Extend or Pay

With the introduction of Uniform Rules for Documentary Guarantee or URDG 758, the rules for Documentary Guarantee seem to be popular again. It can be imagined from the increasing number of questions that have popped up in recent days. Documentary Guarantee Forum is an effort to develop a platform to discuss these questions.
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Kiara
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Joined: Fri Jan 30, 2015 5:54 pm
First Name: Kiara
Last Name: Richardson
Organization: Banking
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Location: Gibraltar

Extend or Pay

Post by Kiara »

Hi All,

Is there a standard wording used for Extend or Pay clauses in a demand guarantee? If not, can someone give me some suggestions?

I've never seen a Extend or Pay clause in a DG before.

Thanking you in advance.

Kiara
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picant
Posts: 1942
Joined: Wed Aug 20, 2008 1:49 pm

Wording

Post by picant »

Hi Pal,
IMHO, the wording of an Extend or pay request will depend on the guarantee requirementd. The request must be compliant as per guarantee terms, but, alternatively it may allow the guarantor to extend the expiry date to a successive date.
Art 23 URDG will rule this situation stating terms and conditions, specially allowing the guarantor to refus this extension or not.
Other comments appreciated
Ciao
kwanminghoi
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First Name: DANIEL
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Location: HONG KONG

Extend or pay under UCP600

Post by kwanminghoi »

The query is related a standby letter of credit issued subject to UCP 600 and
issued on behalf of the supplier as a security in favour of the buyer covering the supplier‟s
performance obligations under the underlying contract:
“This standby letter of credit is valid at your counters up to 30 June 2015 after which
date this standby letter of credit is automatically considered null and void”
Just before expiry of the standby letter of credit the confirming bank send the following
message to the issuing bank:
“Beneficiary of your standby letter of credit claimed liquidation full standby letter of
credit amount in case you failed to extend its validity until 31.12.2015. Unless your renewal
instructions received by us during the current validity period we consider this swift as our
valid formal claim for liquidation and for crediting its total amount to our account with [bank
name]”
1. How should the issuing bank treat such “extend or pay” message from the confirming
bank?
2. Upon expiry of the standby letter of credit, given that no extension is made, can the
issuing bank remove the standby letter of credit from its books and release the
applicant from their obligations, accordingly?
3. Can the issuing bank under any circumstances be obligated to pay on the basis of
the “extend or pay” message, given that the applicant does not accept to extend the
standby letter of credit?
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