Introduction

In the world of trade finance, the choice between rulebooks for Letters of Credit (LCs) is critical. Today, we compare the two rulebooks most commonly written into LCs: the International Chamber of Commerce’s UCP 600 and the International Institute of Banking Law & Practice’s ISP 98.

Why the Choice of Rules Matters

Selecting the wrong set of rules can lead to delayed payments, litigation, and potential reputation risk for the parties involved. UCP 600 is designed primarily for commercial letters of credit, while ISP 98 is specifically tailored for stand-by LCs. When drafting an LC, it is essential to state explicitly in the text which rule set (UCP 600, ISP 98, both, or neither) will apply.

Quick Comparison: Comparing UCP 600 and ISP 98

Aspect UCP 600 ISP 98

Published by ICC (2007) IIBLP / ICC (1998)

Written for Documentary (commercial) LCs Stand-by LCs & demand guarantees

Articles/Rules 39 articles 89 rules

Document focus Shipping papers, invoices, B/L Simple demand + basic supporting docs

Non-documentary conditions Prohibited Allowed if clearly drafted

Scope and Applicability

• UCP 600 Article 1: This rulebook applies to any LC, including stand-bys, when it is expressly incorporated in the LC text.

• ISP 98 Rule 1.01: ISP 98 applies exclusively to stand-by LCs when expressly incorporated in the instrument. There is no reciprocity: ISP 98 never applies to a commercial documentary credit.

Purpose and Mindset

• Commercial LC (UCP): The beneficiary expects to be paid when goods are shipped.

• Stand-by LC (ISP): The beneficiary hopes never to draw on the LC; it serves as security against default. As a result, ISP 98 allows for simple demand and statement of default, with no requirement for transport documents.

Document Examination

• UCP 600 sub-14(b): Banks have five banking days to examine documents, and strict compliance with the documentary requirements is expected.

• ISP 98 Rule 5.01: The examination period is three to seven banking days, and there is no obligation to search for inconsistencies between documents.

Presentation, Partial, and Multiple Drawings

• UCP 600 Article 32: If an installment is missed, the credit ceases for the remaining installments.

• ISP 98 Rule 3.07: Failure to present on one scheduled date does not waive the right to make later presentations.

• ISP 98 Rule 3.08: This rule expressly regulates partial and multiple drawings, whereas UCP 600 addresses them only by analogy.

Time and Expiry Mechanics

• UCP 600 Article 29(c): If an LC expires on a non-business day, the expiry extends to the next business day. However, the last shipment date is not extended.

• ISP 98 Rule 3.13: All dates—including expiry and presentation—automatically extend if they fall on a non-business day.

• Force-majeure closure: If an LC expires during an interruption, there is no liability. ISP 98 provides an automatic 30-calendar-day extension to protect the beneficiary.

Transfer and Syndication

• UCP 600 Article 38: Allows partial transfer of credits.

• ISP 98 Rule 6.02: Permits only full transfer unless expressly prohibited.

• Syndication: Not mentioned in UCP 600, but ISP 98 Rule 10.01 expressly allows it.

Language and Form

• UCP 600: Silent on language; refer to ISBP 821 para A21. Any language is acceptable unless the credit specifies otherwise.

• ISP 98 Rule 4.04: Documents must be in the language of the standby (usually English).

Which Rule Set Should I Choose?

Use UCP 600 when:

• Payment is linked to the shipment of physical goods.

• There is a need for original transport documents.

Use ISP 98 when:

• The LC serves as a financial guarantee (such as a bid bond, advance-payment, performance, or warranty guarantee).

• Flexible default triggers, simple demand wording, and auto-extension clauses are desired.

Key Takeaway

• Pick the rule book that matches the LC’s commercial purpose, write it into the instrument, and draft the conditions so that they can actually be satisfied.