Export financing is one of the most important aspects of international trade. It would be no exaggeration to say that export credit insurance is the linchpin of the entire system of export financing.

After the Second World War, a great need for long-term credit arose. The reconstruction of Europe and the growing production capacity of the industrialized nations created a competitive world market. To achieve and maintain economic growth, it was vital for industrial nations to look beyond their own borders and seek to conquer new markets or hold on to those already acquired. This necessitated the concession of long-term credit to buyers.

Granting more liberal trade credit was, and still is, the most efficient way to secure a deal abroad. This applied especially to the less developed countries, where buyers lacking financial resources were obliged to channel their orders through those foreign suppliers who were willing to let them pay late for what they could buy straight away.

Governments in the industrialized countries soon came to the conclusion that the private sector could not on its own provide all the financing facilities necessary for the expansion of exportation. Commercial banks were, and still are, reluctant to provide long-term loans. Also, new risks appeared, i.e. political risks, and private credit insurers were not ready to cover them. State intervention in this field was found to be desirable, even by the most free-market-minded. Hence, the creation of governmental bodies or departments to supply exporters with long-term loans and provide export credit insurance did not meet with any opposition. Examples of such bodies and departments were the Eximbank and the Overseas Private Investment Corporation) (OPIC) in the USA, the Export Credits Insurance Corporation (ECIC), predecessor of the Export Development Corporation (EDC), in Canada, COFACE (Compagnie francaise d'assurance pour le commerce exterieur) and BFCE (Banque francaise de commerce exterieur) in France, Hermes in Germany, the Export Credit Guarantee Department (ECGD) in the United Kingdom, to name but the best known. The move to create such organizations was not seen as a suspect socialist initiative to be resisted but, on the contrary, had the blessing of powerful banks and manufacturers. In fact, it needs to be remembered that these governmental bodies were created to help the expansion of the private sector. Sometimes their services to exporters are indeed disguised subsidies. Neither governments nor manufacturers will concede to such an analysis, for fear not only of internal political comeback, but also external reactions from other governments belonging to the Berne Union1 and parties to the [Page56:]'Consensus'2 and, more latterly, to the World Trade Organization and the new GATT agreements.

In preparing this overview of the policies and principles of export credit insurance, we have reviewed export credit insurance policies from the United Kingdom, France, Canada, USA, Egypt, as well as documents from the Multilateral Investments Guarantee Agency (MIGA) and the Arab Investments Guarantee Corporation.

Export credit insurance calls for a complex legal setting to reduce the high risk and the moral hazard inherent in its nature. Our research shows that it is not uncommon for the creation of a special governmental export credit insurance agency to be coupled with the conclusion of a bilateral international convention between the state of the exporter and that of the importer. Usually, provision of insurance cover is conditional upon the signing of such a convention between the two states. These conventions contain clauses stipulating that the state of the exporter is subrogated to the exporter, which automatically causes the exporter's private debt to acquire an international character, enhancing its recoverability as we will see at the end of this paper.

The fundamental legal document in export credit insurance is, however, the insurance policy itself, to which great attention should therefore be paid when deciding disputes in this field. To fully understand such policies it is helpful to be aware of the mechanics of export credit insurance in general. The present article sets out to provide guidance and clarification, so as to make this complex and risky growth area of insurance less arcane.

Our discussion will focus on four main points: the various credit insurance policies and the risks they cover, the duties of the insured under credit insurance policies, the duties of the insurer (governmental credit insurance agency), and the principle of subrogation.

I. The various policies and risks covered

Two preliminary observations should be made, before considering the policies proposed by the various export credit insurance agencies.

The first observation is that the function of such agencies is not to compete with commercial insurance companies. Some export credit insurance policies make it a condition of coverage that the risk insured under such policies shall not include any risk which at the date when the contract is made can be and normally is insured with commercial insurers.

The second observation concerns the nature of the policies entered into with export credit insurance agencies. There is no longer any doubt that such policies, even if referred to as a 'guarantee', in fact constitute true export credit insurance. This analysis has important consequences: whenever there are gaps in the policy or ambiguity in any of its clauses, the general principles of insurance law will apply. [Page57:]

A. The various policies proposed by export credit insurance agencies

There exist several types of insurance to cover the risk incurred in exporting goods to foreign buyers on credit. Some cover short-term credit, others medium and long-term credit. New forms are now appearing to cover performance bonds and the unfair calling of demand guarantees. There are also policies covering buyers' credit.

1. Policies directly covering the exporter

(i) Short-term policies

There are two kinds of short-term policy: the 'shipments policy' and the 'contract policy'. Both offer comprehensive cover to an exporter for all export sales during one year.

The contract policy covers the exporter against loss arising from any of the insured risks between the signing of the export contract and receipt of payment. The shipments policy is suitable for standard goods, which could be sold without substantial loss if the original export transaction cannot be carried out. This policy covers the exporter only from the time the goods are shipped until receipt of payment; it does not cover any risk prior to shipment.

These two kinds of policy are based on whole turnover, i.e. they cover the exporter's entire foreign trade.

(ii) Medium and long-term policies

Medium and long-term policies cover the export of capital goods such as heavy machinery sold on medium-term credit, which may extend from one to five or ten years. These policies may also cover the supply of services to a foreign customer (e.g. design, engineering or marketing services), as well as the sale or licensing to a foreign customer of any right in a patent, trademark or copyright.

Usually, medium and long-term policies are issued to cover individual sales of capital goods such as plant equipment, locomotives, ships, etc. Different kinds of sales are covered by different policies. There is one specific to sales to a foreign government or foreign government agency and another intended for sales to private undertakings.

The nature of the foreign buyer has an effect on the risks covered. Almost all legal systems have devices preventing governmental agencies and crown corporations from declaring themselves insolvent. Hence it was not considered necessary to cover the risk of insolvency in the policy designed for government contracts. In all other respects the two policies are the same and cover the same risks as in short-term policies.

(iii) Performance guarantee policy

For large contracts requiring the presentation of a performance bond, the export credit insurance agency might assist the exporter or contractor to provide what is needed. Such assistance does not usually consist in providing [Page58:]the bond itself, but in giving an indemnity to a bank or surety company that is willing to issue the bond. Under the indemnity, the credit insurance agency is unconditionally liable to reimburse the issuer in full for the amount called. Normally such an arrangement is accompanied by a related agreement between the contractor in whose favour the bond is issued and the export credit insurance agency, entitling the latter to claim against the contractor unless it is established that the contractor is not in default under the terms of the original contract or that the contractor's failure to comply is due to specified causes outside the scope of the contract.

(iv) Insurance covering the unfair calling of demand guarantees

Export credit insurance agencies also offer insurance to exporters against the unfair calling of demand bonds raised without their original support. Under such cover, the export credit insurance agency agrees to reimburse the exporter for the full amount of any loss arising from the calling of a bond, if it is subsequently shown that the exporter was not in default in his performance of the contract, or if any failure on the part of the exporter is shown to have been due to specified events beyond his control.

2. Buyer credit insurance

Sometimes medium and long-term credit for capital goods is covered by a buyer's credit insurance securing a loan direct to the buyer. This happens when an exporter prefers to negotiate on cash terms and arrange a loan to the buyer on repayment terms equivalent to those he might expect were the supplier to give credit.

In such a case, the buyer is required to pay direct to the supplier not less than 10% or 15% of the contract price as a down payment on signature of the contract. The remainder is paid direct to the supplier from the loan made to the buyer. The export credit insurance policy covering the loan to the buyer is separate from the contract of sale. Usually the contractual relationships involve several documents:

a) a supply contract between the export supplier and the overseas buyer,

b) a loan agreement between a lender from the supplier's country and the overseas buyer or his bank,

buyer credit insurance or guarantee given by the export credit insurance agency to the lender, in consideration of a premium agreement between the supplier and the export credit insurance agency.

B. Risks covered

Export credit insurance covers both commercial and political risks.

1. Commercial risks

The commercial risks covered are usually the following:

(i) insolvency of the buyer,

(ii) buyer's failure to pay to the insured exporter within six months of the due date the amount owed for goods delivered to and accepted by the buyer, [Page59:]

buyer's failure or refusal to accept the goods dispatched, where such failure or refusal is not excused by, and does not arise from or in connection with, any breach of contract on the part of the insured exporter or any cause within his control, provided that it is considered that no good purpose would be served by the institution of proceedings against the buyer in respect of such failure or refusal.

2. Political risks

The political risks covered are usually the following:

(i) a general moratorium decreed by the government of the buyer's country or by that of a third country through which payment must be effected,

(ii) any other measures or decisions of the government of a foreign country which in whole or in part prevents performance of the contract,

(iii) the operation of a law, or an order, decree or regulation having the force of law, which, in circumstances beyond the control of either exporter or buyer, prevents, restricts or controls the transfer of payment from the buyer's country to the exporter,

(iv) the occurrence of war between buyer's country and exporter's country,

(v) the occurrence of war, hostilities, civil war, rebellion, revolution, insurrection, civil commotion or other disturbance in the buyer's country,

(vi) the cancellation or non-renewal of an export permit or the imposition of restrictions on the export of goods not subject to permit or restriction prior to the date of shipment.

It should be noted that, in all cases, the risks covered do not include any loss due to the failure of the insured to comply with the terms of the contract or his failure to obtain the necessary permit or authorization required for performance of the contract.

II. The duties of the insured

The basic duty of the insured exporter is to pay the premium. Besides this, he is also obliged to furnish the export credit insurer with true information about the transaction insured and to keep the insurer informed of new developments which could affect the risk insured. The policy imposes upon the exporter certain further duties in the event of realization of the loss.

A. Duty to pay the premium

The premium paid by the exporter is the consideration in exchange for which the insurer gives its guarantee to indemnify the exporter against any loss that may occur.

The premium is fixed by the insurer and accepted by the exporter. The usual procedure is that the exporter submits an application, which is in fact a request for [Page60:]a quotation of premium rates. It does not put the exporter under any obligation to take out the policy. It should state the total value by country of the export sales the exporter hopes to make during the subsequent twelve months and the usual and maximum credit term for each country. Upon receiving this application, the insurer studies it and fixes a premium rate, which is sent to the exporter. The quotation given usually indicates the premium rate for each country listed in the application and outlines the terms and conditions upon which the insurer agrees to insure.

The exporter is then free to accept or not. If he accepts the quotation, he sometimes has to pay a deposit of approximately 10% of the estimated annual premium. This deposit will be refunded when the policy expires, or is carried forward if it is renewed.

It is difficult to predict the premium rate beforehand. Export credit insurance agencies charge various rates, depending on the credit terms granted to the foreign buyers, their credit worthiness and the political and economic stability of their country. The volume of the exporter's annual sales and the type of goods, the spread of risk and the extent of the cover are all factors which have a part to play in determining the premium rate.

It is not unreasonable to consider that the average premium rate for exports to developed and stable countries, like Germany for example, would be 20 or 25 cents for $ 100, i.e. a quarter per cent. For countries where there is political or economical instability, however, the rate could reasonably be expected to be double this, i.e. half a per cent of the gross invoice value, or even more.3

B. Duty of disclosure in good faith

As export credit insurance policies are insurance contracts, the principle of utmost good faith (ubrima fides ) applies. This principle, which applies to both parties, lays upon the insured exporter, as upon any insured, a far-reaching duty to disclose all facts vital to consideration of the contract. In London General Omnibus Co. Ltd. v. Holloway (1911-13) Kennedy L.J., following the earlier judgement of Lord Mansfield in Carter v. Boehm (1766), observed:

No class of case occurs, to my mind, in which our law regards more non-disclosure as a ground for invalidating the contract, except in the case of insurance. That is an exception, which the law was wisely made in deference to the plain exigencies of this particular and most important class of transaction. [Page61:]

Thus, it is no surprise to see export credit policies containing clauses to the effect that the exporter should disclose all information affecting the risk insured, not only before the conclusion of the contract but also during the operation of the policy. A typical clause would state the following:

Without affecting the operation of any rule of law, it is declared that this policy is given on condition that the Exporter has at the date of issue of this policy disclosed, and will at all times during the operation of this policy promptly disclose, all facts in any way affecting the risk insured.

C. Miscellaneous duties

These duties relate to situations either prior to the loss or after its realization.

Prior to the loss, the insured exporters are requested to use all reasonable and usual care, skill and forethought, and take all practicable measures, including any measures which may be required by the insurer, to prevent or minimize loss. One of the measures to minimize or mitigate loss is to stop all shipment to the buyer when it is known that he is in financial difficulties. When a loss is incurred, the exporters are required to inform the insurer. Usually the short-term policies provide that the exporter shall notify the insurer in writing of the occurrence of any event likely to cause a loss, immediately after the occurrence of any such event. It is enough to become aware of an event likely to cause a loss.

After realization of the loss and indemnification by the insurer, there is an additional duty of disclosure, requiring the insured exporter to take all steps to help the insurer in its efforts to recover the loss. A typical clause enumerating the duties of the exporter in this respect would read as follows:

Upon payment of a loss by the insurer, the insured shall:

(i) take all steps which may be necessary or expedient, or which insurer may at any time require, to effect recoveries, whether from the buyer or from any other person from whom such recoveries may be made, including if so required the institution of proceedings;

(ii) upon request, assign and transfer to insurer his rights under any contract in respect of which such payment has been made, including his right to receive any monies payable under such contract or his right to damages from any breach thereof;

(iii) upon request, deliver to insurer any goods in respect of which such payment has been made and any documents relating thereto and assign and transfer to insurer his rights and interest in any such goods and documents;

(iv) upon request, assign, deliver or otherwise transfer to insurer any negotiable instruments, guarantees or other securities relating to such contract or such goods.

III. The duties of the insurer (export credit insurance agency)

The basic duty of the export credit insurer is to indemnify the exporter against any loss he may incur. The amount of the loss must be determined with precision. The insurer's duty is limited by the policies to only a portion of the loss, the rest being [Page62:]borne by the exporter. Known as co-insurance, this point calls for a few developments, as it limits the insurer's duty and the time at which said portion of the loss is paid to the exporter.

A. Limits upon the duties of the insurance agency

In short-term policies, there are two ceilings affecting the assessment of the loss.

The first ceiling applies to the whole policy and sets a maximum liability. Usually, the limit is fixed in dollars. It may be modified only through written agreement between the exporter and the insurer. Such maximum liability is the aggregate of all the losses claimed under the policy in respect of all the buyers and transactions.

The second applies to each buyer. It in fact is a twofold ceiling, consisting of a so-called 'credit limit', relating to the amount of loss covered in respect of goods already delivered to the foreign buyer, and a 'trading limit', relating to the amount of loss covered in respect of goods not yet delivered to the foreign buyer. The trading limit is fixed as a certain number of units of the credit limit. Usually the amount of the credit limit is fixed by the insurer on the basis of the information given by the exporter in his application for export credit insurance.

Once the insurer has set a credit limit applicable to any buyer in any country covered by the policy, the exporter can give credit up to the specified amount without referring to the insurer, and enjoy automatic protection, provided the amount of the credit given is justified by up-to-date credit reports on the buyer obtained from independent, reliable sources, and that the credit extended does not exceed the highest amount outstanding at any given time and promptly paid by the buyer during the 12 months preceding the transaction which gave place to the credit.

It is of course in the best interests of the exporter to seek special approval from the insurer for the credit he wishes to extend to the foreign buyer. If, for example, the credit limit for any buyer is $ 10,000 and the exporter receives an order for $ 30,000, he should apply for written approval of the latter amount. The insurer will open an ongoing file on the buyer, which will be kept under constant review.

The insurer is required to pay 90% of any loss covered by the policy, on condition that the amount to be paid does not exceed the aforementioned limits on its liability, i.e. the maximum liability, 90% of the credit limit and 90% of the trading limit. Sometimes the percentage is only 80% and at other times may rise to 95%. In a very few cases the export credit insurer pays 100% of the loss.

B. Indemnifying the exporter

Payment of the indemnity to the exporter is dependent upon the nature of the loss:

(1) Where the loss is due to the buyer's insolvency, payment of the loss is to be made by the insurer 'promptly after the loss has been determined and the loss has [Page63:]been admitted to rank against the insolvent estate in favour of the exporter'. Do not be misled by the word 'promptly': it may well take months for the exporter's loss to be paid, as the mechanism is bound up with the insolvency proceedings in the buyer's country.

(2) Where the loss is due to the foreign buyer's failure to pay within six months of the due date for payment of the goods delivered to and accepted by the buyer, the insurer has to pay promptly after the expiry of the said six-month period.

(3) Where the loss is due to the failure or refusal of the buyer to accept goods which have already been dispatched, the insurer has to pay one month after the date on which, with the approval in writing of the insurer, the goods have been resold or otherwise disposed of by the exporter. It is to be noted that the amount of the loss is treated in a special way in this particular case. Usually the exporter has to bear a first loss equal to 15% of the gross invoice value. The balance - 85% of the loss - is apportioned between the insurer and the exporter, the insurer's portion being limited to 90% of the 85%. The exporter is required to bear the initial 15% of the loss so as to encourage him to use all his efforts to limit the extent of the loss.

(4) Where the loss is due to the operation of a law, or regulation having force of law, preventing, restricting or controlling the transfer of the payment from the buyer's country, the insurer must pay the exporter four months after the due date. It should be remembered that payment of the loss requires that there are no circumstances within the control of either the exporter or the buyer. Thus, if the buyer could have prevented the loss, for example, by applying to his government for a permit to transfer, and he failed to do so, the insurer will not be under any duty to pay the exporter for such a loss.

(5) In other cases, the insurer usually pays four months after the occurrence of the event which is the cause of the loss.

In all cases, where the insurer pays 90% of the loss, the exporter bears the balance of 10% plus any indebtedness owed to him by the buyer in excess of the credit limit and the trading limit approved for the buyer.

C. Assignment of the policy

It is a standard condition in all the policies that the insured should not assign the policy without written approval from the insurer. Usually the assignment is to the exporter-financing bank.

In practice, the insurer furnishes exporters with specific forms for this purpose. The forms need to be countersigned by the bank concerned, to which a copy will be returned in acknowledgement.

By one of these forms, the exporter authorizes the insurer to pay to his bank any monies which may become payable under his policy. This authority given to the insurer to pay directly to the exporter's bank is irrevocable, unless the bank agrees otherwise. By the same form, the exporter also authorizes the insurer to accept the bank's receipt in full discharge of the amount payable under the policy. [Page64:]

Another form is a blanket assignment of all of the exporter's foreign accounts receivable. The form contains a formula by which the exporter authorizes the insurer to send directly to the exporter's bank all notification of credit limits and changes in credit limits and all other communications from the insurer affecting the credit risks covered by the policy.

Assignment to the bank is a usual condition for obtaining credit from it. Banks normally require that an exporter take out export credit insurance to back up the collateral on which they are lending and that the insurance policy be assigned to them. Indeed, export credit insurance bodies acquire much of their business as a result of such requirement.4

IV. The principle of subrogation

A. Subrogation in the domestic field

The principle of subrogation was recognized in Randal v. Cockran (1748),5 where it was held, in respect of recoveries between insurer and insured, that the insurer has the plainest equity for him. The short case report states as follows:

The person originally sustaining the loss was the owner; but after satisfaction made to him, the insurer. No doubt, but from that time, as to the goods themselves, if restored in species or compensation made for them, the assured stands as a trustee for the insurer, in proportion for what he paid.

The principle was subsequently explained by Brett L.J. in Castellain v. Preston (1883)6 and in King v. Victoria Insurance Co. Ltd (1896),7 where Lord Hobhouse, delivering the judgement of the Privy Council, said that 'payment honestly made by insurers in consequence of a policy granted by them and in satisfaction of a claim by the insured, is a claim under the policy, which entitles the insurers to the remedies available to the insured'.

This principle of subrogation was applied to a policy of export credit insurance delivered by the Export Credits Guarantee Department in Re Miller, Gibb & Co. Ltd (1957).8 Wynn-Parry J. in that case came to the conclusion that the contract between the exporter and the ECGD was a contract of indemnity and therefore that the doctrine of subrogation applied. [Page65:]

There is therefore no difficulty acknowledging the insurer's right of subrogation. In the words of Diplock J. in Yorkshire Insurance Co. Ltd v. Nisbet Shipping 2 Co. Ltd (1962), which concerned a similar issue in relation to another ECGD policy:9

The doctrine of subrogation is not restricted to the law of insurance. Although often referred to as an 'equity' it is not an exclusively equitable doctrine. It was applied by the Common Law Courts in insurance cases long before the fusion of law and equity in order to give full effect to the doctrine; for example, by compelling an assured to allow his name to be used by the insurer for the purpose of enforcing the assured's remedies against third parties in respect of the subject-matter of the loss.

In L Lucas Ltd. and another v. Export Credits Guarantee Department (1973),10 the ECGD issued a 'guarantee' to an exporter in respect of contracts which the exporter was minded to make with a buyer in the United Arab Republic. The contracts included one for the sale of flour to be exported from the United Kingdom, the price of which was payable in US dollars. One of the risks covered by the policy was prevention of or delay in the transfer of payment from the buyer's country in circumstances outside the control of both the exporter and the buyer. While the policy was in force, the United Arab Republic imposed exchange control restrictions, which delayed the transfer of payment due by the buyer to the exporter for the goods which had been exported under the contract of sale. The payment due was US$ 1,155,181.26. On 17 March 1966, the exporter made a claim under the policy in respect of the delay in payment. On 31 August 1966, the ECGD made a payment of £ 372,071 6s 10d - i.e. 90% of £ 413,412 12s 10d, which was the sterling equivalent of $ 1,155,181.26 converted at the current rate of exchange, which was approximately $ 2.80 to one pound and which remained unchanged between the date of export and the date of ascertainment of the amount of the loss. The currency restrictions were subsequently lifted and the exporter thereafter received payments. Before receipt of the final payment, the exchange rate fell to approximately $ 2.40 to the pound.

Consequently, the total sum received by the exporter as payment, after conversion into sterling, amounted to £ 443,032 8s 11d. The exporter contended that its liability to the ECGD in respect of the sum recovered was limited to £ 372,071 6s 10d, i.e. the amount in sterling which the ECGD had actually paid in respect of the loss, and that any excess of sterling above that figure received by the exporter in consequence of the new rates of exchange belonged to the exporter. The first instance court accepted that contention, holding that the correct approach was first to consider general insurance law on the principle of subrogation and then to construe the policy in the light of that principle. It held that, on the basis of the general principle of subrogation, the ECGD would not be entitled to recover from the proceeds of the sale more than they had actually paid to the exporter under the policy and that there was nothing in the express terms of the policy which led to think otherwise. The ECGD appealed and the Court of Appeal held that the guarantors were entitled to be paid by the merchant 90 per cent of the total sterling proceeds. The House of Lords11 reversed the Court of Appeal decision and interpreted the term 'loss' in the recovery clause to mean the sum of money which the exporter did not receive at the time when he should have received it. It decided that the exporter was entitled to retain the entire surplus. Following the House of Lords decision, the ECGD and some other export credit insurance agencies modified the wording of their policies so as to entitle them to a proportional share of any surplus. [Page66:]

B. Subrogation in the international field

As mentioned earlier, export credit insurance is seldom practised without being coupled with and backed by a bilateral international convention between the exporter's country and the importer's country. A typical clause found in such conventions reads as follows:

If either Contracting Party makes payment to any of its nationals or companies under a guarantee it has assumed in respect of an investment in the territory of the other Contracting Party, such other Contracting Party shall recognize the transfer to the former Contracting Party of any right or claim of such national or company in such investment on account of which such payment is made and the subrogation of the former Contracting Party to any claim or cause of action of such national or company arising in connection therewith.

Such a clause covers the repayment of loans because of the broad meaning given to the term 'investment' in bilateral investment conventions. Any dispute arising in this context would be covered by an arbitration agreement giving jurisdiction to ICSID, of which the following is an example:

Each Contracting Party shall consent to submit any legal dispute that may arise out of investment made by a national or company of the other Contracting Party to conciliation or arbitration in accordance with the provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States done at Washington on March 18, 1965, at the request of such national or company.

It is to be noted, however, that often, after compensating the exporter or bank and being subrogated in their rights, the state or its export credit insurance agency reassigns to them all rights against the importer. In such a situation, the insured exporter plays the role of fiduciary, with a duty to transfer any sum he might recover from the importer to the state insurance agency.12

1
The International Union of Credit and Investment Insurers. This is a non-governmental organization, now comprising over forty members, few of which are from developing countries. The third world at one time viewed the Berne Union as a cartel of the Organization for Economic Cooperation and Development (OECD). See John L. Moore, Jr., 'Export Credit Arrangements' in Emerging Standards of International Trade and Investment (Totowa, NJ: Rowman & Allanheld, 1984) 143.

2
An agreement between Berne Union members on transparency relative to interest rate subsidies granted for exports. See full coverage in Export Credit Financing Systems in OECD Member and non-Member Countries (OECD, 1995, latest Supplement spring 1999).

3
In ICC arbitration case 7563 (1993), the question of the effect of late payment of the premium was raised. The insured event took place on 26 January 1989 but the premium was paid on 8 February 1989, i.e. less than two weeks after the occurrence of the insured risk. The arbitrator decided that the insurers were liberated from their obligations under the contract and continued: 'The Defendants maintain that they have no obligation towards the Claimants, as the premium was paid on 8 February 1989, i.e. after the loss occurred on 26 January 1989. The Claimants object to this view, contending that on the day the premium was paid the risk could not be considered as materializing before the end of the guarantee period, i.e. 510 days thereafter. In any event, in their view, the payment had a retrospective effect. According to Art. V of the General Conditions of the policy, the latter "shall take effect only upon payment of the premium". The Special Conditons state that "notwithstanding the effective date provided in these Special Conditions, the guarantee shall apply only if the premium has been paid by the Insured. Failing this, the Insurers may cancel the policy, while retaining the right to seek payment of the premium due." The Claimants are right to refer to this clause in the Special Conditons, since it is expressly provided in the policy that "in the event of conflicting interpretation", the Special Conditions shall prevail over any other provisions. Nonetheless, the clause in question, the meaning of which is not immediately obvious, cannot mean that the insured is justified in paying the premium only after the occurrence of the loss; in good faith it can only be understood as expressing the parties' wish that the premium may be paid after the effective date, i.e. after the start of the guarantee period set at 10 November 1988, but in any event before the occurrence of the loss. The Claimants, who recognize that "an insurance contract by nature … must present an element of uncertainty" … cannot validly contend that such an element would subsist if they were entitled to pay the premium after the loss had occurred. Thus the clause of the Special Conditions should be understood as granting the guarantee if the premium is paid after the start of the guarantee period, the implication being that the loss should not occur before the payment in question. To argue the opposite of this is to deny the nature of an insurance contract. The arbitrator therefore considers that as the premium was paid on 7 February 1989, i.e. after the two-month period ending on 25 January 1989 in which the … buyer was to issue the Letters of Release, the Defendants do not owe the guarantee and the Claimants' action is unjustified.' [Translated from the French original, which is published in J.J. Arnaldez, Y. Derains, D. Hascher, Collection of ICC Arbitral Awards 1991-1995 (ICC Publishing/Kluwer) 550 at 553 (Annot. YD).]

4
The question of whether the insured bank or exporter has standing or an interest to litigate after being indemnified by the export credit insurance agency has been repeatedly raised in ICC arbitration cases. In no. 6733 (1992), the arbitral tribunal held as follows: 'Pursuant to Ch. VIII.5 of the Terms of Reference, the Arbitral Tribunal must consider whether the claimant banks have an interest in seeking reimbursement when they have been compensated by COFACE, or whether their claims are inadmissible on this account. … Applying law of their own motion, on the basis of the facts as alleged and established, the arbitrators must determine whether the claimants have not only an interest but also standing to seek reimbursement, when it has been established … that they received compensation from COFACE between 1984 and 1986 for 95% of the credit granted in capital and interest. It may well be asked whether, following this compensation, the claim against the debtor and the garantors has not been transferred to the insurer by subrogation, giving insurer sole entitlement to act. Although Article L.121-12 of the Insurance Code states that an insurer who has given compensation is subrogated in the rights and actions of the insured, for the amount of the compensation made, against the third parties who caused the insured damage, this statutory provison is precisely not applicable to credit insurance (cf. Art. L111-1, para. 3 of said Code). However, such subrogation is provided by Art. 22 of the law of 11 July 1972 and confirmed by the courts (cf. Court of Cassation, 1st Civil Chamber, 15 March 1983 (Bull. civ. I.96)). Furthermore, Art. A432-5 of the Insurance Code provides that the amount of any sums recovered after payment of compensation shall be split beteween COFACE and the insured, in proportion to the share of the risk borne by each of them, without stating which of them has standing to recover such sums. Although this rule is reflected in Art. XVI of the general conditions of the policy, Art. XV expressly provides that any payment of compensation by COFACE leads to subrogation of the latter in all the rights and actions of the insured. One might therefore be inclined to conclude that, as a result of the compensation made prior to the commencement of the present arbitration proceedings, COFACE was the sole owner of 95% of the claims resulting from the loan agreements and that the banks had standing only for the remaining 5%. However, it has also been established that in letters dated 8 July 1987, i.e. before commencement of these proceedings, COFACE expressly instructed the banks to initiate the arbitral proceedings provided for in the contracts, in order to recover the entire sum owed, which would be split between insurer and insured pursuant to the aforementioned provisions. Arts XII, para. 2, XIII, para 2(a), and XVI of the general conditions indeed presuppose that the insured retains standing, at least jointly, to recover the outstanding monies. Moreover, as acknowledged by the Court of Cassation in a decision of 17 December 1985 (Bull. civ. IV.296), there are no provisions obliging the subrogee to assert itself the rights it has acquired and it may let the subrogor act, as the compensation provided by the insurer does not release the debtor or its surety.' [Translated from the original French, which is published in J.D.I. [1994] 1038 (Annot. DH), and J.J. Arnaldez, Y. Derains, D. Hascher, Collection of ICC Arbitral Awards 1991-1995 (ICC Publishing/Kluwer) 534 (Annot. DH).]

5
(1748) 1 Ves. Sen. 98, 27 E.R. 916.

6
(1883) 11 Q.B.D. 380.

7
[1896] A.C. 250.

8
[1957] 1 W.L.R. 703.

9
[1962] 2 Q.B. 330.

10
[1973] 3 All E.R. 984.

11
[1974] 1 W.L.R. 909.

12
ICC arbitration case no. 6474 provides a good example of the problems generally encountered in practice. See extracts from the partial award on jurisdiction and admissibility (1992) published in Yearbook Commercial Arbitration XXV (2000) at 288-295.