ISP98 Rule 1.04: Analysis and Insights

Unpublished work by Prof. Byrne examines ISP98 Rule 1.04's impact and particular rules, crucial for standby agreement stakeholders.

ISP98 Rule 1.04: Analysis and Insights

DCW Editorial Note: This previously unpublished material reflects the thinking and writing of Professor James E. Byrne over the period of multiple years up to his passing in July 2018 in an effort to review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.

ISP98 Rule 1.04: Effect of the Rules
Unless the context otherwise requires, or unless expressly modified or excluded, these Rules apply as terms and conditions incorporated into a standby, confirmation, advice, nomination, amendment, transfer, request for issuance, or other agreement of:
i. the issuer;
ii. the beneficiary to the extent it uses the standby;
iii. any advisor;
iv. any confirmer; v. any person nominated in the standby who acts or agrees to act; and
vi. the applicant who authorises issuance of the standby or otherwise agrees to the application of these Rules.

1. Generally. Rule 1.04 indicates to what and to whom its provisions apply with respect to a standby issued subject to ISP98. The ISP98 system of standby credit practice encompasses not only the original standby itself, but also a host of other inter-related undertakings, including the confirmation, advice, amendment, transfer, acknowledgment of assignment of proceeds, and other similar undertakings. By having been undertaken in relation to a standby subject to these Rules, these related undertakings also become governed by ISP98 except to the extent expressly modified or excluded in the undertaking. It can also affect a number of persons besides the issuer and beneficiary. These other persons include any confirmer, any advisor, a nominated person who elects to act, and an applicant who has authorised the issuance of the standby or otherwise agreed to its application.

2. Background of Rule 1.04. Rule 1.04 was intended to identify the scope of application of ISP98 with more precision than had been the case with various iterations of the UCP. It had been left to guess whether and to what extent practice rules applied to persons who were affected by the standby but who did not expressly agree to their application. The principal underlying Rule 1.04 is that a person who acted under an ISP98 standby was bound by its rules except where varied, as were their undertakings. This approach is complicated by the existence of collateral agreements which may supplement the provisions of ISP98 as between the parties. This situation is most common with respect to the relationship between the applicant and the issuer but can affect any of the relationships indicated as well as the undertakings or agreements involved.

3. These Rules; Rules. Rule 1.04 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 1.04, “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 Practices 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, ISP98 Rule 1: General Provisions consists of Rule 1.01 through Rule 1.11 inclusive.

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