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GET HELP FORCDCSPrepared By :Sunil MudhanurSTANDBY LCREFRESHER GUIDECLASS NOTES SERIESOCT 2023

INDEXIntro to SBLC ......................................................................................................................Difference between SBLC and Commercial LC.............................................. Typical Flow of SBLC Transaction .......................................................................... Common Types of SBLC .............................................................................................. Important Terminologies.............................................................................................Practice Questions with answers as per ISP Rules................................1.2.3.4.5.6.R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHEREDITORS NOTEWe have gathered extensive information from various sources, includingboth on and offline resources, to help simplify complex trade financetopics. We have tried to obtain permission from the original writers ofthese resources wherever possible. However, for certain articles, we havenot received a response from the authors regarding reprint permission. Ifyou have submitted any work, and we haven't received your consent,please reach out to us. Provide us with the necessary source informationto give you credit and reprint your work.Please feel free to email me at sunilbytes@gmail.com if you have anyqueries or comments regarding these refresher series These materials serve as a refresher for our trainees. To gain a betterunderstanding, we recommend reading relevant ICC sources andpublications.Version. 01

INTRODDUCTION TO SBLCIn the United States, banks are prohibited from issuing direct bankguarantees (BGs) to cover financial or performance commitments. Thisrestriction stems from regulatory concerns about the potential for banksto incur excessive risk by guaranteeing the obligations of their clients.To circumvent this regulatory constraint, American banks utilize standbyletters of credit (SBLCs) as an alternative to BGs. SBLCs function similarlyto BGs, providing a guarantee of payment to a beneficiary in case theapplicant fails to fulfill their contractual obligations. However, unlike BGs,SBLCs are governed by the Uniform Customs and Practice forDocumentary Credits (UCP) 600 and the International Standby Practices(ISP) 98, international rules that standardize and regulate the use of SBLCs.A standby letter of credit (SBLC) is a legally binding financial instrumentissued by a bank on behalf of its client, the applicant, to a third-partybeneficiary. It guarantees payment to the beneficiary if the applicant failsto meet its contractual obligations.SBLCs are different from commercial letters of credit (LCs) in that they arenot intended to be used as the primary method of payment. Rather, they serve as a backup payment mechanism in case the applicantdefaults on its contractual obligations.R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHER

R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHERFeatureStandby Letter of CreditCommercial Letter of CreditPurposeSecondary paymentmechanismPrimary paymentmechanismUsageTo mitigate the risk of non-payment in case theapplicant defaults on itscontractual obligationsTo guarantee payment tothe seller upon delivery ofgoods or servicesRegulationUCP-600 and ISP-98UCP-600IntentNot intended to be usedIntended to be usedCommitmentDefinite but contingentDefinite and unconditionalExpectationParties do not expect theletter of credit to ever bedrawn uponParties expect the letter ofcredit to be drawn uponApplication ofURR725Automatically Application DC should State itsapplicationNotice ofdishonourmust be given within a timeafter presentation ofdocuments which is notunreasonablemust be given within fivebanking days following theday of presentationDIFFERENCES BETWEEN STANDBY LETTER OF CREDIT AND COMMERCIAL LETTER OF CREDITPlease note that this is a simplified table, and there are some other differencesbetween standby letters of credit and commercial letters of credit.

TYPICAL FLOW OF SBLC TRANSACTIONSR e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHERCONTRACTAGREEMENTThe foundation of the SBLC process is a mutually agreed-upon sale contractbetween the exporter (seller) and importer (buyer). This contract outlines theterms of the transaction, including the goods or services being exchanged,delivery timelines, and payment terms. STANDBYREQUESTThe importer, seeking to provide assurance to the exporter regarding payment,approaches their bank to request the issuance of an SBLC. This SBLC acts as afinancial guarantee, ensuring that the exporter will receive payment even if theimporter defaults.SBLCISSUANCEUpon the importer's request, their bank, known as the issuing bank, issues theSBLC. This SBLC is then communicated to the exporter's bank, referred to as theadvising bank, which informs the exporter about the SBLC and its specific termsand conditionsSBLCADVISINGThe advising bank plays a crucial role in notifying the exporter about the SBLC'sexistence and its details. The exporter carefully reviews the SBLC terms toensure they align with the underlying sale contract and provide adequateprotection in case of non-payment by the importer.CONTRACTPERFORMANCE: Once the exporter is satisfied with the SBLC terms, they proceed to fulfill theirobligations under the sale contract. This may involve manufacturing, procuring,or shipping the goods as agreed upon in the contract.SETTLEMENTATTEMPT As per the agreed payment terms in the sale contract, the exporter seekspayment from the importer. This typically involves the exporter sending aninvoice to the importer, who is expected to make the payment within thestipulated timeframe.SBLCTRIGGERIn the event that the importer fails to make the agreed-upon payment, the SBLCmechanism comes into play. The exporter, as the beneficiary of the SBLC, caninitiate a draw on the SBLC by presenting the required documents, as specifiedin the SBLC terms, to their advising bank(nominated bank).

R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHERDOCSUMENTEXAMINATIONUpon receiving the documents from the exporter, the advising bank (nominatedbank) meticulously examines them to ensure they comply with the SBLCrequirements. If the documents meet the standards, the advising bank forwardsthem to the issuing bank for further processing.PAYMENTAUTHORIZATIONThe issuing bank, upon receiving the documents from the advisingbank(nominated bank), conducts its own thorough examination to verify theirauthenticity and compliance with the SBLC terms. If everything is in order, theissuing bank authorizes payment to the advising bank.TYPES STANDBY BY LETTER OF CREDITPERFORMANCE STANDBY ADVANCE PAYMENTSTANDBY BID-BOND,/TENDER STANDBY COUNTER-STANDBY FINANCIAL STANDBY INSURANCE STANDBY COMMERCIAL STANDBY DIRECT-PAYSTANDBY

TYPES OF SBLCPERFORMANCE STANDBY ¨Banks issue a Performance Standby LC on behalf of a service contractorwho is awarded a contract from a department or company. The servicecontractor must meet all the contract's terms and conditions effectively. Ifthe customer fails to fulfill the contract's obligations wholly or partly, thebank must compensate the applicant's financial liability as mutually agreedin the Performance Standby LC. This type of Standby LC is usually issued fora certain percentage of the contract amount.ADVANCE PAYMENT STANDBY ¨A standby advance payment is issued either on behalf of a supplier of rawmaterials/finished goods or on behalf of a contractor for the execution of acontract when they receive the advance payment. In case the supplier failsto fulfill any of the terms of the contract for the supply of goods or theexecution of the contract, the bank will pay back the amount of advancepayment that was received by the supplier.BID-BOND/TENDER STANDBY A bid bond stand by LC is issued to the effect that bidder would notwithdraw the bid before the expiry of bid/tender period or in case thecontract is awarded to bidder that he would comply with the terms of thetender and enter into contract. Bid bond standby LC is usually issued forpercentage of the contract amount.A FINANCIAL STANDBY A financial standby supports an obligation to pay money, including anyinstrument evidencing an obligation to repay borrowed money.R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHER

TYPES OF SBLCCOUNTER STANDBY A counter standby LC, also known as a backstop or protective standby, is afinancial arrangement where one country's bank requests another country'sbank to issue a standby for their local projects. The bank issuing the counterstandby LC is responsible for reimbursing the financial liability of the issuingbank if the buyer fails to fulfill their obligationINSURANCE STANDBY An insurance standby supports an insurance or reinsurance obligation ofthe applicant.A COMMERCIAL STANDBY A commercial standby supports the obligations of an applicant to pay forgoods or services in the event of non-payment by other methodsA DIRECT-PAY STANDBY In Direct Pay Standby the banks undertake to pay the beneficiary ondemand up to the maximum amount stated in the LC on passage ofspecified period of time. Direct Pay Standby is irrevocable, the independentobligation of the issuer without any scope for dispute from the buyer/applicantR e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHER

TERMNINALOGIESEVERGREEN CLAUSE An evergreen clause is a provision in a standby letter of credit thatautomatically extends the expiry date of the standby unless the issuingbank provides notice to the beneficiary that it will not renew thestandby. This means that the standby will continue to be valid and thebeneficiary will be able to draw on it, even after the initial expiry date,unless the issuing bank specifically says that it will not renew thestandby.The applicant's obligation to reimburse the issuing bank remains ineffect as long as the standby is valid. This means that the applicant isstill responsible for paying the issuing bank back for any payments madeto the beneficiary, even if those payments are made after the initialexpiry date. EXTEND OR PAYExtend or pay is a mechanism used in standby letters of credit andguarantees that allows the beneficiary to request an extension of theexpiry date. If the issuer or guarantor does not agree to extend theexpiry date, the beneficiary can demand payment under the standby orguarantee.This option is often used when the underlying transaction is not yetcomplete but the expiry date of the standby or guarantee isapproaching. By requesting an extension, the beneficiary can ensurethat they continue to have protection if the applicant defaults on theirobligations.The issuer or guarantor is not obliged to agree to an extension request.However, if they do not, they must make a payment to the beneficiaryunder the terms of the standby or guarantee.R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHER

TERMNINALOGIESREDUNDANT OR OTHERWISE UNDESIRABLE TERMSRedundant terms are terms that are not necessary because they arealready implied by the nature of a standby letter of credit. These termsinclude: Unconditional or abstract, Absolute, PrimaryUndesirable terms are terms that can create confusion or uncertainty.These terms includePayable from the issuer's own funds, Clean orpayable on demandIn general, it is best to avoid using redundant or otherwise undesirableterms in standby letters of credit. These terms can make the standbymore difficult to understand and can create unnecessary legal risksWHAT CONSTITUTES A PRESENTATION IN STANDBYThe receipt of a document required by and presented under a standbyconstitutes a presentation requiring examination for compliance withthe terms and conditions of the standby even if not all of the requireddocuments have been presented.R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHERTERMS - APPROXIMATELY”, “ABOUT”, “CIRCA”, SIMLARUse of “approximately”, “about”, “circa”, or a similar word permits atolerance not to exceed 10 per cent more or 10 per cent less of theamount to which such word refers.

TERMNINALOGIESA DEMAND FOR PAYMENT A demand for payment is a request from the beneficiary to the issuer of astandby letter of credit to make a payment under the standby.The demand for payment can be included in the beneficiary's statementor other required document, or it can be a separate document. If aseparate demand is required, it must include:A demand for payment from the beneficiary directed to the issuer ornominated person. A date indicating when the demand was issued. The amount demanded.The beneficiary's signature.A demand for payment can be in the form of a draft, instruction, order, orrequest to pay.If a standby requires presentation of a "draft" or "bill of exchange," thatdraft or bill of exchange does not need to be in negotiable form unless thestandby specifically states that it must be negotiable. In other words, thebeneficiary can simply request payment in a written document withouthaving to comply with the formal requirements for a negotiableinstrument. 1.2.3.4.R e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHERSTATEMENT OF DEFAULT If a standby letter of credit requires a statement, certificate, or otherrecital of a default or other drawing event, and it does not specify theexact content of that document, then the document complies with thestandby if it contains the following:A representation stating that payment is due because a drawing eventdescribed in the standby has occurred.A date indicating when the statement was issued.The beneficiary's signature.

TERMNINALOGIESR e a d m o r e a t h t t p : / / g e t h e l p f o r c d c s . i n /SBLC REFRESHERTHE TERMS "UNREASONABLE" AND "NOT UNREASONABLEThe terms "unreasonable" and "not unreasonable" in the context of notice ofdishonor under standby letters of credit:Unreasonable means that the issuer of the standby letter of credit has takentoo long to notify the beneficiary that they are not going to honor thestandby. If the issuer takes more than seven business days to give notice ofdishonor, then the notice is considered to be unreasonable.Not unreasonable means that the issuer has given notice of dishonor within areasonable timeframe. If the issuer gives notice within three business days,then the notice is considered to be not unreasonable. SYNDICATION Syndication is a method of financing a standby letter of credit by involvingmultiple issuers. This is typically done when the amount of the standby is toolarge for a single issuer to handle. In a syndicated standby, each issuer isjointly and severally liable for the full amount of the standby. This meansthat the beneficiary can make a presentation to any of the issuers, and thatissuer will be responsible for paying the full amount of the standby, even ifthe other issuers are unable to pay.SYNDICATION Participation is a method of sharing the risk of a standby letter of credit withother banks. This is done by selling participation interests in the standby toother banks. The participating banks do not have any direct liability to thebeneficiary. Instead, they have a right to receive a share of any paymentsthat the issuer makes to the beneficiary. The issuer remains primarily liableto the beneficiary for the full amount of the standby.

RULE 1 GENERAL PROVISIONS

Q1 What is the nature of a standby according to the rules According to the rules a standby is an irrevocable independent documentary and binding undertaking when issued and need not so state Q2 Can a standby letter of credit made for domestic or international use be subject to these rules Yes a standby letter of credit made for domestic or international use can be subject to these rules by express reference to them Q3 Are the undertakings subject to these rules able to modify or exclude the application of these rules Yes undertakings subject to these rules may expressly modify or exclude their application Q4 Who does the context refer to as issuer in the rules given The context refers to issuer as the financial institution that issues the standby letter of credit Get help for CDCS

Q5 Can the issuer s obligations under a standby be amended or cancelled by the issuer without any consent from the person against whom the amendment or cancellation is asserted No the issuer s obligations under a standby cannot be amended or cancelled by the issuer except as provided in the standby or as consented to by the person against whom the amendment or cancellation is asserted Q6 Do the enforceability of an issuer s obligations under a standby depend on the issuer s right or ability to obtain reimbursement from the applicant No the enforceability of an issuer s obligations under a standby does not depend on the issuer s right or ability to obtain reimbursement from the applicant Q7 Do the rules provide for any formal requirements for the execution of a standby such as a signed writing No the rules do not provide for any formal requirements for the execution of a standby Get help for CDCS

Q8 What is the scope of the rules given in this context The rules given in this context are intended to be applied to standby letters of credit including performance financial and direct pay standby letters of credit Q9 Are an issuer s obligations toward the beneficiary affected by the issuer s rights and obligations toward the applicant under any applicable agreement practice or law No an issuer s obligations toward the beneficiary are not affected by the issuer s rights and obligations toward the applicant under any applicable agreement practice or law Q10 How should these Rules be interpreted These Rules should be interpreted in the context of applicable standard practice Q11 What are the responsibilities that an issuer is not responsible for in a standby An issuer is not responsible for a performance or breach of any underlying transaction b accuracy genuineness or effect of any document presented under the standby c action or omission of others even if the other person is chosen by the issuer or nominated person or d observance of law or practice other than that chosen in the standby or applicable at the place of issuance Get help for CDCS

Q12 What is the meaning of electronic record in a standby that allows for electronic presentation Electronic record in a standby that allows for electronic presentation means a record that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form communicated by electronic means to a system for receiving storing retransmitting or otherwise processing information and capable of being authenticated and then examined for compliance with the terms and conditions of the standby Q13 How can an electronic record be authenticated in a standby An electronic record can be authenticated by verifying the identity of a sender or source and ensuring the integrity of or errors in the transmission of information content using a generally accepted procedure or methodology in commercial practice Q14 What is the definition of electronic signature in a standby Electronic signature in a standby refers to letters characters numbers or other symbols in electronic form that are attached to or logically associated with an electronic record and are executed or adopted by a party with present intent to authenticate an electronic record Get help for CDCS

Q15 When does a receipt occur in the context of an electronic record in a standby A receipt occurs when an electronic record enters in a form capable of being processed by the information system designated in the standby or when an issuer retrieves an electronic record sent to an information system other than that designated by the issuer Q16 What are some redundant or otherwise undesirable terms that a standby should avoid using Some redundant or otherwise undesirable terms that a standby should avoid using are unconditional or abstract absolute primary payable from the issuer s own funds and clean or payable on demand Q17 What does it mean when a standby uses the term and or When a standby uses the term and or it means either or both Q18 What terms should be disregarded as they have no single accepted meaning in a standby The terms callable divisible fractionable indivisible and transmissible should be disregarded The terms assignable evergreen reinstate and revolving should be disregarded unless their context gives them meaning Get help for CDCS

RULE 2 OBLIGATIONS

Q1 What is the issuer s obligation in handling a complying presentation made to it The issuer is obligated to honour the presentation by paying the demanded amount at sight or by another method of honour consistent with the issuer s undertaking unless the standby provides for honour by acceptance of a draft drawn by the beneficiary on the issuer by deferred payment of a demand made by the beneficiary on the issuer or by negotiation Q2 What is a confirmer s obligation in handling a complying presentation made to it A confirmer s obligation is to honour the presentation by paying the demanded amount at sight or by another method of honour consistent with the issuer s undertaking if the standby so states Additionally if the confirmation permits presentation to the issuer and the issuer wrongfully dishonours the confirmer undertakes to honour by performing as if the presentation had been made to the confirmer Q3 What does nomination refer to in a standby Nomination is the act of a standby nominating a person to advise receive a presentation effect a transfer confirm pay negotiate incur a deferred payment obligation or accept a draft Get help for CDCS

Q4 What is the extent of obligation of a nominated person The extent of obligation of a nominated person is only to the extent that the nominated person undertakes to act Q5 What does an advice signify in relation to a standby Unless an advice states otherwise it signifies that the advisor has checked the apparent authenticity of the advised message in accordance with standard letter of credit practice and that the advice accurately reflects what has been received Q6 What is automatic amendment in a standby Automatic amendment in a standby is when the standby expressly states that it is subject to an increase or decrease in the amount available and an extension of the expiration date is the basis for the automatic amendment to be effective without any further notification or consent Q7 Is an amendment binding to the issuer and confirmer An amendment is binding to the issuer and confirmer but only if the beneficiary consents to the amendment If there is no provision for automatic amendment an amendment binds the issuer when it leaves the issuer s control and the confirmer when it leaves the confirmer s control Get help for CDCS

Q8 Can a presentation be honoured by other methods of honour than sight payment Yes a presentation can be honoured by other methods of honour such as acceptance of a draft drawn by the beneficiary on the issuer deferred payment of a demand made by the beneficiary on the issuer or negotiation Q9 When is a confirmer obligated to honour a presenting complying presentation made to the issuer A confirmer is obligated to honour a presenting complying presentation made to the issuer if the presentation is wrongfully dishonoured by the issuer by performing as if the presentation had been made to the confirmer Q10 What is the effect of nomination in a standby The effect of nomination is to authorize a person to act in relation to the standby but it does not obligate the nominated person to act except to the extent that the nominated person undertakes to act Get help for CDCS

RULE 3 PRESENTATION

Q1 What must a standby indicate for presentation to comply A standby must indicate the time place and location within that place person to whom and medium in which presentation should be made in order to comply Q2 What happens if a standby does not indicate the required information for presentation Ifa standby does not indicate the required information for presentation compliance must be made in accordance with these Rules Q3 Does the receipt of a document under a standby require examination for compliance even if not all required documents have been presented Yes the receipt of a document required by and presented under a standby constitutes a presentation requiring examination for compliance with the terms and conditions of the standby even if not all of the required documents have been presented Q4 What does a presentation need to identify when it is made A presentation must identify the standby under which the presentation is made Get help for CDCS

Q5 Where must presentation be made to the issuer if no place of presentation is indicated in the standby If no place of presentation to the issuer is indicated in the standby presentation to the issuer must be made at the place of business from which the standby was issued Q6 What is the requirement for compliance if no medium is indicated in the standby Where no medium is indicated to comply a document must be presented as a paper document Q7 Is an electronic document considered presented as a paper document if it is communicated by electronic means No a document is not presented as a paper document if it is communicated by electronic means even if the issuer or nominated person receiving it generates a paper document from it Q8 What is the requirement for compliance if presentation in an electronic medium is indicated Where presentation in an electronic medium is indicated to comply a document must be presented as an electronic record capable of being processed by the issuer or nominated person to whom it is presented Get help for CDCS

Q9 What happens if a demand exceeds the amount under the standby If a demand exceeds the amount under the standby the drawing is considered discrepant Q10 Is any document other than the demand stating an amount in excess of the amount demanded considered discrepant for that reason No any document other than the demand stating an amount in excess of the amount demanded is not discrepant for that reason Get help for CDCS

RULE 4 EXAMINATION

Q1 What is the purpose of examining documents for inconsistency in a standby The purpose of examining documents for inconsistency in a standby is to ensure that the documents comply with the terms and conditions of the standby Q2 Can a demand for payment be combined with other documents in a standby Yes a demand for payment need not be separate from the beneficiary s statement or other required document Q3 What information must a separate demand for payment contain in a standby A separate demand for payment must contain a demand for payment from the beneficiary directed to the issuer or nominated person a date indicating when the demand was issued the amount demanded and the beneficiary s signature Q4 In what form can a demand for payment be made in a standby A demand for payment may be in the form of a draft or other instruction order or request to pay Get help for CDCS

Q5 What is the requirement for the language of documents issued by the beneficiary in a standby The language of all documents issued by the beneficiary is to be that of the standby Q6 Who is required to issue a required document in a standby Any required document must be issued by the beneficiary unless the standby indicates that the document is to be issued by a third person or the document is of a type that standard standby practice requires to be issued by a third person Q7 Is a signature required on a required document in a standby A required document need not be signed unless the standby indicates that the document must be signed or the document is of a type that standard standby practice requires be signed Q8 What is the requirement for the date of issuance of a required document in a standby The issuance date of a required document may be earlier but not later than the date of its presentation Get help for CDCS

Q9 What happens if a standby does not specify any required document If a standby does not specify any required document it will still be deemed to require a documentary demand for payment Q10 In what circumstance must wording appear exactly as specified in a standby If a standby requires specified wording by the use of quotation marks blocked wording or an attached exhibit or form and also provides that the specified wording be exact or identical then the wording in the documents presented must duplicate the specified wording including typographical errors in spelling punctuation spacing and the like as well as blank lines and spaces for data Q11 What are the three requirements for a document to be presented under a standby according to section 4 17 The three requirements are a representation that a drawing event has occurred a date indicating when the document was issued and the beneficiary s signature Get help for CDCS

Q12 How should a document that is transferable by endorsement and delivery be presented under a standby as per section 4 18 The document may be presented without endorsement or with an endorsement in blank It may be issued or negotiated with or without recourse Q13 What are the five conditions a legal or judicial document should meet to be deemed compliant under a standby according to section 4 19 The document should be issued by a government agency suitably titled signed dated and originally certified or authenticated by an official of a government agency court tribunal or the like Q14 How should a document other than those explicitly specified in the standby be presented as per section 4 20 It should be appropriately titled or serve the function of that type of document under standard standby practice Get help for CDCS

Q15 What should be done if a standby requires the beneficiary to issue its own separate undertaking to another party as per section 4 21 The beneficiary receives no rights other than its right to draw under the standby and the separate undertaking or any documents presented under it need not be presented to the issuer If received the issuer need not examine them and may return them to the presenter or forward them to the applicant Q16 Can a document be endorsed if the standby does not specify whether how or to whom endorsement must be made according to section 4 18 Yes a document may be endorsed in blank or presented without endorsement Q17 How should a government issued document a court order or an arbitration award be certified to be considered compliant under a standby as per section 4 19 The document should be originally certified or authenticated by an official of a government agency court tribunal or the like Get help for CDCS

Q18 Should a document that is of a type for which the uniform customs and practice for documentary credits contain detailed rules be examined under standby practice or under those rules as per section 4 20 It should be examined under standby practice under these rules Q19 What are the consequences of the beneficiary issuing its separate undertaking to another party according to section 4 21 The beneficiary receives no rights other than its right to draw under the standby even if the issuer pays a fee for the undertaking Neither the undertaking nor any documents presented under it need to be presented to the issuer Q20 What should the issuer do if originals or copies of the separate undertaking or documents presented under it are received as per section 4 21 The issuer may without responsibility return them to the presenter or forward them to the applicant with the presentation and need not examine them or their compliance or consistency with the standby or the beneficiary s demand Get help for CDCS

Rule 5 NOTICE PRECLUSION AND DISPOSITION OF DOCUMENTS

Q1 What is the timeframe within which a notice of dishonour must be given Notice of dishonour must be given within a time after presentation of documents which is not unreasonable Notice given within three business days is deemed to be not unreasonable and beyond seven business days is deemed to be unreasonable Q2 Does the time within which notice of dishonour must be given depend upon an imminent deadline for presentation No the time for calculating when notice of dishonour must be given begins on the business day following the business day of presentation and it does not depend upon an imminent deadline for presentation Q3 How must a notice of dishonour be given The means by which a notice of dishonour is to be given is by telecommunication if available and if not by another available means which allows for prompt notice Q4 What should a notice of dishonour state A notice of dishonour shall state all discrepancies upon which dishonour is based Get help for CDCS

Q5 What happens if a notice of discrepancy is not given within the time and by the means specified in the standby or these rules Failure to give notice of a discrepancy in a notice of dishonour within the time and by the means specified in the standby or these rules precludes assertion of that discrepancy in any document containing the discrepancy that is retained or re presented but does not preclude assertion of that discrepancy in any different presentation under the same or a separate standby Q6 Does failure to give notice of dishonour or acceptance or acknowledgement that a deferred payment undertaking has been incurred obligate the issuer to pay at maturity Yes failure to give notice of dishonour or acceptance or acknowledgement that a deferred payment undertaking has been incurred obligates the issuer to pay at maturity Q7 What is the consequence of failure to give notice that a presentation was made after the expiration date Failure to give notice that a presentation was made after the expiration date does not preclude dishonour for that reason Get help for CDCS

Q8 Can the issuer request a waiver without a request by the presenter Yes if the issuer decides that a presentation does not comply and if the presenter does not otherwise instruct the issuer may in its sole discretion request the applicant to waive non compliance or otherwise to authorize honour within the time available for giving notice of dishonour but without extending it Q9 What happens if an applicant fails to give a timely notice of objection by prompt means It precludes assertion by the applicant against the issuer of any discrepancy or other matter apparent on the face of the documents received by the applicant but does not preclude assertion of that objection to any different presentation under the same or a different standby Q10 Can an issuer or nominated person deal directly with the presenter notwithstanding receipt of instructions Yes notwithstanding receipt of instructions an issuer or nominated person may pay give notice return the documents or otherwise deal directly with the presenter Get help for CDCS

Rule 6 TRANSFER ASSIGNMENT AND TRANSFER BY OPERATION OF LAW

Q1 What is meant by transfer of drawing rights Transfer of drawing rights refers to the request made by a beneficiary to an issuer or nominated person to honour a drawing from a person other than the beneficiary Q2 Under what conditions would a standby be considered non transferable A standby would be considered non transferable unless it specifically states otherwise Q3 How are drawing rights affected by a transfer of a standby In a transfer of a standby the drawing rights may be transferred in their entirety more than once but they may not be partially transferred without the agreement and implementation of the transfer by the issuer or another specifically nominated person Get help for CDCS

Q4 What conditions must be met for an issuer or nominated person to effect a transfer of a standby An issuer of a transferable standby or a nominated person need not effect a transfer unless they are satisfied as to the existence and authenticity of the original standby and the beneficiary provides a request in acceptable form the original standby signature and authority verification payment of transfer fee and other reasonable requirements Q5 When a transfer of drawing rights has occurred in their entirety who must sign the draft or demand When a transfer of drawing rights has occurred in their entirety the transferee beneficiary must sign the draft or demand Q6 Can the name of the transferee beneficiary be used in the place of the name of the transferor beneficiary in other required documents after a transfer of drawing rights Yes the name of transferee beneficiary can be used in the place of the name of the transferor beneficiary in other required documents after a transfer of drawing rights Get help for CDCS

Q7 What are the conditions for an issuer or nominated person to acknowledge an assignment of proceeds To acknowledge an assignment of proceeds an issuer or nominated person may require the original standby signature and authority verification an irrevocable request for acknowledgement of the assignment payment of a fee and other reasonable requirements Q8 What potential conflicts may arise when acknowledging an assignment of proceeds Conflicting claims to proceeds may arise when acknowledging an assignment and payment to an acknowledged assignee may be suspended until the conflict is resolved Q9 Is an issuer or nominated person obliged to acknowledge an assignment of proceeds that has not been acknowledged No an issuer or nominated person is not obliged to acknowledge an assignment of proceeds that has not been acknowledged unless applicable law requires otherwise Get help for CDCS

Q10 What happens in case of conflicting claims to proceeds from an acknowledged assignment In case of conflicting claims to proceeds from an acknowledged assignment payment to the acknowledged assignee may be suspended until the conflict is resolved The issuer or nominated person has the right to recover any proceeds received by the assignee that are recoverable from the beneficiary Q11 Who are the possible transferees by operation of law The possible transferees by operation of law are an heir personal representative liquidator trustee receiver successor corporation or similar person who is designated by law to succeed to the interests of a beneficiary Q12 What types of documents must a claimed successor present to be treated as an authorized transferee A claimed successor must present an additional document or documents that are issued by a public official or representative to be treated as an authorized transferee The document should indicate that the claimed successor is authorized or appointed to act on behalf of the named beneficiary or its estate because of an insolvency proceeding death or incapacity the claimed successor is the survivor of a merger consolidation or similar action of a corporation limited liability company or other similar organization or the named beneficiary s name has been changed to that of the claimed successor Get help for CDCS

Q13 What should an issuer or nominated person do when it receives a presentation from a claimed successor that complies in all respects except for the name of the beneficiary An issuer or nominated person that receives a presentation from a claimed successor that complies in all respects except for the name of the beneficiary may request from the claimed successor certain documents statements covenants and indemnities regarding the status of the claimed successor as a successor by operation of law The issuer or the nominated person may also ask for payment of fees reasonably related to these determinations Q14 What is the effect on the issuer s obligation when it receives a presentation from a claimed successor that doesn t comply in all respects except for the name of the beneficiary The obligation of the issuer or nominated person to honour or give notice of dishonor is suspended until it receives the requested documentation Any deadline for presentation of required documents however is not extended Q15 How is an issuer or nominated person reimbursed for payment made under transfer by operation of law An issuer or nominated person making payment under a transfer by operation of law is entitled to reimbursement as if it had made payment to the beneficiary Get help for CDCS

Q16 What is the purpose of Rule 6 11 Rule 6 11 discusses the application of transfer by operation of law in case of a claimed successor who presents documents in its name as if it were the authorized transferee of the beneficiary Get help for CDCS

RULE 7 CANCELLATION

Q1 Can a beneficiary s rights under a standby be cancelled without its consent No a beneficiary s rights under a standby may not be cancelled without its consent Q2 How can a beneficiary s consent to cancellation be evidenced Consent may be evidenced in writing or by an action such as return of the original standby in a manner which implies that the beneficiary consents to cancellation Q3 When is a beneficiary s consent to cancellation considered irrevocable A beneficiary s consent to cancellation is irrevocable when communicated to the issuer Q4 What may an issuer require before treating the standby as cancelled for all purposes Before acceding to a beneficiary s authorization to cancel and treating the standby as cancelled for all purposes an issuer may require the original standby verification of the signature of the person signing for the beneficiary verification of the authorization of the person signing for the beneficiary a legal opinion an irrevocable authority signed by the beneficiary for cancellation that includes statements covenants indemnities and similar provisions contained in a required form satisfaction that the obligation of any confirmer has been cancelled satisfaction that there has not been a transfer or payment by any nominated person and any other reasonable measure Get help for CDCS

Q5 Is a legal opinion always required before treating a standby as cancelled No a legal opinion is only required if the issuer requests it and if deemed necessary Q6 Can a confirmer be released from its obligation once a standby is cancelled Yes the obligation of any confirmer can be cancelled before treating the standby as cancelled for all purposes Q7 Can a beneficiary revoke its consent to cancellation after it has been communicated to the issuer No once a beneficiary s consent to cancellation has been communicated to the issuer it is considered irrevocable Get help for CDCS

RULE 8 REIMBURSEMENT OBLIGATIONS

Q1 What is the right to reimbursement according to Rule 8 01 a If a payment is made in compliance with the Rules the issuer must reimburse the person nominated to honour the standby or the applicant if a standby was requested Q2 When should an applicant indemnify the issuer according to Rule 8 01 b The applicant must indemnify the issuer against all claims obligations and responsibilities arising out of the imposition of law or practice different from the one chosen in the standby or applicable at the place of issuance the fraud forgery or illegal action of others or the issuer s performance of the obligations of a confirmer that wrongfully dishonours a confirmation Q3 What should a nominated person do if they obtain reimbursement before the issuer dishonours the presentation according to Rule 8 03 If a nominated person obtains reimbursement before the issuer timely dishonours the presentation they must refund the reimbursement with interest if the issuer dishonours The refund does not preclude the nominated person s wrongful dishonour claims Get help for CDCS

Q4 What are the charges that an applicant must pay and reimburse to the issuer according to Rule 8 02 a An applicant must pay the issuer s charges and reimburse the issuer for any charges that the issuer is obligated to pay to persons nominated with the applicant s consent to advise confirm honour negotiate transfer or issue a separate undertaking Q5 which rules for Bank to bank reimbursement under standby are subject to Any instruction or authorization to obtain reimbursement from another bank is subject to the International Chamber of Commerce standard rules for bank to bank reimbursements URR 725 Get help for CDCS

RULE 9 TIMING

Q1 What are the options for a standby to contain an expiry date Standby can contain an expiry date or it can permit the issuer to terminate it with reasonable prior notice or payment Q2 What happens to the rights of a nominated person if the standby expires The rights of a nominated person that acted within the scope of their nomination are not affected by the subsequent expiry of the standby Q3 How is time calculated for taking an action under Rule 9 The period of time begins on the first business day following the day the action could have been undertaken at the place it should have been undertaken Q4 When does an extension period start under Rule 9 The extension period starts on the calendar day following the stated expiry date even if either day falls on a day when the issuer is closed Get help for CDCS

Q5 What happens if no time of day is stated for expiration under Rule 9 The standby expires at the close of business at the place of presentation Q6 Does retention of the original standby preserve any rights under it after the right to demand payment ceases No retention of the original standby does not preserve any rights under the standby after the right to demand payment ceases Q7 What are the options available to the issuer to terminate the standby under Rule 9 The issuer can terminate the standby upon reasonable prior notice or payment Get help for CDCS

RULE 10 SYNDICATION PARTICIPATI ON

Q1 What is the difference between syndication and participation in a standby Syndication refers to the situation where there are multiple issuers and presentation can be made to any issuer with binding effect on all issuers Participation refers to the sale of rights by the issuer to potential participants but does not create any rights or obligations between the beneficiary and any participant Q2 Can the issuer sell participations in their rights against the applicant and any presenter Yes unless otherwise agreed between an applicant and an issuer Q3 Is the issuer allowed to disclose relevant applicant information in confidence to potential participants Yes the issuer may disclose relevant applicant information in confidence to potential participants Get help for CDCS

Q4 Does the sale of participations by the issuer affect the obligations of the issuer under the standby No the sale of participations does not affect the obligations of the issuer under the standby Q5 Does the sale of participations by the issuer create any rights or obligations between the beneficiary and any participant No the sale of participations by the issuer does not create any rights or obligations between the beneficiary and any participant Get help for CDCS