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ISP98 Model Form 3 is a template for a Standby Letter of Credit (SBLC) providing for Reduction and that also incorporates an annexed Form of Reduction Demand.
ISP98 Model Form 3 is a template for a Standby Letter of Credit (SBLC) providing for Reduction and that also incorporates an annexed Form of Reduction Demand.
The download links below offer a fillable Word file that can be edited, copied, or modified as you want for use in your systems. The second item also has the template, but includes explanations and annotations to aid the specialist to understand how to use this Form.
Further explanation of this Form is available at the bottom of this page.
[name and address of beneficiary]
[date of issuance]
Issuance:
At the request and for the account of [name and address of applicant] (“Applicant”), we [name and address of issuer at place of issuance] (“Issuer”) issue this irrevocable standby letter of credit number [reference number] (“Standby”) in favour of [name and address of beneficiary] (“Beneficiary”) in the maximum aggregate amount of [currency/amount].
Undertaking:
Issuer undertakes to Beneficiary to pay Beneficiary’s demand for payment in the currency and for an amount available under this Standby and in the form of the Annexed Payment Demand completed as indicated and presented to Issuer at the following place for presentation: [address of place for presentation], on or before the expiration date.
Expiration:
The expiration date of this Standby is [date].
Payment:
Payment against a complying presentation shall be made within 3 business days after presentation at the place for presentation or by wire transfer to a duly requested account of Beneficiary. An advice of such payment shall be sent to Beneficiary’s above-stated address.
Reduction:
Any payment made under this Standby shall reduce the amount available under it. Also, the amount available under this Standby shall be automatically reduced[[1]] in accordance with the terms of Beneficiary’s reduction demand(s)[[2]] in the form of the Annexed Reduction Demand completed as indicated and presented to Issuer at the above-stated place for presentation.[[3]]
Drawing:
Partial and multiple drawings are permitted.
ISP98:
This Standby is issued subject to the International Standby Practices 1998 (ISP98) (International Chamber of Commerce Publication No. 590).
Communications:
Communications other than demands may be made to Issuer by telephone, telefax, or SWIFT message, to the following: [numbers/addresses].
Beneficiary requests for amendment of this Standby, including amendment to reflect a change in Beneficiary’s address, should be made to Applicant, who may then request Issuer to issue the desired amendment.]
[Issuer’s name]
____________________
[Name of Authorized Signer]
[Title of Authorized Signer]
[insert date]
[name and address of Issuer or other addressee at place of presentation as stated in standby]
Re: Standby Letter of Credit No. [reference number], dated [date], issued by [Issuer’s name] (“Standby”)
The undersigned Beneficiary demands payment of [insert currency/amount] under the Standby.
Beneficiary states that Applicant is obligated to pay to Beneficiary the amount demanded[, which amount is due and unpaid under[ or in connection with] the agreement between Beneficiary and Applicant titled [agreement title] and dated [date].
Beneficiary further states that the proceeds from this demand will be used to satisfy the above-identified obligations and that Beneficiary will account to Applicant for any proceeds that are not so used.
Beneficiary requests that payment be made by wire transfer to an account of Beneficiary as follows:
[insert name, address, and routing number of beneficiary’s bank, and name and number of beneficiary’s account].
[Beneficiary’s name and address]
By its authorized officer:
____________________
Authorized Signature
[Name and Title]
[insert date]
[name and address of Issuer or other addressee at place of presentation as stated in standby]
Re: Standby Letter of Credit No. [reference number], dated [date], issued by [Issuer’s name] (“Standby”)
The undersigned Beneficiary demands[[4]] reduction of the amount available under the Standby to the maximum aggregate of [INSERT CURRENCY/AMOUNT]).
Beneficiary states that this Demand for Reduction is based on Beneficiary’s determination regarding the maximum amount of standby support required to be provided to Beneficiary by Applicant under[ or in connection with] the agreement between Beneficiary and Applicant titled [agreement title] and dated [date].[[5]]
Beneficiary’s demand and statements are made as of the date hereof.
[Beneficiary’s name and address]
By its authorized officer:
____________________
Authorized Signature
[Name and Title][[6]]
Produced by the Institute of International Banking Law & Practice, the ISP98 Model Forms are designed to help standby users, including their regulators, to develop sound, workable, and appropriate texts for standbys in light of specialized standby practices and laws worldwide and can also be used for demand guarantees subject to ISP98.
These forms are fillable, editable, and ready to use.
See All ISP98 Model Forms
Rule by rule analysis, comparison, and recommendations for the ISP
Copyright © 2024 by the Institute of International Banking Law & Practice, Inc., www.iiblp.org (“IIBLP”). Unlimited permission is hereby granted to copy and use this ISP98 form, including endnotes, for all purposes except publication for a charge to a purchaser or subscriber.
This ISP98 Form 3 model standby repeats the text of ISP98 Form 1. It adds standby text and incorporates a model reduction demand form that obligates the issuer to reduce the amount available under the standby upon receipt of a reduction demand completed and presented by the beneficiary. Like ISP98 Form 1, this Form 3 is intended to be self-contained and, absent special circumstances, useable without extended reference to the text of ISP98.
The endnotes to this standby include alternative and other optional terms of particular relevance to standbys providing for on demand or automatic reduction (including reduction to zero), as well as references to relevant ISP98 rules. See the ISP98 Form 1 endnotes for explanation of wording that is common to ISP98 Forms 1 and 3 and for alternative and optional wording for general terms common to both forms. (There are more than 30 endnotes to Form 1 that are not repeated in this Form 3.)
This form is published for educational purposes and not as legal or professional advice. Potential users should consult with their own advisers in the drafting or use of a standby letter of credit. ISP98 and letter of credit educational and training materials, including The Official Commentary on the International Standby Practices containing official interpretations of ISP98, are available from IIBLP at a cost, or free to DCW subscribers.
[[1]]: Reduction by beneficiary demand. If it is expected that the amount available may be reduced (including a possible reduction to zero) before expiry, other than by honour of payment demands, then it may be desirable to simplify the process of reducing the standby by adding a term permitting the beneficiary to demand reduction(s) by presentation of a specified document. Otherwise, a request for reduction (including a reduction to zero) must be processed as an amendment (or cancellation) requiring the consent of the issuer as well as the beneficiary and, as a practical matter, the applicant, resulting in the application of ISP98 Rule 2 (Obligations) and Rule 7 (Cancellation). Reduction by beneficiary demand is “automatic” in that the standby obligates the issuer to give immediate effect to the beneficiary’s presentation of a complying demand for reduction. For an automatic cancellation clause, see ISP98 Form 7 (automatically cancelling standby if not timely confirmed).
[[2]]: Multiple demands for reduction. Because there is no ISP98 rule addressing multiple demands for reduction, their availability is affirmatively indicated by the addition of “(s)”.
[[3]]: Automatic reduction. If the timing and amount of any reductions are determinable at the time of standby issuance, then the standby may include an automatic reduction term, e.g.: “The amount available under this standby shall be reduced automatically to [currency/amount] on [date] at the close of business at the above-stated place of presentation. An amount that is available on the banking day on which a complying demand for payment is presented shall not be affected by any later automatic reduction” Such automatic reductions should be described as reductions to a new aggregate maximum amount available and not as reductions of a stated amount. Otherwise, additional wording might be required to indicate whether or not an automatic reduction is affected by any prior or pending demands for partial payment.
As indicated in ISP98 Form 1, endnote 17, it is unnecessary to state that the amount available under a standby is reduced by honour of a payment demand. However, if a standby includes a term that reinstates any honoured amount (e.g., after honour of a drawing to fund a periodic interest payment due on an underlying debt obligation) or a term that automatically reduces the amount available (e.g., with the passage of time) or permits a reduction (e.g., by presentation of a document evidencing a direct partial payment of an underlying debt obligation), then it may be desirable for the standby to state that honour reduces the amount available and to relate that statement to any other reduction event or reinstatement event to be included in the standby.
A statement in a standby that a payment made by an applicant to a beneficiary shall reduce the amount available under the standby may constitute a “non-documentary condition”. Under ISP98 Rule 4.11 (Non-Documentary Terms or Conditions), a non-documentary condition must be disregarded. Accordingly, an applicant-to-beneficiary payment will not reduce the amount available under a standby unless the standby provides for reduction based on the issuer’s own records of a payment made by or through the issuer (or the standby provides for reduction against a presentation to the issuer of a document evidencing or reciting that the payment was made).
Standbys supporting the applicant’s accounting to the beneficiary for advance payments received frequently provide that the amount available under the standby must reduce pro rata as shipments are made or invoices are sent or paid. Such provisions are also subject to ISP98 Rule 4.11(Non-Documentary Terms or Conditions) and are best handled by identifying documents or banking activities to which the issuer has access, e.g., by relating pro rata reductions under an advance payment standby to the issuer’s negotiation or receipt of commercial documents as a nominated bank under a commercial letter of credit paying the purchase price less the pro-rata advance payment.
If payment under a standby may be made by the issuer at the request of the applicant or on the issuer’s own initiative, then the standby should affirmatively provide for such payment, preferably by specifying in the standby the beneficiary account to which such payment must be made with an undertaking to send an advice of payment to the beneficiary (and applicant). This kind of standby provision may be worded as a payment demand authorized by the beneficiary to be made in its name or may be worded as a beneficiary consent to automatic reduction against such payment, whether considered to have been under or outside the standby. See ISP98 Form 2, endnote 2, for a model standby term permitting the issuer to initiate early expiration by making full payment to the beneficiary.
[[4]]: Demand for reduction. This model form of reduction demand is called a “demand” for the sake of clarity. It is not a model form of full or partial cancellation to be used with a standby that is silent on the topic. It is to be used with a standby that obligates the issuer to give effect to a beneficiary demanded reduction. Otherwise, an issuer may exercise considerable discretion before giving effect to a request to reduce the amount available or to amend, cancel, or release obligations under a standby, as provided in ISP98 Rule 2.06 (When an Amendment is Authorised and Binding) and Rule 7 (Cancellation). Until the issuer recognizes a requested reduction, the applicant remains liable to pay fees and contingently liable to reimburse based on the maximum amount available under the standby. For the avoidance of doubt, the standby text uses the word “automatic” to clarify that no issuer (or applicant) consent is required, merely presentation of a complying reduction demand. See ISP98 Rule 2.06(a) (When an Amendment is Authorized and Binding).
[[5]]: Statement of continuing requirements for standby support. A standby that permits reduction by the presentation of a demand or other documents typically arises out of an underlying agreement that obligates the beneficiary to the applicant to initiate a reduction when a contractual milestone is met. In their negotiation of their underlying contractual obligations and the related standby terms, the contracting parties may require a more specific beneficiary statement regarding the basis for a demanded reduction.
[[6]]: Authentication. This annexed form of reduction demand requires the same level of authentication as the annexed form of payment demand. ISP98 Rule 7 (Cancellation) lists additional conditions that the beneficiary, applicant, or issuer might wish to consider to deter unauthorized reduction demands.
ISP98 Model Form 1 is a template for a Standby Letter of Credit (SBLC) that also incorporates an annexed Form of Payment Demand with Statement.
ISP98 Model Form 2 is a template for a Standby Letter of Credit (SBLC) providing for extension and incorporating annexed Form of Payment Demand with Alternative Non-Extension Statement.
ISP98 Model Form 4 is a template for a Standby Letter of Credit (SBLC) providing for Transfer and incorporating a template of a Transfer Demand.
ISP98 Model Form 5 is a template for a simple Demand Only Standby Letter of Credit (SBLC).
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