Secure Financing in International Trade

Photo by John Simmons

In August 2021, Dr Anna Mari Antoniou, Lecturer in Maritime and Commercial Law at the University of Essex, published an article on Trade Finance in the Journal of International Banking Law and Regulation.

The article, Bank Security in Letters of Credit: Mere pledgee or something more?, looks at security measures for financial institutions when financing international trade transactions via letters of credit. It examines banks’ security rights as pledgees of shipping documents and potential security rights under The Carriage of Goods by Sea Act 1992.

The article argues that the traditional approach, a bank as pledgee, has limits, and is now superseded by the bank’s position as bill of lading holder under the Act. Though the Act is almost 20 years old, cases concerning the position of banks under it and related issues are still common, for example, The Erin Schulte [2014] EWCA Civ 1382 and Sea Master Shipping Inc v. Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm).

Dr Antoniou argues that pledgee rights are none the less necessary in some circumstances and clarifies how the two positions can work together by proposing a tiered system of rights. The shipping market has been particularly volatile since the 2008 financial crisis and the COVID-19 pandemic has exasperated the situation.

Secure financing is considered a backbone of international trade and the particular financing method, the letter of credit, has often been described as the ‘lifeblood of international commerce’. The combination of this volatility in the market and the importance of the credit in commerce, makes bank security rights a crucial issue to examine.

The proposals in the article provide solutions in practice, enhancing bank efficiency, giving certainty to the parties involved in high value transactions. The proposals also provide a more transparent view of the law, a troublesome area for years, as evidenced by the cases.

Dr Antoniou’s article is available via Westlaw and in print with the full citation: Antoniou, A-M., (2021). Bank Security in Letters of Credit: Mere pledgee or something more?. Journal of International Banking Law and Regulation. 36(9), 367-378.