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Simon Cook, Partner at Sullivan talks about trade finance instruments and how it works.
🎙️ Recorded in partnership with ITFA Education Day, held in London
Key Topics
- ICC rules governing trade finance instruments, including UCP 600, ISP98 and URDG 758
- The distinctions between letters of credit, standby letters of credit and demand guarantees
- Core legal principles such as irrevocability and independence
- The role and risks of governing law in trade finance transactions
- Transferability, assignment and ongoing legal developments
Key Insights
Rules are aligned but not identical
Although ICC frameworks share common foundations, each has been developed with a specific instrument in mind, which affects how they are applied in practice.
Standby letters of credit sit apart
Standby credits are not intended as primary payment tools, which is why ISP98 exists to address their unique function.
Governing law remains a blind spot
Many transactions proceed without agreeing a governing law, which can create uncertainty and cost if disputes arise.
Not all instruments are fully covered
Bills of exchange and promissory notes still sit outside a unified ICC framework, leaving room for interpretation and reform.
Expert Analysis
Simon Cook, Partner at Sullivan & Worcester UK LLP and a member of the Executive Board of the International Trade and Forfeiting Association, highlights the central role that ICC rules play in shaping modern trade finance. He explains that UCP 600, ISP98 and URDG 758 each apply to different instruments, but are built around shared legal concepts such as irrevocability and the principle that banks deal with documents rather than underlying transactions. While there is some overlap between these frameworks, they are not interchangeable and must be applied with care. A key distinction lies between documentary letters of credit and standby letters of credit. The former are designed as a primary means of payment, whereas the latter act as a safeguard in the event of non payment. This difference underpins the need for separate rules. Simon also draws attention to the importance of governing law. While it is common for parties to leave this unaddressed at the outset, doing so can lead to lengthy and uncertain disputes if something goes wrong. He notes that URDG 758 offers some guidance in this area, whereas other rule sets do not. Finally, he points to ongoing discussions around bills of exchange and promissory notes, particularly in relation to governing law. These developments suggest that the legal framework for trade finance is still evolving and adapting to modern needs.— Simon Cook
Key Findings
- UCP 600 is tailored to documentary letters of credit
- ISP98 is designed specifically for standby letters of credit
- URDG 758 governs demand guarantees
- Transactions without a defined governing law carry added risk
- Bills of exchange and promissory notes are still subject to ongoing legal clarification
Implications
- Clear understanding of ICC rules can improve consistency across transactions
- Agreeing governing law upfront can reduce the risk of costly disputes
- Choosing the correct rule set is essential for effective structuring
- Legal reform may bring greater clarity to legacy instruments
- Stronger awareness of rule differences can support better risk management
Key Takeaways
- ICC rules remain fundamental to global trade finance
- Each instrument requires careful alignment with the appropriate framework
- Governing law should be considered early, not left as an afterthought
- Transfer and assignment provisions vary and require close attention
- The legal landscape continues to develop, particularly for older instruments
