Analysis and Insights on ISP98 Rule 1.02

DCW Editorial Note: This previously unpublished material reflects the thinking and writing of Professor James E. Byrne over the period of multiple years up to his passing in July 2018 in an effort to review and note usage of ISP98 during the first 20 years of the rules’ existence. Several leading bankers, lawyers, and corporate users of ISP98 offered constructive review and contributed valuable input to this material. Throughout this 25th anniversary year of ISP98, DCW will be presenting additional writings of Professor Byrne on various rules. For more on the life and legacy of Professor Byrne, see DCW’s special tribute issue on the IIBLP website.

1. Generally. Rule 1.02 addresses the relationship and relative priority between ISP98 and the law applicable to an ISP98 standby and any other practice rules to which it may also be made subject. It assumes that applicable law will distinguish between mandatory and non-mandatory provisions, giving effect to the terms of the undertaking with respect to non-mandatory provisions. It also provides that the provisions of ISP98 would control over any conflicting provisions of other practice rules to which an ISP98 standby letter of credit is also made subject.

2. Background of Rule 1.02. Neither ISP98 nor the standbys subject to it operate in a vacuum with respect to law. Where there is a dispute that requires judicial or arbitral resolution, the application of ISP98 and its specific rules must be within the context of the governing legal system, as applied under the conflict of law rules of the forum or place where the dispute is being resolved. Rule 1.02(a) attempts to situate ISP98 within the context of applicable law in general and of letter of credit law in particular in which the principle of freedom of contract and party autonomy is paramount.

Rule 1.02(b) addresses the situation where a standby letter of credit is subject to ISP98 and some other practice rule without establishing relative priorities. It provides that in such a situation the provisions of ISP98 supersede conflicting provisions in those other practice rules.

3. These Rules; Rules. Rule 1.02(a) refers to “Rules”. The word “Rule” or “Rules” is used in three senses in ISP98. The word “Rule” in both singular and plural were deliberately chosen instead of the word “article” or its variations in order to avoid confusion with other practice rules which use the word “Article”.

In the sense used in Rule 1.02(a), “These Rules” refers to the entire ISP98. Second, as provided in the caption “Rule 1: General Provisions” and other similar headings, it is the title used for each unit of ISP98, including various related subunits. Third, it has been used in the singular (“Rule”) in THE OFFICIAL COMMENTARY ON THE INTERNATIONAL STANDBY PRACTICES1 and generally from the outset, although not formally in ISP98 itself, as the name of each of the subunits which are not titled “subrules” to avoid confusion in light of the second usage. Hence, Rule 1: General Provisions consists of Rule 1.01 through Rule 1.11 inclusive.