee 12 Warranty bond 14

E
Effective clause 11
Expiry clause 11

G
Guarantee clause 11
Guarantee for warranty obligations  14

I
Identification clause  11
Indirect guarantee  12

J
Joint and several surety   8

L
Loan guarantee  14

P
Payment guarantee  14
Performance bond  13
Place of jurisdiction clause  11
Preamble  11

65
13 Glossary

Accessory relationship Contingent liability


Dependence on the underlying transaction which is being guar- An obligation which takes effect only when certain circum-
anteed. stances arise.

Apostille Customs guarantee


A document providing “double” proof of the genuineness Surety given to the customs authorities. The wording is
of an official (notary’s) signature authentication. It is based on generally prescribed.
the Hague Convention.
Defences
Attachment A defence is a measure to prevent assertion of another’s claim
Official (judicial) seizure of assets. on oneself, and also the right to take such measures.

Bank guarantees Documentary credit


Umbrella term for security instruments (sureties, guarantees, letter of credit.
standby letters of credit, confirmed payment orders). UBS brochure “Documentary Credits and Collections”.

Bill of exchange guarantee Joint venture


Joint and several guarantee of the obligations of the actual bill A company or enterprise in which two or more partners
debtor, entered into by signing the face of the bill of exchange participate.
(known in Switzerland as an “aval”). These guarantees are gov-
erned by the law pertaining to bills of exchange (Art. 1020 ff. Jurisdiction
SCO). The law concerning sureties (Art. 492 ff. SCO) does not Place whose courts are responsible for settling any legal
apply. disputes that arise.

It is worth noting that UBS does not issue bill of exchange Letter of Credit
guarantees in this form, but only as separate, abstract payment A letter of credit is an undertaking by a bank to pay out a
undertakings in the form of guarantees. certain amount on presentation of certain documents, providing
the conditions of the documentary credit have been satisfied in
Bill of lading (B/L) full.
Freight shipment document equivalent in nature to a security. UBS brochure “Documentary Credits and Collections”.

Call to tender Maturity date


By means of a call to tender, a company with an order to place The obligee (creditor) may demand fulfilment of obligations,
simultaneously invites several suppliers to tender a bid for the the obligor must perform them. On the maturity date, the claim
provision of the goods or services in question. The call to tender for enforcement arises.
contains the inviting company’s requirements with regard to
the bids and/or the work to be carried out as well as the tender Objections
closing date (deadline for submission of bids). Presentation of new facts in order to dispute the claim of an
opponent at law.
In tendering a bid, the supplier declares that it accepts the terms
and conditions set out in the call to tender (unless the corre- Obligee
sponding reservations are set out in its bid document). The party entitled to claim payment under the surety.

Confirmed payment order p.a.


Authorization to the drawee to transfer money, securities or Per annum.
other fungibles for the account of the authorizing party to a
third-party beneficiary. At the same time, authorization to the p.q.
third-party beneficiary to receive the payment/transfer in its Per quarter.
own name.

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Regress UCP
Legal recourse (e.g. of the guarantor bank to the principal). (Uniform Customs and Practice for Documentary Credits)
UBS brochure “Documentary Credits and Collections”.
SCO
Swiss Code of Obligations. Uncodified contracts
The Swiss Code of Obligations is based on the model of the
SERV individual contract. It provides specific rules for the contents of
Acronym for “Schweizerische Exportrisikoversicherung” (Swiss certain types of contract (e. g. purchase agreement). In prac-
Export Risk Insurance). Export promotor and insurer instituted tice, because of the right of contractual freedom, many typical
by the Swiss Confederation which, against payment of a fee, agreements and contracts known as “uncodified” (or “hybrid”)
covers exporters against certain risks associated with deliveries contracts have developped, in addition to those provided for in
of goods to foreign destinations. In Switzerland, the rules the Code.
governing SERV are set out in the Swiss Export Risk Insurance
Act of 16 December 2005 and the implementing ordinance URDG
of 25 October 2006. “Uniform Rules for Demand Guarantees”.

Syndicate business
Common transactions involving several partners who have
joined together in an ad hoc or lasting partnership for that pur-
pose.

Third-party obligation contract


If a party promises another party the performance by a third
party and that performance fails to materialize, the first party
is liable for any damages resulting thereof (Art. 111 Swiss Code
of Obligations).

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Act at an early stage

Do you need financing or would you like to secure against performance


and payment risks? There is a solution to meet every need. It often makes
sense to have a mix o­ f different instruments in the foreign trade business.

With our impressive material and human resources and our Further Trade & Export Finance instruments
widely recognized skills, we can help you to find the guarantee
instrument to suit your specific requirements. This ensures that
Documentary Credits
you gain a competitive advantage which might be decisive for
Flexible payment and short-term credit instruments
your business activities.
• Sight letter of credit
• Deferred payment letter of credit
Contact us soon – it will be worth • Acceptance credit
your while. • Negotiable letter of credit
• Transferable letter of credit
• Back-to-back letter of credit
Before a deal is signed, measures to secure the performance
• Assignment of documentary credit proceeds
and payment obligations and payment transaction processing
should all be in place. The sooner you talk to us, the sooner we
Documentary Collections
can offer you comprehensive and effective support, with expert,
Supplementary payment instruments
personalized advice and, of course, prompt and meticulous pro-
• Documents against payment
cessing. Contact your personal UBS advisor.
• Documents against acceptance
• Documents against letter of undertaking
In addition to bank guarantees, we can provide you with all
the other Trade & Export Finance instruments you need. You
and your specialists can find detailed information on the bene-
Export Finance
fits, possibilities and uses of our services in our corresponding
Financing solutions
brochures:
• “Documentary Credits and Collections”,
With SERV (or private insurance or foreign ECA coverage
• “Export Finance”.
[Export Credit Agency]):
• Buyer’s credit
Your personal UBS advisor or any UBS branch will be happy to
• Supplier’s credit
provide you with any of these brochures you wish.
• Frame credit agreement
• Mixed financing
For a comprehensive overview of Trade & Export Finance, please
• Multi-source financing
see our homepage ubs.com/tef, where you will find in-depth
information and animated step-by-step explanations of Trade & Without SERV:
Export Finance transactions, legal aspects, helpful checklists • Forfaiting
and detailed factsheets. • Export finance loan

We are not only a leading bank, but a global provider of inte-


grated financial services. Our worldwide presence and expe-
Supply chain solutions
rienced staff mean that you can be successful wherever you
Financing solutions at the start and end
choose to do business. We look forward to hearing from you.
of the value chain
• Supply chain finance
• Factoring

68
Your contacts

Documentary Credits and Documentary Collections


Bank Guarantees
Our regional specialists are here to help you with expert per-
sonal advice, up-to-date information and extensive experience.
They support your specific transactions from start to finish.

Your first point of contact


Get in touch with your personal UBS advisor or the UBS corpo-
rate banking support services, which is available from Monday
to Friday on 0844 853 004

Export Finance
Geneva, Western Switzerland,
Central Plateau and Ticino Regions
Tel. + 41 44 239 23 08
Fax + 41 44 239 21 21

Zurich and Eastern Switzerland Regions


Tel. + 41 44 239 28 75
Fax + 41 44 239 21 21

Northern Switzerland and Central Switzerland Regions


Tel. + 41 44 239 21 17
Fax + 41 44 239 21 21

International Exporters
Tel. + 41 44 239 81 01
Fax + 41 44 239 21 21

ubs.com/tef

69
This publication is intended for information only and is not intended as a recommenda-
tion, an offer or a solicitation of an offer. Before making a decision, you should obtain
relevant professional advice. Please note that UBS reserves the right to alter its services,
products or prices at any time without prior notice. Certain products and services are
subject to legal restrictions and cannot be offered worldwide on an unrestricted basis.
Reproduction in whole or part is prohibited without prior permission from UBS.

© UBS 2015. The key symbol and UBS are trademarks of UBS. All rights reserved.
Also available in French and German. December 2015. 81073E

UBS Switzerland AG
P.O. Box
8098 Zurich

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