Rock the Boat: Will UniCredit v Euronav Cause a Trade Finance Wobble or Help Tear Up the Paper Boats?

May 23, 2023

–Quoted

Rock the Boat: Will UniCredit v Euronav Cause a Trade Finance Wobble or Help Tear Up the Paper Boats?

TXF

Geoffrey Wynne, partner, and Jacqueline Cook, former of counsel, at Sullivan in London were both quoted in an article by Katharine Morton, Head of Trade, Treasury and Risk at TXF, titled: “Rock the boat: Will UniCredit v Euronav cause a trade finance wobble or help tear up the paper boats?” published on May 23, 2023.

The article discusses a May judgment about a “$26 million appeal case between Belgian tanker shipping company Euronav and UniCredit Bank prompted alarmist headlines in some parts of the trade media that UniCredit, and other banks, could be prompted to pull out of commodity trade finance.”

The case is of interest as it calls into question the status of bills of lading (BLs). Jacqueline Cook comments: “The ruling is a reminder to banks and carriers of the purpose of the BL, and that the BL should be the document provided at port or the ultimate destination to permit discharge of the cargo. The cargo was discharged without production of the BL, instead it was discharged on the back of the LOIs (letters of indemnity).”

She continues: “Where BLs form part of the security package where there is a pledge over goods, it is advisable to check whether BLs are also being provided as security, to check whether in fact an LOI is to be used and what the position is in the security documents in relation to the disposal of the cargo or goods. If LOIs might be used, then a security assignment of the rights in the LOI might be useful if it is an assignable right. However, if the issuer of the LOI is not of substance then any claim on the LOI is not valuable. This case does not change the law in relation to BLs or to LOIs, in our view.”

In looking at whether there might be a negative impact on banks wanting to offer trade finance tools as a trade risk mitigant, Geoffrey Wynne comments: “We do not see this case as having a negative impact here …. what is critical for the banks is to look at its whole security package and make sure it is as watertight as possible when the asset is in warehouse, in transit and in port. In this case it was the extent to which the bank had given permission to allow the discharge, that was key.”

“In the end, the bank allowed the discharge, however, there is a comment in the judgment that the bank also had, among other things, trade credit insurance on 90% of the receivables from the onsale of the cargo. So, presumably, from a practical point of view, the BL was only one element of the bank’s protection. This was not the nub of the case so there was no substantial argument on it.”

Further examining whether the case is likely to have any impact on electronic bills of lading (eBL) and trade finance digitisation, this is a situation where eBLs would have been extremely useful, says Geoffrey Wynne. He adds: “Physical documents were stuck in the chain and subject to national and international restrictions due to the COVID pandemic. Here there was a change in the charterer and indeed a change in the ultimate destination. In our view, in the future, an eBL in a reliable electronic system should prevent this situation for both the charterer and the bank. One might expect that LOIs will then no longer be needed.”

“We welcome BIMCO’s 25 by 25 campaign to promote to carriers to use eBLS for 25% of their 'annual seaborne trade volume for at least one commodity' by 2025. The Electronic Trade Documents Bill going through Parliament, once passed and in force, which we expect later this summer, would allow BLs to be used in electronic form as effectively documents of title to cargo with the protection of English law.”

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Rock the Boat: Will UniCredit v Euronav Cause a Trade Finance Wobble or Help Tear Up the Paper Boats?

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