Every good story has a beginning, a middle, and an ending.  I was there at the beginning of ISP98, its conception so to speak.  Next, I participated in its creation and birth, and then helped ISP98 grow up and mature into its prime.  Now, I look forward to ISP98’s future.  It is fair to say ISP98 has already been proven a success. 

The Vision

In the 1990s, some of us who worked on the revision of the United States’ Uniform Commercial Code (UCC) Article 5 on Letters of Credit (LCs) were frustrated by the way the Uniform Customs and Practice for Documentary Credits (UCP) treated standby LCs as second-class citizens as compared to commercial LCs.  The UCP was drafted decades earlier to accommodate commercial LCs, and its focus remained on commercial LCs and the documents typically presented under these instruments (e.g., transport documents, insurance documents, invoices, packing lists, and related documents needed to clear customs).  However, in recent decades the usage of standby LCs had grown greatly and the outstanding face amount of undrawn standby LCs exceeded the outstanding face amount of undrawn commercial LCs.

Since 1983, multiple versions of the UCP have provided that its rules apply to standby LCs “to the extent to which they may be applicable” but no similar statement was made as to commercial LCs, even though both statements would obviously be true (e.g., the 2007 version of the UCP, ICC Publication No. 600, Article 1).  See also the 1983 version (UCP400) and the 1993 version (UCP500).

Not all articles of the UCP would apply to a particular standby LC any more than they would apply to a particular commercial LC.  For example, UCP600 Article 23 (Air Transport Document) does not apply to an LC that does not call for the presentation of an air transport document, regardless of whether that LC is a commercial LC or a standby LC.  The drafters of the UCP felt no need to state a rule that UCP Article 23 and other UCP articles apply to a commercial LC “to the extent to which they may be applicable,” but they felt a need to state such a rule as to standby LCs.

Some of us discussed whether the UCP might be revised to treat all types of LCs more even handedly.  For instance, there could be a section of general rules that would apply to all LCs unless a particular LC provided otherwise, a section that focused on commercial LCs and a section that focused on standby LCs.  As those discussions progressed, and as we received feedback on the likely response from the ICC, it became evident to many of us that it was preferable to draft a set of practice rules focused on standby LCs.

Those discussions were led by Professor James E. Byrne (Jim Byrne) and James G. Barnes (Jim Barnes).  The “two Jims”, as they were often referred to, were the primary legal movers behind the development of ISP98, but they did not act alone.  Indeed, they purposefully brought many other people with different perspectives into the drafting process, whether as members of the drafting committee or in a more limited consulting role. 

The other professionals they enlisted included prominent bankers experienced with commercial LCs, standby LCs, and the non-U.S. versions of standby LCs often titled and referred to as “independent bank guarantees” or “demand guarantees”.  They also involved other lawyers, including practicing finance lawyers like me from law firms, in-house counsel from banks and other companies, and academics.  Many of us involved in the drafting process hailed from the United States, but they also purposefully involved people from other countries, including Canada, Mexico, and elsewhere around the globe.  Lastly, they made it a point to involve specialists, trade associations, and groups with different business interests, including or representing applicants, beneficiaries, rating agencies, and banks.  The banks and bankers they involved acted in a host of roles - not just obvious roles like issuing and confirming LCs - but also banks acting as indenture trustees for bondholders, as lenders to LC beneficiaries, and as negotiating banks.

The result was a broad range of perspectives and lively discussions that greatly improved successive drafts of ISP98.  We discussed general principles and how they applied in particular contexts and then tried to draft rules covering fundamental LC principles and a variety of situations that were likely to arise in the real world. 

The drafting took place under the auspices of the Institute of International Banking Law & Practice, Inc. (IIBLP), a group headed by Jim Byrne with support from Jim Barnes and others. 

Looking back on the ISP98 drafting process, it was one of the most fulfilling and educational chapters of my professional life.  I learned a lot about LCs and how to find common ground with other people and I contributed my experience as a transactional lawyer who “did deals” and as a litigator who handled commercial and financial disputes.  Having experience in both transactional work and litigation work gave me perspective on how good rules could help parties better structure and document their deals upfront to avoid disputes and could help parties, lawyers, judges, and arbitrators better handle and resolve any disputes that might arise.

The Birth and Development

The International Standby Practices were published in 1998, and quickly came to be referred to as ISP98, ISP 98, or ISP.  Others may recount how many formal drafts were circulated, how many drafting meetings occurred, and the names of all those who participated.  The end result is that ISP98 is well-written and well-balanced between the interests of the various parties to standby LC transactions, and comprehensive in dealing with many scenarios that may come up in standby LC transactions and disputes.

ISP98 entered into force 1 January 1999.  Many of us who participated in drafting ISP98 went on speaking tours in the early days of ISP98, explaining what the new rules were, how they differed from the UCP, and why they were better suited for standby LCs than the UCP.  Many of us also published articles or other materials concerning ISP98.

ISP98 caught on relatively rapidly, as more and more banks learned about ISP98 and were willing to try it.  Many banks soon made ISP98 their preferred set of rules for standby LCs.  Applicants and beneficiaries also became increasingly comfortable with ISP98, and the usage of ISP98 spread from the US to many other parts of the world, including Canada, Europe, Asia, and Central and South America.

The rules were initially published by the IIBLP.  At a later date, agreement was reached with the ICC to also publish them as ICC Publication No. 590.  The imprimatur of the ICC gave further momentum to usage of ISP98.

Along the way, the IIBLP prepared and published model forms for use with ISP98.  Some of us who often drafted standby LCs for actual transactions worked on these model forms.  The model forms contain detailed, educational endnotes that reference various ISP98 rules, explain why particular LC provisions were drafted in a certain way, suggest alternatives that may be appropriate in certain circumstances, and provide clear instructions how to fill in blank spaces or to choose from bracketed alternatives.  Freely available to all people, the model forms are a very useful companion to ISP98 and are highly recommended reading for someone new to the rules or the LC field overall.

Today, ISP98 is so widely used that it is hardwired into SWIFT message types similar to the way that UCP is hardwired into SWIFT for commercial LCs.  There is no doubt that ISP98 has become the rule set of choice for standby LCs.

In the 25+ years since its publication, ISP98 has withstood the test of time.  It continues to grow in popularity and it has been cited in court cases and guided courts to resolve LC disputes.  The rules anticipated the trend towards increased digitization.  ISP98 contains provisions that can be used for electronic presentations under standby LCs.  Although there are a handful of ISP98 rules that, with the benefit of hindsight, might be improved by careful editing, it is clear to me that ISP98 does not need an overhaul and has entered its prime years.

The Future

What comes next?  I am not a fortune teller, but I will venture some educated guesses.

1. ISP98 will not last forever, but I expect it to last more than another decade or two.  In fact, like most children, I expect it to outlast its “parents”, some of whom have already passed or retired.
2. Future rule sets that, like ISP98, are prepared with respect and attention to multiple viewpoints will more likely succeed than rule sets promulgated by people or groups (whether private or governmental) that believe they know more about the subject matter than other stakeholders and intend that others should follow without question or objection rules prepared by these savants.  Whether these savants mean well or not, their rules will be less likely to succeed than those that take into account multiple perspectives and seek buy-in rather than obedience.
3. Financial and commercial parties and their bankers, lawyers, and other advisors will continue to devise new products and services as new needs and opportunities arise.  Some of these new products and services will use standby LCs in new ways, and new provisions will be drafted or adapted for use in these LCs. 

I am proud to have played a role in the creation and deployment of ISP98, and like any proud parent, it brings me great joy to watch our collective child thrive. 

Reprinted with permission by IIBLP and DCW. “ISP98, A Success Story” by Michael Evan Avidon was originally published in the May 2024 edition of Documentary Credit World at www.doccredit.world