When “Open-Ended” Guarantees Aren’t So Open After All

ICC Opinion TA 952 (still under discussion) raises an interesting issue: two open-ended guarantees issued in 2007, subject to URDG 458 and French law. The underlying obligations are confirmed as fulfilled, but the beneficiary no longer exists. The questions are whether URDG 758 has any effect and, more importantly, how such guarantees can be cancelled.

This reminded me of a case I encountered years ago. A Vietnamese bank issued an LC for the import of a German production line. Payment was split: 80% against documents plus a warranty guarantee, and 20% against a commissioning certificate. When a quality dispute arose, the applicant withheld the certificate, the guarantor refused to pay, and the standoff dragged on. Eventually, when the applicant tried to claim under the guarantee and even threatened legal action, the German guarantor simply replied: “Any claim or legal action is time-barred under German law.”

The lesson for TA 952 is similar. URDG does not override local law.

• Under French law, claims or legal actions under a guarantee are time-barred after five years, counted from the date the guarantor should first have paid.
• Under German law, claims or legal actions  are time-barred after three years, counted from the end of the calendar year in which the claim arose and the creditor became (or should have become) aware of it.

Once that period expires, the guarantee is effectively dead — even if the text says “open-ended.”

Takeaway: Always check the governing law and the starting point of the limitation period. Time bars close doors that no URDG clause can reopen.
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This is my personal opinion, and I warmly welcome comments and perspectives from fellow experts.

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