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.
Model Standby Providing for Transfer and Incorporating Annexed Form of Transfer Demand
[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.]
[Partial and multiple drawings are permitted.]
Transfer.1 This Standby is transferable.2 Beneficiary’s drawing rights under this Standby shall be transferred in their entirety by presentation of a demand3 in the form of the Annexed Transfer Demand completed as indicated [together with this Standby]4 to Issuer at the above-stated place for presentation. Upon presentation5 of a complying demand for transfer, the person identified as the transferee shall become the Beneficiary, whose name and address [and duly provided bank account information for any requested payment by wire transfer of funds] shall be substituted for that of the transferor on any demands, requests, or consents then or thereafter required or permitted to be made by Beneficiary.6 Subject to compliance with applicable law7[ and receipt of its customary or agreed transfer fees8], Issuer must acknowledge and shall effect the demanded transfer9 and shall issue its advice of transfer to the [transferor and ]transferee.10
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.]
[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:
[INSERT ORIGINAL SIGNATURE] [INSERT TYPED/PRINTED NAME AND TITLE]
Annexed Transfer Demand
[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 demands11 transfer of drawing rights in their entirety, including rights to demand further payment[, reduction, cancellation,] and transfer12 under the Standby and rights to give or withhold consent to any pending or future amendment or cancellation, to the following person at the following address: [INSERT NAME AND ADDRESS OF THAT PERSON
_________________________
[and with the following bank account for payment by wire transfer of funds to that person [INSERT NAME, ADDRESS, AND ROUTING NUMBER OF THAT PERSON’S BANK AND NAME AND NUMBER OF THAT PERSON’S ACCOUNT]].
Beneficiary states that the above-identified person is the transferee, from and after the effective date stated below, of all of Beneficiary’s rights that are supported by the Standby [and Beneficiary’s related obligations ]under[ or in connection with] the agreement between Beneficiary and Applicant titled [agreement title] and dated [date].13
Beneficiary further states that there are no outstanding demands by Beneficiary for any other transfer or for any payment[, or for any reduction or cancellation] under the Standby. Beneficiary agrees to make no such demands or requests while this demand is outstanding.
[Accompanying this demand is the Standby.]14
Please effect the demanded transfer [as of the following effective date: [INSERT DATE] ________________________.15 Please do so ]by marking and delivering the Standby or by delivering a replacement to the above-identified person as the transferee beneficiary and then notify the undersigned thereof.
[Also accompanying this demand is Issuer’s transfer fee of an amount equal to [percentage amount]% of the amount of the standby to be transferred but not to exceed [currency/amount]].
[Beneficiary’s name and address]
By its authorized officer:
[INSERT ORIGINAL SIGNATURE] [INSERT TYPED/PRINTED NAME AND TITLE]16
[Before the standby is issued, all text in [bold] should be completed, and optional text in [italics] should be included or deleted (or redrafted). Text in the annexed demand forms preceded by “INSERT” (or other ALL CAPITALS guidance) and in [ALL CAPITALS UNDERLINED] is to be completed as indicated when the beneficiary prepares and presents a demand.]
This ISP98 Form 4 model standby repeats the text of ISP98 Form 1. It adds standby text and incorporates a model transfer demand form that obligates the issuer to acknowledge a transfer of drawing rights upon receipt of the transfer demand completed and presented by the beneficiary. Like ISP98 Form 1, this Form 4 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 transfer 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.
These endnotes do not include model wording for a form that an issuer might use when requested to give effect to a transfer that the issuer is not obligated to acknowledge.
Endnotes
Transfer; succession; and assignment of proceeds. ISP98 Rule 6 (Transfer, Assignment, & Transfer by Operation of Law) provides separate rules for contractual transfer of drawing rights, for transfer of drawing rights to a legal successor, and for assignment of the proceeds of a beneficiary’s drawing.
If a standby does not state that it is transferable, then under ISP98 Rule 6.02(a) (When Drawing Rights are Transferable), a request for transfer of the beneficiary’s drawing rights, other than from a claimed legal successor, can be processed only as a request for amendment or for cancellation and new issuance.
Under ISP98 Rules 6.11-6.14 (Transfer by Operation of Law and/or applicable law, a legal successor may claim the rights of a transferee beneficiary under an otherwise non-transferable standby. Beneficiaries requiring additional certainty or clarity regarding the status of a legal successor to the beneficiary may wish to include in the standby, e.g., “Issuer undertakes to treat Beneficiary’s successor by operation of law as the authorised transferee of Beneficiary against presentation of the additional documents(s) from a public official referred to in ISP98 Rule 6.12, such as a document issued by [identification of public official] authorising or appointing the claimed successor as Beneficiary’s liquidator, rehabilitator, receiver, or conservator.” Separately from the terms of the standby and ISP98, a legal successor may be entitled by applicable law to sign demands and otherwise act as the named beneficiary. The ISP98 rules for legal successors address those successors that would sign as a named successor and not as the named beneficiary.
The word “assignable” does not mean “transferable” for purposes of ISP98. See ISP98 Rule 1.10(c)(ii) (Redundant or Otherwise Undesirable Terms) and ISP98 Rules 6.06-6.10 (Acknowledgement of Assignment of Proceeds). In general, ISP98 Rule 6 protects applicants as well as issuers against presentations made by a third party but protects only issuers against requests to pay to a third party part or all of the proceeds resulting from a complying presentation made by the beneficiary.
Ordinarily, requests for assignments of proceeds are made after standby issuance. Issuer acknowledgement of an assignment could be included in a standby, e.g.: “Payment against a complying presentation shall be made at the place for presentation or by wire transfer to a duly requested account of Beneficiary, except for the following amount: [currency/amount], which Beneficiary has irrevocably assigned to the following acknowledged assignee of standby proceeds with the following bank account [name and address of assignee; name, address, and routing number of assignee’s bank; and name and number of assignee’s account]. An advice of each such payment shall be sent to Beneficiary’s above-stated address.”
Permitted transfers. Under ISP98 Rules 6.02(b) (When Drawing Rights are Transferable), if a standby states that it is transferable, without more, then drawing rights under it may be transferred by the beneficiary in their entirety (not partially). Successive transfers of entire rights under a transferable standby are allowed in ISP98 Rule 6.02(b)(1) (When Drawing Rights are Transferable). All such transfers, however, require that the issuer agrees and effects the transfer requested by the beneficiary under the largely discretionary provisions of ISP98 Rules 6.01-6.05 (Transfer of Drawing Rights). Issuers regularly do so against the beneficiary’s payment of a fee and completion of the issuer’s own forms, which may differ significantly from the annexed model form of transfer demand in this ISP98 Form 4.
Transfer by beneficiary demand. If a beneficiary requires certainty that its request for transfer will be effected, then the standby should state that the issuer must effect transfer against presentation of a specified document. ISP98 Form 4 so provides and incorporates an annexed model form of transfer demand that makes it unnecessary for the beneficiary to rely on transfer at the discretion of the issuer under ISP98 Rule 6.03 (Conditions to Transfer).
Presentation of standby. This form, like most standbys, does not require presentation of the standby with a payment demand. If, however, a standby requires presentation of the standby with any payment demand, then its presentation should be required with any transfer demand. Its presentation with any transfer demand should also be required if transfer is to be evidenced by the issuer’s marking the standby and delivering it to the transferee beneficiary. Its presentation might also be required to indicate that the transfer demand is authentic. See ISP98 Form 1, endnote 9 for an extended discussion of requirements for the presentation of the original standby.
Effective date of transfer. It is generally desirable to clarify and coordinate the effective date of a transfer of drawing rights in their entirety with the effective date of transfer of the underlying obligations supported by the standby. This coordination may be accomplished by changing the model standby text from “Upon presentation of a complying demand for transfer…” to “Upon presentation of, or any later effective transfer date stated in, a complying transfer demand….” The standby should not impose any non-documentary condition that would require the issuer to determine whether or when the underlying obligations were transferred.
Transferee as substituted beneficiary. A transfer of drawing rights in their entirety includes a beneficiary’s rights to demand any permitted further transfer or consent to any pending or future amendment or cancellation of the standby. Accordingly, any demand, statement, or other required document to be presented under a transferable standby must bear the name of the transferee rather than of the transferor. See ISP Rule 6.04 (Effect of Transfer on Required Documents). If a transfer of less than the entire rights of the beneficiary is contemplated or if rights exercised before transfer by the transferor are to be transferred, or if both the transferee and transferor intend to have veto rights over past or future amendments to the standby, then the transfer term and the annexed form of transfer demand in this ISP98 Form 4 should be revised to expressly re-allocate any beneficiary rights that are to be recognized by the issuer.
Compliance with law. Processing a transfer request or demand includes checking the transferee’s name and other information against applicable sanctions’ lists. See ISP98 Form 1, endnote 19, on sovereign compulsion and sanctions’ clauses.
Issuer’s transfer fee. Issuers expect to receive a fee for processing a transfer request or demand. This optional text in this ISP98 Form 4 addresses that expectation, and the annexed form of transfer demand includes optional text that more precisely states the amount of the transfer fee. They would be unnecessary if the issuer relied solely on the applicant to pay transfer fees.
Mandatory transfer. Because this standby form provides for transfer by demand, it includes an undertaking that the issuer “must” give effect to a complying demand for transfer. Because effecting transfer is mandatory, the issuer’s undertaking to effect a demanded transfer should state any conditions other than presentation of a complying transfer demand. The issuer may prefer to include those conditions in the transfer term in the standby even if they are included in the text of the required transfer demand form.
Advice of transfer. Because this standby form provides for mandatory transfer, it includes an undertaking by the issuer to give effect to a complying transfer demand by issuing an advice of transfer that documents the transferee beneficiary’s rights under the standby.
Annexed transfer demand. The annexed model form of demand for transfer is called a “demand” for the sake of clarity. This ISP98 Form 4 standby obligates the issuer to effect transfer against receipt of a specified document. Accordingly, this is not a model form of transfer request to be used with a standby that is “transferable” but allows the issuer to exercise its discretion as to how and whether to recognize a requested transfer under ISP98 Rules 6-01-6.05 (Transfer of Drawing Rights) or under ISP98 Rules 6.11- 6.14 (Transfer by Operation of Law).
Rights transferred. Under ISP98 Rule 6.02(b)(i) (When Drawing Rights are Transferable), it is unnecessary for a transferable standby to provide expressly for successive transfers or for transfer of any particular beneficiary rights, such as the right to demand reduction or to consent (or not) to a pending or future amendment.
Statement of underlying transfer of supported obligations. A standby that undertakes to effect transfer against the presentation of a demand or other documents is typically underpinned by an agreement that obligates the beneficiary to the applicant to demand a transfer of drawing rights only when the underlying contractual obligations are being rightfully and fully transferred. 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 transfer.
Standby enclosed. If the text of a standby requires presentation of the standby (or any beneficiary statement as to the existence and status of any amendments, demands, or other activity affecting the standby), then the annexed form of demand for transfer should address those requirements. See endnote 4 to this ISP98 Form 4 and endnote 9 to Form 1.
Postponed effective date. This optional wording addresses the possibility that the effective date of a transfer is to occur after presentation of the beneficiary’s demand for transfer.
Authentication. This model form of annexed transfer demand requires the same level of authentication as the model form of payment demand. ISP98 Rule 7 (Cancellation) lists additional conditions that the beneficiary, applicant, or issuer might wish to consider to deter unauthorized transfer demands.
For the 25th consecutive year, the Institute of International Banking Law & Practice conducted its one-day Letter of Credit Law Summit. This Executive Summary provides an overview of topics discussed and debated at the conference hosted by Hogan Lovells in New York and conducted as a hybrid event.
