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In the early 1990s, I was invited to a meeting by Mike Quinn, my boss at Citibank, and introduced to Jim Byrne of the Institute of International Banking Law & Practice (IIBLP) who explained a project he was working on and looking for support and assistance in locating a meeting room for regular meetings of 20-30 people several times a year. Those involved in the project would be lawyers and bankers who were experts on standby letters of credit to create a set of practice rules uniquely designed for standby LCs similar to the ICC’s UCP rules intended for commercial letters of credit. Shortly thereafter, Citibank agreed to support the IIBLP in this undertaking and I became a member of the group.
That was the beginning of four years of meetings, mostly between lawyers and bankers from the US banks most heavily engaged in standby LCs. These were perhaps the most educational years of my career. The lawyers were all well-known among themselves and very knowledgeable of the legal aspects of standby LCs. The bankers were very experienced in the operational use of standby letters of credit.
The bankers’ job was to explain to the lawyers how standby LCs worked in practice, the major types of standby credits, the concept of automatic extension, how demand for payments are made, amendments, etc. The bank practitioners and lawyers quickly learned there was a language gap between them. Thankfully, Jim Byrne, Jim Barnes, Michael Avidon, and others gracefully inserted themselves into the discussions to “translate” and clarify when necessary when the two groups were speaking in legalese and banking letter of credit “techie” and not communicating effectively.
Following an initial two-year drafting period which began in 1995, draft text of ISP was published by Letter of Credit Update (predecessor to DCW) in December 1996 under the heading Draft ISP 1997. That Draft ISP was distributed for comments to members of the US Council on International Banking (which soon thereafter became IFSA and later became part of BAFT, the Bankers Association for Finance and Trade). Several of the world’s largest non-US banks were active members of the association and distributed the draft rules to their head offices and correspondent banks. The United States Council for International Business (USCIB, also known as the US National Committee of ICC, the International Chamber of Commerce) sent copies of ISP to the ICC for them to consider. At the time, there was already large use of standby LCs issued subject to the UCP rules around the world, however there was no global set of rules for standbys. The topic was added to the agenda for the ICC Banking Commission’s upcoming April 1997 meeting to be held in China.
At the meeting, ISP was not warmly received by certain members in attendance - in fact, some members expressed opposition because the ISP had not been developed by the ICC Banking Commission in the way practice rules were typically done by ICC. Members and guest bankers from the largest US banks advised the group that copies had been sent to many non-US banks which had been using ISP for months and no banks had identified any problems with it, including confirming credits. The meeting ended with attendees agreeing to take the matter of ISP to their executive boards.
Shortly thereafter, an invitation came to present the ISP to the entire ICC Banking Commission at their next meeting in Paris in November 1997. The presentation was well-received, however ICC requested to have a meeting with US members of the drafting group to be attended by ICC banking experts and lawyers to clarify any issues or adjustments they wished to be made. Meetings were held over multiple days in January 1998 at Citibank’s Head Office in New York (see photo).
Meeting of the Joint IIBLP/ICC ISP98 Drafting Group at Citi Headquarters, New York City, January 1998 Back row: Donald Smith (Citibank); Dustin (NLCIAFT Intern); Brian J. Downey (IIBLP Associate Counsel); Guillermo Jimenez (ICC Secretariat); James G. Barnes (Baker & Mckenzie LLP); Paul Miserez (SWIFT); Gary Collyer (Citibank, Drafting Group Co-Chair); Hansjörg Schlegel (Dresdner Bank); Reinhard Längerich (Unibank); Alan Bloodgood (Morgan Guarantee Trust, ret.) Dr. Gerold Herrmann (UNCITRAL Secretary); David R. Stewart (IIBLP Intern)
Front row: Lawrence O’Hare (National Westminster Bank); Dan Taylor (IFSA); David Meynell (Deutsche Bank); Professor James E. Byrne (IIBLP Director, Drafting Group Co-Chair); Boris Kozolchyk (NLCIAFT); Salvatore Maccarone (Maccarone & Associatti); Anthony Capasso, (Chase Manhattan Bank); Vincent Maulella (Chase Manhattan Bank); Jean- Pierre Mattout (Banque Paribas); Chris Byrnes (IIBLP); Eric Dickman (IIBLP Intern)
“The most interesting facet about the ISP98 is how very few questions or requests for interpretation have been raised over these 25 years.”
The meetings went well and minimal changes were made. The ISP was adopted by the ICC Banking Commission at its Spring meeting on 6 April 1998. It was agreed that: 1) It would be recognized as ISP98 and ownership of ISP98 remained with the IIBLP; 2) Any and all queries to the ICC on proper interpretation of the ISP98 will be forwarded to the IIBLP who will make the response; and 3) ICC Publishing could begin printing and selling the ISP98 under ICC Publication No. 590. Thereafter, a well-attended 30-city US educational program took place in the second half of 1998 to assist bankers, attorneys, and corporate users in advance of ISP98’s formal implementation date of 1 January 1999. Many US bankers identified their regular corporate client and correspondent bank users of standby letters of credit and held training sessions for them. A worldwide tour led by the IIBLP began in 1999 which was cosponsored by major banks.
The most interesting facet about the ISP98 is how very few questions for interpretation have been raised over these 25 years. I attribute that to the close cooperation between the attorneys and the bankers from the outset in focusing on ‘getting it right’, writing the rules in common English, and avoiding use of ‘legalese’ and ‘bank techie’ terminology which would not be easily understood by non-English speaking bankers, applicants, beneficiaries, and courts, if a disagreement gets that far.
The speed of market adoption and impact of ISP98 around the world has been beyond belief. As noted earlier, the major US banks began using the rules among themselves and with major overseas correspondent banks. The impact was so strong because major banks in several countries were already receiving credits subject to the rules and some countries initiated translation of the rules before receiving formal invitation from the ICC Banking Committee to do so. From what I recall, only one major country delayed translation of the rules into their language.
The impact on litigation took a few years to be seen. In this regard, two plausible theories were put forth. One was that the rules were so clearly written and understood by bankers, clients, and attorneys that there were very few disputes. The other was that there was so little usage of the rules that few disputes materialized. Feedback from the global banking community rapidly dismissed the second explanation.
To date, there has been no request by any country for a revision of the rules.
* Donald Smith began his banking and letter of credit career in 1973 and worked for various banks, including Citibank, where he held positions in trade for several years. In the mid-1990s, he joined the group of bankers and attorneys working on the creation of ISP and also served on LC committees of the USCIB and its successor associations, as well as actively working with the ICC Banking Commission where he co-chaired the drafting of the first ISBP. Following his retirement from banking, Don was President of Global Trade Advisory, Ltd., a firm providing services to those involved in international trade. He remains active in the BAFT LC committees and speaks at IIBLP seminars and ICC Austria events when possible.