An Overview of Standby Letters of Credit and Demand Guarantees

Rule 4.09 (a) and (b) do not seem to be very problematic. However, the Issuer should…

Rule 4.09 (c), “the mirror image rule”(73) is very likely to cause problems in Standby practice. In a 1999 article examining ISP98, Paul Turner gives a very good example of how easily the rule can cause a problem: Suppose that a Standby attaches a form of a default certificate that the Beneficiary must produce in order for its claim to be honored. In the form, the date of the statement and the signature of the Issuer are left blank. If the Standby requires exact or identical version of the statement and if the Beneficiary fills in the blank date, the document would be noncompliant under ISP Rule 4.09 (c) because the Rule states that “blank lines ... must be exactly reproduced”. However, if the Beneficiary fails to fill in the blank lines, the document would be noncompliant under ISP Rule 4.16 (b), which requires that a demand separate from the Beneficiary’s statement contain a date indicating when the demand was issued, the amount demanded, and the Beneficiary’s signature. If the Beneficiary complies fully with ISP Rule 4.09 (c) and reproduces the signature block exactly as it appears in the credit, the document would probably be noncompliant under ISP Rule 4.07 (a) because it is a “document of a type that standard Standby practice requires be signed”. If the Beneficiary fills in the blank lines, the document would be noncompliant under ISP Rule 4.09 (c), which states that blank lines “must be exactly reproduced”(74)…

In order not to cause a risk, an Issuer must state clearly what it requires and preferably…

Issuer of the Documents:…