Dear Members,
would you please clarify the ISP98 article 2.01 b points i and iii about draft acceptance and negotiation. Do they mean the issuer undertakes to pay at maturity (notwithstanding any payment default, the beneficiary gets payment direct from the issuer i/o from the applicant)? In that case, the SBLC supports payment when due but not necessary after default.
Thanks in advance,
F.
Draft acceptance
-
AMBLARDFREDERIC
- Posts: 2
- Joined: Fri Apr 05, 2019 5:18 pm
Draft acceptance
Firstly, my opinion is that it is a defect in the drafting of ISP98 that it suggests a standby can be available by any means other than sight payment. (I look forward to JB’s rebuttal.)
Secondly, I am not sure I understand your question. If it helps, the position is effectively no different than for acceptance and negotiation under UCP600 sub-Article 7(a).
Secondly, I am not sure I understand your question. If it helps, the position is effectively no different than for acceptance and negotiation under UCP600 sub-Article 7(a).
-
AMBLARDFREDERIC
- Posts: 2
- Joined: Fri Apr 05, 2019 5:18 pm
Draft acceptance
Well, I have never heard about a SBLC available by acceptance or negotiation before and I wonder what is the interest in asking acceptation or negotiation instead of sight payment.
Also, have "negotiation UCP600 art.2" and "negotiation ISP98 art. 2.01 b iii" the same meanings (discount payment without recourse)? I dare say, no (as SBLC are activated in case of non payment only) but I need your feedback as experts.
last but no least, many thanks for your fast reply!
Also, have "negotiation UCP600 art.2" and "negotiation ISP98 art. 2.01 b iii" the same meanings (discount payment without recourse)? I dare say, no (as SBLC are activated in case of non payment only) but I need your feedback as experts.
last but no least, many thanks for your fast reply!
Draft acceptance
Jeremy didn't say which "JB" he expected might respond. Today, it's me.
For the ISP drafters, a standby is any independent undertaking that is not a commercial LC, i.e., an LC that requires the issuer to examine live invoices and transport and/or insurance documents to test whether it appears that the beneficiary performed the sale and delivery obligations identified in the LC. See ISP Rule 4.20b.
In any event, under ISP98 a standby is not limited to undertakings payable against defaulted underlying payment obligations. (This was also true for for SLCs issued subject to UCP before ISP98 was launched.)
Unquestionably, many standbys are payable against a statment of default in an underlying obligation, and most are payable at sight. However, an important segment of the SLC market was and remains so-called "direct pay" standbys that provide for payment when the underlying obligation matures and without any certification or expectation that the underlying obligor defaulted. (Direct pay SLCs avoid preference problems with taking payment from the applicant rather than the issuer. They are standard in rated LC backed bond transactions.)
Not too long ago I worked on a cross border standby confirmed by US bank that called for acceptance of a time draft, The standby supported payment of future installments under a settlement agreement between the applicant and beneficiary. It happens.
More important, ISP98 provides rules for independent undertakings of all kinds. UCP and URDG are special purpose rules that are much harder to adapt to transactions other than sale and delivery of goods or defaulted performance.
ISP98 Rule 2.01biii is intended to cover the possibility that a standby permits or requires that a draft be drawn on, e.g., a confirmer.
Regards, Jim Barnes
For the ISP drafters, a standby is any independent undertaking that is not a commercial LC, i.e., an LC that requires the issuer to examine live invoices and transport and/or insurance documents to test whether it appears that the beneficiary performed the sale and delivery obligations identified in the LC. See ISP Rule 4.20b.
In any event, under ISP98 a standby is not limited to undertakings payable against defaulted underlying payment obligations. (This was also true for for SLCs issued subject to UCP before ISP98 was launched.)
Unquestionably, many standbys are payable against a statment of default in an underlying obligation, and most are payable at sight. However, an important segment of the SLC market was and remains so-called "direct pay" standbys that provide for payment when the underlying obligation matures and without any certification or expectation that the underlying obligor defaulted. (Direct pay SLCs avoid preference problems with taking payment from the applicant rather than the issuer. They are standard in rated LC backed bond transactions.)
Not too long ago I worked on a cross border standby confirmed by US bank that called for acceptance of a time draft, The standby supported payment of future installments under a settlement agreement between the applicant and beneficiary. It happens.
More important, ISP98 provides rules for independent undertakings of all kinds. UCP and URDG are special purpose rules that are much harder to adapt to transactions other than sale and delivery of goods or defaulted performance.
ISP98 Rule 2.01biii is intended to cover the possibility that a standby permits or requires that a draft be drawn on, e.g., a confirmer.
Regards, Jim Barnes