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When the ICC Banking Commission Ad Hoc Working Group travelled to New York over 25 years ago to discuss with the US Drafting Group the possible widening of the scope of the content of the (almost) final draft of the International Standby Practices (ISP), it is doubtful that any attendee would have foreseen that what was a new set of rules would remain unamended as we enter 2024.
The outcome of that drafting session was agreement between the two groups on the final text and that the ICC Banking Commission would be requested to endorse the ISP98.
In the 25 years since publication, ISP98 have emerged as a clear standard in respect of standby credits for reasons that address the unique nature and requirements of these financial instruments. Whilst there are no reasons to prevent UCP 600 being utilised as the applicable rules for a standby credit, the nature of a standby means that a number of aspects of UCP 600 are inappropriate. For example, due to the normal absence of a requirement under a standby credit for original commercial documentation, the UCP 600 articles governing transport and insurance documents (articles 19-28) and invoices (article 18) would often not be applicable.
Reference to a standby was first made in UCP 400 (1983), continued in UCP 500 (1993), and still has applicability under UCP 600. However, it needs to be recognised that a standby, as opposed to a documentary credit, covers a secondary obligation, i.e., default or non-performance rather than performance. And it is primarily for this reason that the ISP98 rules were drafted. Specifically formulated for standbys, their specificity ensures that the distinctive aspects and uses of standbys are adequately addressed, providing clear guidance on their issuance and operation. By incorporating reference to ISP98 in a standby, parties engaging in international trade gain a higher level of confidence and security, knowing that their standbys are governed by a robust and reliable set of rules.
ISP98’s comprehensive set of rules encompass a wide range of issues that may arise during the lifetime of a standby credit including, for example, detailed provisions on expiry, the obligations of all parties involved, and the conditions for the presentation of a demand. The rules are now internationally recognised and adopted which ensures that standbys issued subject to ISP98 are generally accepted and trusted, reducing the risks associated with cross-border transactions.
The clarity and specificity of ISP98 has contributed to reducing the potential for disputes. And on the rare occasion that disputes may arise, ISP98 provide a solid and predictable framework for resolution, based on established interpretations and precedents. This predictability is crucial for businesses that rely on standbys for significant financial transactions.
In the current evolving digital environment, an ability to align with electronic practices is crucial and, in this regard, ISP98 accommodate both electronic and paper presentations. This adaptability to modern practices ensures that ISP98 remain applicable and efficient as business transactions continue to evolve.
It was noted in the Preface to ISP98, that the rules propose basic definitions should a standby permit or require presentation of documents by electronic means. It further elucidates that since standbys infrequently require presentation of negotiable documents, standby practice is more conducive to electronic presentations, and that ISP98 provide definitions and rules encouraging such presentations.
For example, ISP98 Rule 1.09(c) (Defined Terms) specifically addresses electronic presentation and includes definitions of electronic records, electronic signatures, the meaning of authentication, and when receipt occurs. It is worth noting that, despite the many years between publication dates, there is a true synergy in definitions and terms between ISP98, the ICC Uniform Rules for Digital Trade Transactions (URDTT), and eUCP Version 2.1.
Furthermore, ISP98 Rule 3.06 (Complying Medium of Presentation) provides that a document is not presented as a paper document if it is communicated by electronic means even if the issuer or nominated person receiving it generates a paper document from it. It goes on to state that where presentation in an electronic medium is indicated, to comply a document must be presented as an electronic record capable of being authenticated by the issuer or nominated person to whom it is presented. Not only does this Rule provide synergy with later ICC electronic rules, but it also aligns with both the UNCITRAL Model Law on Electronic Transferable Records and the recent UK Electronic Trade Documents Act. ISP98 have thus provided a forward-thinking stance and adaptability to technological advancements in the world of trade finance - prescience indeed!
ISP98 was among the first set of trade rules to recognise and make provisions for electronic presentations, a move that was quite progressive at the time of its drafting. In fact, the rules were published four years prior to the first version of the eUCP. In view of the fact that ISP98 allow for presentation of documents in electronic form unless expressly prohibited, this flexibility indicates an early understanding of the potential for digital transformation in trade finance.
Very importantly, and again in line with present digital trade laws, electronic records presented under a standby are treated with an equivalence to paper documents, provided they meet the standards set for a presentation under the terms of the standby and ISP98. In alignment with all ICC trade rules, ISP98 are drafted in a technology-neutral manner, meaning they are designed to be applicable regardless of the specific technology used for electronic presentations. Accordingly, this ensures the durability and relevance of the rules amidst rapid technological advancements.
This strategic foresight ensures a solid foundation for the future evolution of ISP98. The ongoing shift towards digitalisation in trade finance implies that the principles laid out in ISP98 will continue to be relevant for future standards in the field of standbys.
It should also not be overlooked that a number of the principles incorporated into the ISP98 laid the foundation for wording that appears in the UCP 600 and the URDG 758.
* David Meynell is Managing Director of TradeLC Advisory and Senior Technical Advisor of the ICC Banking Commission. ** Gary Collyer is Managing Director of Collyer Consulting Global Ltd and Technical Editor of the ICC Banking Commission. Meynell and Collyer are co-owners of www.tradefinance.training and both were members of the ICC Working Group for the development of ISP98.