LEGAL PRACTICE COURSE
Commercial Law and Practice
Workshop 3
Topic(s):
International trade financing: letters of credit.
Learning Outcomes:
By the end of this session you will be able to:
Explain the advantages of letters of credit and how they work.
Draft an obligation to open a letter of credit.
Complete an application to a bank to open a letter of credit.
Explain the purpose and key contents of a letter of credit indemnity agreement.
Session Activities:
Draft an obligation to open a letter of credit.
Complete an application to a bank to open a letter of credit.
Review an indemnity agreement relating to the issue of a letter of credit.
Materials Attached:
Pre-session Task, consisting of email from supervisor.
In-session Task 1, consisting of email from supervisor attaching precedent payment
obligation clause.
In-session Task 2, consisting of email from supervisor attaching (i) request to open
documentary credit and (ii) indemnity agreement relating to the opening of documentary
credits.
Materials provided in Session:
Consolidation handout in relation to letters of credit.
Preparation for Session:
Read Chapter 15 and paragraph 16.3 of the Commercial manual.
Prepare an answer to the Pre-session Task.
Post-Session:
Review your notes from the session to consolidate your learning.
docs_434392455.docx 1/7 © City, University of London 2020
, Commercial Law and Practice
Workshop 3: Pre-Session Task
To:
From
Date: [date of workshop]
Subject: Seramica Limited
Karim Khan of Seramica called earlier to say that he was approached at a recent UK trade
fair by a US company named Bootiful Bathrooms Inc (‘BB’). BB wishes to buy a large
quantity of Seramica’s glazed tiles. BB apparently sells upscale bathroom interiors and would
like to use Seramica’s latest tile range as part of its customer offering.
Seramica has never previously sold goods to a buyer outside the UK. I discussed the
advantages of using a letter of credit (‘LC’) with Karim and he asked if we could prepare a
short written note for him.
Please could you prepare a clear written explanation of:
1. the advantages for Seramica of using an LC in this situation; and
To ensure that Buyer is obliged to pay before the goods arrive and as soon as
despatched, to cover Seller’s exposure (cash flow and security of payment are
problems for the seller)
To agree a safe method of payment
To agree a time by which payment is made so that faiIure amounts to breach of
contract
2. The typical content of LCs.
• Name of applicant and beneficiary
• Amount and currency of payment
• Whether irrevocable and/or confirmed
• List of documents against presentation of which payment will be made
• Expiry date of the letter of credit
The obligation to pay by LC will need to be incorporated into the Supply Agreement between
Seramica and BBInc. → payment obligation clause in the contract
How do you think this will this be done and what is the likely content of such a clause?
Typical content of a payment obligation clause:
Method of payment
Timing – is it a condition precedent?
- open by when?
Currency and exchange risk
Amount
Expenses
Seller’s approval
Which banks?
Consequences of failure to open
Account details
Interest on late payment
Retention of title clause?
Definition of banking/business day
docs_434392455.docx 2/7 © City, University of London 2020
Commercial Law and Practice
Workshop 3
Topic(s):
International trade financing: letters of credit.
Learning Outcomes:
By the end of this session you will be able to:
Explain the advantages of letters of credit and how they work.
Draft an obligation to open a letter of credit.
Complete an application to a bank to open a letter of credit.
Explain the purpose and key contents of a letter of credit indemnity agreement.
Session Activities:
Draft an obligation to open a letter of credit.
Complete an application to a bank to open a letter of credit.
Review an indemnity agreement relating to the issue of a letter of credit.
Materials Attached:
Pre-session Task, consisting of email from supervisor.
In-session Task 1, consisting of email from supervisor attaching precedent payment
obligation clause.
In-session Task 2, consisting of email from supervisor attaching (i) request to open
documentary credit and (ii) indemnity agreement relating to the opening of documentary
credits.
Materials provided in Session:
Consolidation handout in relation to letters of credit.
Preparation for Session:
Read Chapter 15 and paragraph 16.3 of the Commercial manual.
Prepare an answer to the Pre-session Task.
Post-Session:
Review your notes from the session to consolidate your learning.
docs_434392455.docx 1/7 © City, University of London 2020
, Commercial Law and Practice
Workshop 3: Pre-Session Task
To:
From
Date: [date of workshop]
Subject: Seramica Limited
Karim Khan of Seramica called earlier to say that he was approached at a recent UK trade
fair by a US company named Bootiful Bathrooms Inc (‘BB’). BB wishes to buy a large
quantity of Seramica’s glazed tiles. BB apparently sells upscale bathroom interiors and would
like to use Seramica’s latest tile range as part of its customer offering.
Seramica has never previously sold goods to a buyer outside the UK. I discussed the
advantages of using a letter of credit (‘LC’) with Karim and he asked if we could prepare a
short written note for him.
Please could you prepare a clear written explanation of:
1. the advantages for Seramica of using an LC in this situation; and
To ensure that Buyer is obliged to pay before the goods arrive and as soon as
despatched, to cover Seller’s exposure (cash flow and security of payment are
problems for the seller)
To agree a safe method of payment
To agree a time by which payment is made so that faiIure amounts to breach of
contract
2. The typical content of LCs.
• Name of applicant and beneficiary
• Amount and currency of payment
• Whether irrevocable and/or confirmed
• List of documents against presentation of which payment will be made
• Expiry date of the letter of credit
The obligation to pay by LC will need to be incorporated into the Supply Agreement between
Seramica and BBInc. → payment obligation clause in the contract
How do you think this will this be done and what is the likely content of such a clause?
Typical content of a payment obligation clause:
Method of payment
Timing – is it a condition precedent?
- open by when?
Currency and exchange risk
Amount
Expenses
Seller’s approval
Which banks?
Consequences of failure to open
Account details
Interest on late payment
Retention of title clause?
Definition of banking/business day
docs_434392455.docx 2/7 © City, University of London 2020
