Euromoney Learning Solutions

Legal Issues in International Trade Finance

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About the course

Uncover the legal issues of bonds & guarantees with this market driven course

With the arrival of the new Uniform Rules for Demand Guarantees (URDG 758), the course is more than ever a pre-requisite for all involved in the use of guarantees in international trade and project finance structures. The use of international guarantees, bonds and standbys has proliferated in recent years yet documentation errors, fraud and unfair calling have made guarantees a legal minefield and subject to more court proceedings than any other financial instrument.

This course will highlight the areas of potential risk and teach effective documentation techniques. You will analyse the legal issues in bonds and guarantees, explaining the products and their uses.

How this course will help you

You will learn:

  • The responsibilities and legal relationships of the various parties
  • The comparative merits and drawbacks of standby and demand guarantees
  • When courts will intervene to prevent payment of guarantees
  • How to avoid operational problems
  • How to avoid problems of applicable law
  • How big-ticket guarantees are syndicated
  • The benefits and drawbacks of using the new uniform rules for demand guarantees (URDG 758)


Day 1

Introduction: The Role of Guarantees In International Trade

  • The nature of risk in international trade
  • Commercial, credit and political risk
  • Payment and performance obligations
  • The role of guarantees in risk allocation

Guarantees & Related Instruments

  • Guarantees proper
  • Contracts of surety
  • Indemnities
  • Corporate guarantees
  • LettIers of comfort

Workshop : Identifying the Nature of the Undertaking

  • Participants will be presented with various documents for analysis regarding the nature of the obligations created by them.

Legal Analysis and Terminology

  • Primary and secondary obligations
  • Formal requirements of guarantees
  • Consideration and cause
  • The origin of ‘bonds’
  • Co-extensiveness of obligations
  • Subrogation
  • The rule in Holme v Brunskill

Workshop: The Practical Importance of the Distinction between Primary and Secondary Obligations

  • Participants consider the implications of the courts’ decisions in Associated Japanese Bank v Credit du Nord, Marubeni Hong Kong and South China Ltd v Government of Mongolia and ILG Capital Llc v Van Der Merwe

Banker's Autonomous Undertakings

  • The origin of autonomous undertakings
  • Autonomy and conditionality
  • Irrevocability
  • Indirect guarantees and counter-guarantees
  • Mandate and the basis of the guarantor's obligation
  • Conditional wording
  • Demand compliance with the guarantee’s terms
  • Case Study: IE Contractors v. I.A.E.

Case Study: Bonding Structures in International Construction Contracts

  • Bid and Tender Bonds
  • Advance Payment Guarantees
  • Retention Money Bonds
  • Performance Bonds
  • Maintenance and Warranty Bonds

Day 2

Morning Demand Guarantees: Obvious and Hidden Risks

  • Guarantees and the allocation of risk
  • Obvious and ‘hidden’ risks of using demand guarantees
  • Political risk: sanctions and embargos
  • Case Study: Shanning International Ltd v Rasheed Bank
  • 'Unfair calling'
  • Extend or pay demands
  • Ineffective expiry dates: Where & Why?

The Uniform Rules for Demand Guarantees 2010

  • Background and history of the URDG
  • Main changes in URDG 758
  • Relationships and terminology
  • Issue and effectiveness
  • Non-documentary conditions
  • Amendments
  • Variation of guarantee amount
  • Presentation of demand
  • Time for examination of demand and for payment
  • Force majeure closure
  • Extend or pay demands
  • Relationship between guarantee and counter-guarantee
  • Governing law and jurisdiction
  • Model Forms

Afternoon Standby Letters of Credit

  • The origins, nature and use of standby letters of credit
  • Comparison of standby and non-standby letters of credit
  • Comparison of standby letters of credit and demand guarantees
  • Standby letters of credit as payment mechanisms
  • Case Study: Development of Standby LCs in Oil Trade
  • Standby letters of credit as counter-guarantees

Workshop: Hybrid Indirect Guarantees

  • Participants analyse the use of standby credits in indirect guarantees to beneficiaries who require an on-demand guarantee

The International Standby Practices (ISP98)

  • Scope and Application
  • Relationships and Terminology
  • Fundamental Principles
  • Irrevocability and Effectiveness
  • Nature of Document(s) Required
  • Treatment of Document(s)
  • Extend or Pay Demands
  • Expiry

Day 3

Standby LCs under ISP98 compared to UCP600

  • Amendments
  • Normal SBLCs
  • Automatically amendable SBLCs
  • Documentation
  • Demand required
  • Documentary compliance
  • Consistency of documents
  • Time limits
  • Transfer
  • Transferability
  • General rules
  • Insolvency
  • Assignment of proceeds
  • Expiry

Court Intervention: Common Law Jurisdictions

  • Autonomy and the fraud exception
  • The letter of credit analogy
  • The standard of proof of fraud for an injunction
  • The ‘balance of convenience’ test

Court Intervention: Civil Law Jurisdictions

  • Absence or illegality of cause
  • Abuse of right and manifestly abusive calling
  • Fraudulent and abusive calling
  • Case Studies: The Russian Steel Case and Olex Focas

Afternoon Applicable Law in Indirect Guarantees

  • Conflict of laws in international trade transactions
  • The EC Convention on the Law Applicable to Contractual Obligations
  • Issuer’s Law – an unsafe assumption
  • EU Rome 1 Regulation

Jurisdiction under the European Regime

  • Domiciliary jurisdiction
  • Special jurisdiction
  • Jurisdiction under the EU Brussels Regulation
  • Jurisdiction under the 2008 Lugano Convention

Case Study: Jurisdiction Based on Place of Performance Participants consider the decision in Chailease v Credit Agricole Indo-Suez regarding special jurisdiction based on the place of payment

Trust the experts

Michael Kenny

Michael Kenny was a solicitor in private practice working in law firms in the City of London, and also in Bahrain, Hong Kong and New York. For 20 years he was a partner at Watson Farley & Williams, a leading international law firm. He is now a legal consultant focusing on legal training. He s...


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