Written by Yana Greenwood, Sullivan Trainee Solicitor

At the latest Trade & Export Finance webinar, partner Geoffrey Wynne delved into the topic of Irrevocable/Independent Payment Undertaking commonly referred to as an IPU. An IPU is a payment obligation usually given by the buyer of goods and services to the Seller, and not by a third party (e.g. guarantor) and not given to a third party (e.g. a financer).

In the latest edition of Sullivan's webinar series, Marian Boyle, Head of Insurance and Dispute Resolution at Sullivan's London office discussed the key clauses found in comprehensive non-payment insurance (NPI) policies. She gave practical advice for policyholders on what to look out for in NPI wordings and provided examples of how the duties NPI policies impose can impact on the operation of the underlying credit risk they insure.

NPI policies provide an indemnity in the event of non-payment for any reason (save for those expressly excluded). If appropriately drafted, NPI policies permit policyholders to manage risks and to expand their financing capacity/offering using these highly effective credit support instruments.

The legal landscape

While NPI policies are subject to general English contract law principles, they are also governed by a body of statutes and common law principles peculiar to insurance contracts. How these rules operate in practice is not always evident from a plain reading of the contract. Thus, when taking out NPI, understanding the legal framework within which all such policies operate is vital for ensuring that the risk transfer relied upon is as robust as possible.

As with other English contracts, any NPI policy must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably be available to the parties when they entered into the contract, would have understood the language of the contract to mean. Evidence about what a party subjectively intended, or understood the contract to mean, is not relevant.

The insuring clause

The insuring clause describes the risk that insurers will cover. It always needs to be read in conjunction with the policy exclusions (see below). It is important that it is clear when a loss will be considered to have occurred.

It is equally important to ensure that the trigger for insurers’ indemnity is appropriate for the financing transaction that is being covered. The trigger for loss in respect of non-payment under a term loan is very different from structures where the insured is participating between the direct lender and the policyholder. Similarly, if what is being insured are potential losses under a receivables purchase agreement, the loss trigger will need to be drafted differently.

Exclusion clauses set out the circumstances in which coverage will not be provided, even if losses would otherwise fall within the scope of the insuring clause. NPI policies might, for example, exclude cover where the non-payment is caused by a breach by the policyholder of some term of the financing agreement, or where the loss is caused by the fraudulent or illegal act of the policyholder.

Written by Jacqueline Cook (Of Counsel and Senior Knowledge Development Lawyer) and Matilda Johnson (Trainee)

Following the highly anticipated publication by the Law Commission of its Electronic Trade Documents Report and draft Electronic Trade Documents Bill on 16 March 2022[1], the Electronic Trade Documents Bill (the Bill) is now on the legislative agenda for the year ahead. This was one of thirty-eight bills referred to in the Queen’s Speech (delivered on 10 May 2022) and is part of the UK Government’s plan to prioritise the growth and strength of the economy. The Bill will put electronic trade documents on the same legal footing as paper documents, thereby resolving the prevailing legal blocker under English law preventing possession of an intangible asset. This will greatly enhance the digitalisation of trade under English law.

Written by Amanda Montano (Associate) and Matilda Johnson (Trainee)

Given the recent expansion of the regulatory landscape in light of the ongoing events in Russia and Ukraine, namely the imposition of extensive sanctions on Russia (and certain Russian banks and nationals), there has been a lot written and published on the black letter terms of the sanctions themselves. This update focuses on the common “secondary issues”, these being the commercial questions that arise from the implementation of sanctions that are most likely to impact on parties’ contractual obligations.

This post is a follow-up to our recent post "Ukraine in Crisis: What do the UK sanctions against Russia and Russian entities mean for your business? - A practical guide" on UK sanctions against Russia.

In light of Russia’s recent invasion of Ukraine, the international community has responded in new ways through packages of sanctions against the Russian state, Russian banks and named individuals. Amongst other things, UK measures cover a number of trade-related sanctions, namely in respect of energy-related goods or services, infrastructure-related goods, military goods and technical assistance, dual-use goods and technology transfers. Provision of financial sanctions or funds (as defined in the Sanctions and Anti-Money Laundering Act 2018) for such goods, services and technology is also prohibited.

Where are we today?

With sanctions being imposed by the international community on an almost daily basis on Russia (and certain Russian banks and nationals) since its threatened destabilisation and subsequent invasion of Ukraine on 24 February 2022, keeping up with the ever-changing position is a challenge. Both here in the UK and across the globe, numerous financial and economic sanctions, as well as extensive and novel trade sanctions, have been imposed, with more waiting in the wings, all with the goal of limiting Russian access to the international markets, restrict the functioning of international contracts and stopping the flow of money to the Russian state, certain financial institutions and some businesses.

By Marian Boyle, Partner, and Rajan Dhami, Associate

By Sam Fowler-Holmes, partner, and Talal Khan, trainee

Sam Fowler-Holmes, Partner assisted by Jacqueline Cook, Of Counsel and Senior Knowledge Development Lawyer, presented our January webinar which looked at the second edition to A Practitioner’s Guide to Trade and Commodity Finance (“Guide”) which our Trade and Export Finance has updated and greatly expanded under the editorship of Geoffrey Wynne. The book, published at the end of 2021, marks a significant milestone for the firm marking ten years since the first edition. Sam gave a synopsis of what the Guide covers and how much development there has been in the area of trade, commodity and export finance and Jacqueline gave a round-up of some key legal and regulatory issues, some of which are still in development The Guide is based on English law and where appropriate gives some examples from other jurisdictions.

By Amanda Montano, associate, and Talal Khan, trainee

In the latest edition of Sullivan's webinar series, Geoffrey Wynne, Head of the Trade & Export Finance Group at Sullivan's London office, discussed key aspects of structuring trade finance transactions, including best practice approaches and risk mitigation. Geoff was joined by Jacqueline Cook, Of Counsel and Senior Knowledge Development Lawyer, who gave an informative overview of the key aspects of security used in trade finance structures. Here are some of the key areas discussed.

Written by Matilda Johnson, Trainee Solicitor

At the latest Trade & Export Finance webinar, Sam Fowler-Holmes, a partner in the Trade & Export Finance Group at Sullivan's London office, gave some valuable insight into what to consider before using a special purpose vehicle (SPV) in trade finance transactions. As SPVs become increasingly commonplace in trade structures, particularly in the receivables finance sphere, this is a timely opportunity to consider some of the "risks and rewards" associated with SPV structures.