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Law of Export Credit Insurance and Guarantees Examining the law of export credit insurance and export credit guarantees, this book clarifies the legal nature of ECI and ECGs as insurance and guarantees, respectively, by comparing their legal characteristics regarding the contract formation process, terms and conditions, duty of fair presentation, claim handling process and subrogation and recoveries. It further explores why some export credit agencies provide export credit guarantees in addition to export credit insurance, notwithstanding that an ECG is a more client-friendly product and easier than ECI for banks to use. Analysing the legal principles applicable to export credit insurance and export credit guarantees reflected by English case authorities and statutory law, the book is a doctrinal study informed by substantive empirical research. It studies a large number of export credit insurance and export credit guarantee contractual terms in order to propose several model clauses and scrutinise the influences of the Insurance Act 2015 on ECI. This book is an important reference for students, academics and practitioners in the field of commercial and insurance law. In particular, it seeks to provide guidelines for all potential parties who wish to arrange an ECI/ECG transaction, including export credit agencies, private credit insurers, brokers, banks, exporters and buyers, to correctly identify and choose the suitable cover. Law of Export Credit Insurance and Guarantees Cheng Lin First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 Cheng Lin The right of Cheng Lin to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalogue record has been requested for this book ISBN: 978-1-032-26293-2 (hbk) ISBN: 978-1-032-26294-9 (pbk) ISBN: 978-1-003-28755-1 (ebk) DOI: 10.4324/b22864 Typeset in Times New Roman by Deanta Global Publishing Services, Chennai, India Contents Preface xiii Acknowledgements xv Author biography xvii List of abbreviations xviii Table of Cases xix Table of statutes and statutory instruments xxvi 1 Introduction 1 2 How are ECI and ECGs used in the industry? 7 3 Terms and conditions of ECI and ECGs 52 4 The duty of fair presentation under ECI and ECGs? 105 5 The claim handling process under ECI and ECGs 152 6 Subrogation and recoveries under ECI and ECGs 198 7 Why ECAs provide ECGs in addition to ECI 236 Appendix 1: Special acknowledgements 247 Appendix 2: How are ECI and ECGs used by the Berne Union members? – full list 249 Appendix 3: The Berne Union members’ standard ECI and ECG contracts available online 251 Appendix 4: Questionnaires in the proposal forms for ECI and ECGs 253 Index 257 Detailed Contents Preface xiii Acknowledgements xv Author biography xvii List of abbreviations xviii Table of Cases xix Table of statutes and statutory instruments xxvi 1 Introduction 1 2 How are ECI and ECGs used in the industry? 7 General distinctions between insurance and guarantees 8 Confusion in English ECI and ECG cases 8 The similarities and differences between general contracts of insurance and guarantee 9 The elements to distinguish a general contract of insurance from guarantees 11 The different types of ECI and ECG products 12 An overview of ECI and ECG products around the world 12 The main ECI products in the UK 13 What is insured under ECI: political risks and commercial risks 13 Basic ECI cover 14 Supplier credit insurance 14 Buyer credit insurance 15 The main ECG products in the UK 16 Supplier credit guarantees 16 Buyer credit guarantees 17 The formation process of ECI 18 How to obtain an ECI cover from the ECA? 18 The application process 18 Situations where a single transaction should be insured by more than one ECA 18 The ECA’s liability for “bad advice”? 20 Detailed Contents vii How to obtain an ECI cover from private credit insurers? 21 The early attempt to introduce ECI business at Lloyd’s 21 Today’s ECI business at Lloyd’s 23 The leading underwriters’ role under ECI 25 The relationship between leading and following underwriters under ECI 27 ECI business in the company market 30 The broker’s role under ECI 31 Market protocols 31 Legal principles 31 Broking political and credit risks in the marine cargo market? 32 The causal connection between the broker’s breach and the assured’s losses 35 The quantum issue regarding the broker’s liability 38 The broker’s duty of care to the intended assignee of ECI 39 The role of sub-brokers under ECI 42 Summary: is the formation process of ECI similar to that of general insurance contracts? 45 The formation process of ECGs 45 How to conclude an ECG contract with the ECA? 45 Is the formation process of ECGs similar to that of general guarantee contracts? 46 Are there any potential problems within the formation of ECI and ECGs? 47 The potential issue within the formation of supplier credit insurance 47 Is the formation process of ECGs as problematic as that of ECI? 50 3 Terms and conditions of ECI and ECGs 52 The peculiar terms of ECI 53 The insuring and indemnity clause 53 The UKEF’s insuring and indemnity clause 53 Lloyd’s definition of “Credit Risk” and “Contract Frustration” 55 Treating protracted payment default and insolvency of the buyer as separate risks insured 56 Inserting a credit risk clause into a marine cargo policy? 57 The wording of the “transaction premium clause” 57 The construction of the TPC: textualism, contextualism, factual matrix and commercial consequences 58 Rectification and an estoppel by convention? 60 Identifying the subject matter insured and drafting an appropriate insuring clause 62 The measure of indemnity under ECI 65 The maximum liability clause 65 The credit limit clause 65 viii Detailed Contents Distinguishing an insuring clause from a measure of indemnity clause 68 The exclusion clause 70 Exclusion clause: general 70 Exclusion of documentation risk 72 Specific exclusions under Lloyd’s ECI policies 73 Conditions and warranties under ECI before and after the IA 2015 75 ECI conditions before the IA 2015: the effects of the breach of conditions precedent to liability 75 ECI conditions after the IA 2015: risk-defining or risk-mitigating? 78 Clause 6 of the “Export Insurance Policy”: is it a condition precedent to liability? 78 How to determine whether a term is risk-defining or risk- mitigating? 80 Is Clause 6 subject to s 11 of the IA 2015? 81 ECI warranties after the IA 2015 83 Clause 11 of the “Export Insurance Policy” 83 Does Clause 11 conflict with ss 10 and 11 of the IA 2015? 85 Did the UKEF intend to contract out of ss 10 and 11 of the IA 2015? 86 An example of an anonymous Berne Union member’s policy that is compliant with the IA 2015 87 Alteration of the ECI policy 88 Summary: the legal nature of ECI reflected by its terms and conditions 88 Terms and conditions of ECGs 90 The ECG Contract 91 The guarantee clause: general 91 The guarantee clause must mirror the terms of the underlying contract of sale 92 The guarantee clause covers genuine underlying transactions only 94 The exclusion on the documentation risk? 96 The bank’s rights and obligations under ECGs 96 The ECA-exporter contract 98 Core clauses on the exporter’s obligations 98 The UKEF’s remedies for the exporter’s breach 99 Summary: the legal nature of ECGs reflected by its terms and conditions 102 Conclusion 102 4 The duty of fair presentation under ECI and ECGs? 105 The duty of fair presentation under ECI 105 The materiality test 105 Material facts: general 105 Detailed Contents ix Facts that make the risk attractive to the insurer 109 A “new raft” of disclosure where ECI is provided as an add-on cover? 109 The inducement test 110 Non-disclosure of the existence and purpose of specific policy clauses? 112 The non-disclosure of the Transaction Premium Clause and the Non-avoidance Clause 112 The “comprehensive” effect of the NAC 113 The non-disclosure of the TPC and NAC in the light of the IA 2015? 114 Misrepresentation as the foundation for an estoppel to circumvent the application of the NAC? 114 Waiver 116 Waiver of the assured’s duty to disclosure: the “frame of reference” formulation 116 Waiver of the right to avoid the contract: the “legal advice” presumption 118 The UKEF’s questionnaire in the ECI cover proposal form 119 Contractual clauses in relation to the duty of fair presentation 121 Stipulating the duty of fair presentation as a condition precedent to liability? 121 Non-avoidance clause 122 Is the creditor under ECG subject to the duty of fair presentation? 122 The creditor is under no duty of disclosure: Credit Lyonnais 122 General rules on misrepresentation and non-disclosure in the law of guarantee 124 The rationale for the creditor’s limited duty of disclosure: does it apply to ECGs? 126 A tendency that the ECA is importing the duty of fair presentation into ECG business? 128 Express contractual provisions on the duty of full disclosure? 128 Detailed questionnaires for the exporter and the bank to complete 129 Proposal: a unification of English law on the duty of fair presentation in ECI and ECGs 132 What is the current law? 132 Insurance law and ECI contracts: before and after the IA 2015 132 Law of guarantees and ECG contracts 135 What should the law be? 136 What steps can the UKEF take? 139 Miscellaneous 141 The assured’s post-contractual duty of disclosure under ECI: the “common interest” test and the legal professional privilege 141