The ICC Banking Commission conducted its final meeting of 2024 virtually via Teams on 20-21 November. Four separate portions of the event open to Banking Commission members and ICC National Committee representatives took place.
In a recent discussion, standby specialists took up the matter of a US issuer of a non-transferable standby being presented one year later with a demand by an entity purporting to be a “successor by operation of law”. The discussion group considered treatment of the presentation if the LC was issued subject to ISP98 and alternatively if it was issued subject to UCP600.
Under ISP98, Rule 6.11 (Transferee by Operation of Law) provides for the situation where another person who claims to be a successor by operation of law is entitled to act for the named beneficiary and Rule 6.12 (Additional Document in Event of Drawing in Successor’s Name) permits the legally appointed successor to do so by requiring presentation of an additional document that indicates the succession.
Although UCP600 does not provide a means of accommodating an appointed successor of a beneficiary of a non-transferable credit, a standby subject to US law does so based on US UCC Section 5-113 (Transfer by Operation of Law). The claimed successor seeking to enforce its claimed rights against the issuer as successor beneficiary would need to present the required additional documentation that it is the legally appointed successor. [Note that the claimed successor’s rights against the named beneficiary (e.g., to obtain cooperation in the enforcement of its successor rights) may be determined under the law applicable to their separate relationship.]
Specialists also addressed a scenario involving issuance of a standby for a fixed expiry date whereby one month before the initial expiry, the applicant requests the issuer to amend the LC in order to extend the expiry for another nine months and reduce the amount by 50%. Specialists considered whether they would book the transaction (reduction and extension) at the time of issuance of the amendment or wait first for the beneficiary to approve the amendment.
Specialists seemed to agree that they would book the amendment in their system either upon approval of the amendment by the beneficiary or after the current expiry date, whichever came first. Ideally, the applicant would ask for reduction and extension as one request and the LC issuer would advise one amendment. If the applicant requests two separate amendments for the reduction and extension, the LC issuer should suggest that the applicant make it one amendment request so as to avoid the rejection of one and acceptance of the other (for instance, increased amount which risks the applicant payment of a larger amount).
On this subject, others have pointed out that if the issuer accepts the beneficiary’s request, then its issuance of an amendment will presumably be done with the applicant’s (and issuer’s) consent (in addition to the consent in the beneficiary’s request) and the text of its issued amendment will determine its effective date as well as scope of the amendment. In this regard, discussion should be about getting clear and timely consent to amending both amount and duration from both the applicant and beneficiary.
It was noted that US contract law prohibits implied consent wording of amendment that it is operative unless the receiving party says otherwise. However, the amendment can be phrased such that it is withdrawn and rejected if not accepted by a certain deadline.
