The Inter-national Stand-by Practices (ISP) provide separate rules for standby letters of credit in the same way that the Uniform Customs and Practice for Documentary Credits and the Uniform Rules for Demand Guarantees do for commercial letters of credit and independent bank guarantees.

The ISP reflects all standby practice and states it very clearly so as to assure the worldwide integrity of standbys.

As a rule, the ISP is intended to be applied to standby letters of credit (including performance, financial, and direct pay standby letters of credit).

A standby letter of credit or other similar undertaking, however named or described, whether for domestic or international use, may be made subject to the ISP rules by clear and express reference to them in the document.

An undertaking subject to the ISP rules, and signed between the parties, may expressly modify or exclude their application. Also an undertaking subject to the rules is to be referred to accordingly in a "standby".

Unless the context otherwise requires, or unless expressly modified or excluded, the ISP rules apply as terms and conditions incorporated into a standby, confirmation, advice, nomination, amendment, transfer, request for issuance, or other agreement of:

1. the issuer;
2. the beneficiary to the extent it uses the standby;
3. any advisor;
4. any confirmer,
5. any person nominated in the standby who acts or agrees to act without excluding their application;
6. the applicant who authorises issuance of the standby or otherwise agrees to their application.

A standby letter of credit is normally an irrevocable, independent, documentary, and binding undertaking when issued by the concerned parties in all cases.

These ISP rules, generally speaking, do not define or otherwise provide for:
a. power or authority to issue a standby;
b. formal requirements for execution of a standby ( eg a signed writing); or
c. defenses based on fraud, abuse, or similar matters.

This is because these matters are governed by applicable law.

Due to the fact that a standby letter of credit is irrevocable, an issuer's obligations under a standby cannot be modified by the issuer except as provided in the standby itself or as consented and agreed to by the person against whom the modification is asserted.

Moreover, because a standby letter of credit is independent, the ability to enforce an issuer's obligations under a standby does not by all means depend on:

1. the issuer's right or ability to obtain reimbursement from the applicant;

2. the beneficiary's right to obtain payment from the applicant;

3. a reference in the standby to any reimbursement agreement or underlying transaction; or

4. the issuer's knowledge of performance or breach of any reimbursement agreement or underlying transaction.

5. And because a standby letter of credit is documentary, an issuer's obligations depend on the presentation of documents and an examination of required documents on their face.

Also due to the fact that standby letter of credit or an amendment thereto is binding when issued, it is enforceable against the issuer whether or not the applicant authorised its issuance, the issuer received a fee, or the beneficiary received or relied on the standby or the amendment.

It is important to mention that as a rule there is independence regarding the issuer and beneficiary relationship. This means that the issuer's obligations towards the beneficiary are not affected by the issuer's rights and obligations towards the applicant under any applicable agreement, practice, or law.

The 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 other 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.

The writer is a legal consultant on banking and stock market laws.