ICC Digital Library Forum

If the beneficiary's bank, in a side letter confirms that a SLC (which is a financial credit enhancement instrument and is fully transferrable and assignable) is only for hypothecation. Can it be called / encashed

Would be grateful for a clarification on the same. Thanks

Please provide more data in order to answer your query, such as who is the issuer, a two party or three party credit, and why amendment is not used?
There are so many options that it is difficult to provide an answer applicable to all scenarios.

I am from www.tolee.com

The enquirer has not mentioned whether the standby is subject to the UCP 500 or the ISP 98.

Nevertheless, for both the UCP and the ISP, the standby should observe the backbone doctrine of LC, that requires the standby to be independent from any underlying contract, of which the side letter issued by the beneficiary's bank is one. So the undertaking/instructions/terms and conditions of the beneficiary's bank should be made as a part of the contents of the standby by amendment or otherwise, in order to make it work under the standby and to protect the interests of the beneficiary.

Under the standby, the beneficiary can only draw against the issuing bank and cannot draw against the beneficiary's bank, unless it is also a confirming bank.

The beneficiary's bank is obviously not the issuing bank and hence it cannot add any terms and conditions to the standby.

The beneficiary's bank should have advised the standby as it is and should not change any of its terms and conditions without the authorisation from the issuing bank.

I am from www.tolee.com

[edited 6/11/01 11:39:52 PM]

Any SLC is by definition an hypothecated instrument. Therefore the side letter from the beneficiary's bank is simply repeating unnecessarily what is established by issuing the SLC.

Unfortunately some banks continue this practice with regard to all documentary credits. For example, I have seen some banks covering letters requesting presented documents to be original, but their definition of original is at odds with the ICC Decision on this.

Laurence A. J. Bacon