The preclusion rule

[shahriar]

Dear All,

Article 24 of URDG says

d) When the guarantor rejects a demand, it shall give a single notice to that effect to the presenter of the demand. The notice shall state:

i. that the guarantor is rejecting the demand, and
ii. each discrepancy for which the guarantor rejects the demand.

e) The notice required by paragraph (d) of this article shall be sent without delay but not later than the close of the fifth business day following the day of presentation.

f) A guarantor failing to act in accordance with paragraphs (d) or (e) of this article shall be precluded from claiming that the demand and any related documents do not constitute a complying demand.

and URDG Master explains it as follows

A guarantor failing to act in accordance with sub-article 24(d) or (e) is precluded from claiming that the demand and any related documents do not constitute a complying demand. The preclusion rule comes into play if the guarantor fails to give notice of rejection within the five business days following the day of presentation.

However, where there is a non-complying presentation and the guarantee expires before the end of the time allowed to the guarantor for giving notice of rejection, the guarantee automatically ceases to have effect and the preclusion rule does not operate. Where it is operative, the preclusion rule not only sets a time limit for notice of rejection, but also bars the guarantor who properly rejects for one discrepancy from rejecting a subsequent presentation for a different discrepancy in the original presentation but not contained in the notice rejecting that presentation.

i would like to have your opinion on the above

[abrar]

The articles mirror UCP600 14b and 16d clauses.

I'm not sure whether I agree with the commentary, but it should be looked at in conjunction with both article 24 and also article 20. It is suggesting that if the five days period overruns the expiry date, then the guarantee is any case no longer valid and a failure to provide a refusal notice within 5 days of presentation does not preclude the guarantor from subsequently refusing the presentation after the five days.

My view is that this interpretation appears to conflict with sub-article 20a, which provides no mitigation for the situation where the guarantee meanwhile expires.

[shahriar]

The articles mirror UCP600 14b and 16d clauses.

that's exactly my thought. and of course im having difficulty understanding it . if the commentary is true, then that's indeed alarming for the beneficiary. if there is four days to expiry, then technically the commentary means that we never need to examine a document or notify the presenter of any discrepancy . however i guess the reasonable time would still apply under local law.

[iLC]

this is indeed a very weird interpretation. must request the author for further explanation

[shruti]

AS PER ONE VIEW POSTED ON SOME PORTAL
URDG Article 24 provides that notice of dishonor must be sent "without delay" and not later than
the close of the fifth business day. However, "without delay" is
not explicitly defined, and it could be argued that this means just one or two days.
Neither ISP98, UCP600 nor the NYUCC requires that notice be given "without delay"
(as opposed to within a "reasonable time" or "within a specified period of time").
ISP98 Rule 5.01(a)(i) provides a "safe harbor" for issuers — notice within three
business days after the day of presentation is deemed to be not unreasonable and
therefore does not trigger the preclusion penalty. Banks may protect themselves
from this URDG risk by including appropriate provisions in their guarantees or
reimbursement agreements.
SHRUTI