ACCA Corporate and Business Law (Global) –

Lecture Notes
A. Essential Elements of Legal Systems

1. Business, Political and Legal Systems

Every country operates within a political economy framework that includes its political, economic, and
legal systems – each interdependent and influencing the others 1 . Understanding these systems is
essential for business law, as they shape how business is conducted and regulated.

• Economic Systems: These determine how a society produces and distributes goods and services.
There are three main types:
• Planned economies – where government centrally plans production and prices (e.g. former Soviet
Union, North Korea) 2 .
• Market economies – where supply and demand guide production and pricing (e.g. the US) 3 .

• Mixed economies – combining market freedom with government intervention (e.g. France, China) 4 .

• Political Systems: This refers to how a country is governed. Two broad categories are:

• Democratic systems – characterized by rule of law and individual freedoms, with citizens electing
legislators to make laws 5 .

• Dictatorial/authoritarian systems – where power is concentrated, individual freedoms are subordinate

to state authority 5 .
An important principle in many states is the separation of powers, dividing governance among
branches to prevent concentration of authority. Typically: Legislature makes the laws, Executive
implements the laws, and Judiciary interprets the laws 6 . This ensures checks and balances in a
constitutional system.

• Legal Systems: The legal system is the mechanism for creating, interpreting, and enforcing laws in a
society 7 . Law itself is a body of rules intended to maintain order and justice. Globally, there are a
few predominant legal traditions 8 :

• Common Law: A system where courts develop law through judicial decisions (precedents).
Originating in England and followed in countries like the UK, USA, and many Commonwealth
nations, common law relies on the doctrine of stare decisis (binding precedent) 9 . Judges play a key
role, and case law accumulates alongside statutes.
• Civil Law: A system rooted in comprehensive statutes and codes (originating from Roman law).
Practiced in countries like France and Germany, civil law judges primarily apply detailed legal codes
rather than case precedents. The law is typically codified and updated by the legislature.

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 • Religious/Customary Law: In some jurisdictions, law is based on religious texts or traditional
customs. For example, Sharia law (Islamic law) applies in countries like Pakistan and Iran 10 ,
influencing business and financial laws (e.g. prohibiting usury). Many countries actually have a mix
of systems (e.g. a civil law core with aspects of religious law in personal matters).

Sources of Law: In any legal system, law can come from multiple sources: constitutions, statutes
(legislation), regulations, and case law (in common law systems) 11 12 . International commitments (like
treaties) can also form part of national law. For example, in the European Union, EU law supersedes
national law in covered areas 13 . Knowing the hierarchy of laws and how they are made is crucial.
Businesses must comply with the laws of each jurisdiction in which they operate, and be aware of whether
the system is driven by codified rules (civil law) or case precedents and legislation (common law).

2. International Trade, International Legal Regulation and Conflict of Laws

International business operates across multiple legal systems, making international trade regulation and
conflict of laws important considerations. As trade expands beyond borders, countries and international
organizations have developed frameworks to promote fair and predictable trading relationships.

• International Trade and Organizations: Global trade is governed by multilateral rules to ensure it
flows smoothly and predictably. The World Trade Organization (WTO), for instance, sets global
rules for trade between nations to encourage free trade and resolve trade disputes 14 15 . WTO
agreements (successor to GATT) commit member countries to principles like non-discrimination (the
most-favoured-nation principle) 16 and provide a forum for dispute settlement between states 17 .
Other bodies like the United Nations (UN) and its agencies contribute to international law – for
example, UNCITRAL (UN Commission on International Trade Law) drafts treaties and model laws to
harmonize commercial law (such as the CISG, discussed later). The International Chamber of
Commerce (ICC), though not an intergovernmental body, issues widely adopted rules (e.g.
Incoterms, arbitration rules) that facilitate international business. Regional organizations (e.g. the
EU, NAFTA/USMCA, ASEAN) also create trade agreements and legal standards within their regions.

• Need for International Legal Regulation: Because each nation has its own laws, international
agreements and model laws aim to bridge differences. They provide certainty by creating common
standards. For example, without a uniform law, a sales contract between a company in Country A
and Country B might face uncertainty about which country’s contract law applies. Instruments like
the UN Convention on Contracts for the International Sale of Goods (CISG) provide a neutral,
uniform set of rules for cross-border contracts, reducing the need to resort to national laws 18 19 .
This uniformity lowers transaction costs and legal risks in global commerce 20 18 . Likewise,
international regulations cover shipping standards, intellectual property, etc., to ensure smoother
transactions. International legal organizations also address issues like trade sanctions, anti-
corruption (e.g. OECD Anti-Bribery Convention), and cross-border investment protections.

• Conflict of Laws: Also known as private international law, conflict of laws deals with cases where
more than one country’s laws might apply. It provides rules to determine which jurisdiction’s law
governs a dispute and which country’s courts (or arbitral tribunal) should hear the case. For instance,
if a contract is made between parties in different countries, conflict of laws rules help decide which
law applies (especially if the contract lacks a choice-of-law clause). In general, most legal systems
allow parties to choose the governing law of a contract; if not chosen, default rules apply (such as

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 the Rome I Regulation in the EU which chooses the law with the closest connection, or common law
rules like the proper law doctrine). Conflict rules also address jurisdiction – which country’s courts
have authority. Often, commercial contracts include jurisdiction or arbitration clauses to pre-empt
these issues. If a case does proceed, a court might have to apply foreign law or decide if it has
jurisdiction at all. In short, conflict of laws is a specialized field resolving multi-jurisdictional cases
21 . Example: A dispute between a Canadian seller and a Chinese buyer might be heard in an

agreed forum (say, an arbitral tribunal in Singapore applying CISG), thus avoiding uncertainty;
without agreement, conflict rules would decide if Canadian or Chinese law/courts handle it.
Businesses engaged in international trade should therefore use clear contract clauses on governing
law and dispute resolution to mitigate conflict-of-law risks.

3. Alternative Dispute Resolution (ADR) Mechanisms

Disputes in business can be resolved through courts (litigation) or alternative dispute resolution
mechanisms. ADR refers to resolving disputes without court litigation, typically in a more private, flexible,
and often faster manner. Key forms of ADR include negotiation, mediation, and arbitration.

• Negotiation: The simplest form – parties communicate directly to reach a mutually acceptable
settlement. This non-formal method has no strict procedure; its success depends on the parties'
willingness to compromise. It preserves business relationships by avoiding adversarial proceedings,
but requires both sides to cooperate.

• Mediation: An independent third party (the mediator) assists the disputing parties in reaching a
voluntary agreement 22 . The mediator does not impose a decision but facilitates discussion,
helping clarify issues and find common ground. Mediation is confidential and can preserve goodwill.
For example, two companies in a contract dispute might use mediation to avoid public court battles
– the mediator might shuttle between them to craft a solution both accept. If successful, the
outcome is a settlement agreement. Mediation is non-binding until an agreement is reached, so
parties retain control throughout the process.

• Arbitration: A neutral third party (or panel of arbitrators) is appointed to hear the evidence and
render a decision (an arbitral award) that is usually binding on the parties 22 . Arbitration is
essentially a private court: parties often agree by contract to arbitrate any disputes (an arbitration
clause). It is common in international contracts because it offers neutrality (e.g. neither party has to
go to the other’s national courts) and expertise (parties can select arbitrators with relevant industry/
legal expertise). Crucially, arbitral awards are widely enforceable internationally under the New York
Convention 1958, which over 160 countries are party to. This means a winning party in an
arbitration can usually enforce the award in any member country’s courts, a huge advantage over
trying to enforce a court judgment abroad. Arbitration procedures are flexible – parties can choose
the governing rules (like ICC, LCIA, or UNCITRAL Arbitration Rules) and the seat (legal jurisdiction) of
arbitration, which will determine certain procedural laws. While arbitration mimics litigation (with
evidence and hearings), it is typically faster and private. However, it can be costly and generally has
limited appeal rights (awards are final except in exceptional circumstances).

• Other ADR Forms: These include conciliation (similar to mediation, though a conciliator may
propose a solution), early neutral evaluation, or industry-specific ombudsmen. In some disputes,
expert determination can be used (an expert decides a technical matter, which parties agree to

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 accept). For consumer disputes, many countries encourage low-cost mediation or ombudsman
schemes. There are also hybrid forms like “med-arb” (mediation followed by arbitration if needed).

Court Adjudication vs ADR: Court litigation is public and follows formal procedures, which can be slow and
expensive. ADR offers flexibility, privacy, and can be tailored to the dispute (for example, choosing an
arbitrator with technical knowledge in a construction dispute). Courts, however, may be necessary when
interim measures are needed (like injunctions) or when a party needs a public precedent. In international
context, arbitration is often favored because a court judgment from one country can be difficult to enforce
in another, whereas an arbitral award is enforceable globally by treaty 23 . Many international contracts
include arbitration clauses to avoid uncertainties of foreign courts. Ultimately, understanding these
mechanisms allows businesses to choose the most effective way to resolve disputes – sometimes
negotiation or mediation preserves a valuable commercial relationship, whereas other times a binding
decision via arbitration is needed for finality.

B. International Business Transactions

1. UN Convention on Contracts for the International Sale of Goods (CISG) and ICC
Incoterms

UN Convention on Contracts for the International Sale of Goods (CISG): The CISG is a major treaty that
governs international sales of goods, aiming to create a uniform and fair legal framework for cross-border
contracts. Adopted in 1980, it came into force in 1988 and has been ratified by numerous countries
(including most major trading nations, though notably not the UK as of this writing) 24 25 . The CISG
applies by default when a contract is for sale of goods between parties in different contracting states (or if
the rules of private international law lead to a contracting state’s law), unless the parties opt out 18 26 .
This avoids complex conflict-of-law issues by providing substantive rules for the contract 18 .

Key features and benefits of the CISG include:

• It covers contract formation (offer and acceptance rules) and the rights and obligations of buyers
and sellers 19 . It creates a balance between buyer and seller interests, with rules on delivery,
conformity of goods, payment, remedies for breach, etc.
• It excludes certain matters – for example, it does not govern the validity of the contract or property/
title passing in the goods 27 (those remain subject to national law), and it doesn’t apply to
consumer sales or sales of services.
• Under the CISG, a contract need not be in writing (it allows formation by conduct or other means),
although some countries declared a requirement of written form 28 .
• It provides uniform remedies: if one party breaches, the other party can require performance, claim
damages, or avoid (terminate) the contract if the breach is fundamental 29 . There are also
provisions on anticipatory breach, passing of risk, and exemptions (e.g. Article 79 CISG exempts
liability for certain impediments beyond control, analogous to force majeure) 30 . The goal is to
introduce certainty and reduce transaction costs in international trade by having a predictable set of
rules 20 19 .

Example: If a German seller and a Brazilian buyer conclude a contract without choosing any law, and both
Germany and Brazil are CISG parties, the CISG will automatically govern their contract. This means if the
seller delivers defective goods, the CISG dictates the buyer’s remedies (such as requiring substitute goods

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or claiming damages) instead of each side arguing over German or Brazilian law. This uniformity simplifies
disputes.

ICC Incoterms: Incoterms (short for International Commercial Terms) are standardized trade terms
published by the International Chamber of Commerce. First introduced in 1936, Incoterms define the
responsibilities of seller and buyer for delivery of goods in international (and domestic) contracts, and have
been periodically updated (the latest version is Incoterms 2020) 31 . They are not laws but are widely
incorporated into sales contracts to clarify who bears costs, risks, and obligations at various stages of the
shipping process 32 .

Key points about Incoterms:

• They delineate who is responsible for transportation, insurance, and customs clearance at
different points. For example, under FOB (Free on Board) the seller must load the goods on board a
vessel nominated by the buyer, and risk passes to the buyer once the goods are on board; under CIF
(Cost, Insurance & Freight), the seller must arrange and pay for carriage to the destination port
and provide insurance for the goods (up to the port of destination), while risk still passes when
goods are loaded on the ship 33 34 . Each Incoterm has precise definitions in the ICC rules to avoid
confusion.
• Incoterms are classified by mode of transport. Incoterms 2020 has 11 terms, split into two
categories 35 36 : (i) multimodal terms (usable for any transport mode, e.g. EXW, FCA, CPT, CIP, DAP,
DPU, DDP) and (ii) maritime-only terms (FOB, FAS, CFR, CIF – which assume delivery at a port) 37 .
The revision in 2020 introduced DPU (Delivered at Place Unloaded) replacing the old DAT, and
aligned insurance requirements for CIF and CIP 38 33 .
• Using an Incoterm in a contract (e.g. “CIF Shanghai Incoterms 2020”) clarifies obligations: who
arranges transport, who pays freight, who insures, who clears customs, and exactly when risk shifts
from seller to buyer 32 . This prevents misunderstandings that could otherwise lead to disputes. For
instance, EXW (Ex Works) places maximum obligation on the buyer (the buyer picks up goods at
seller’s premises and handles everything thereafter), whereas DDP (Delivered Duty Paid) places the
highest obligation on the seller (the seller delivers to the buyer’s country, bearing all costs and
import duties) 39 .
• It’s important to specify the Incoterms year version in the contract, as terms are updated over time
31 . For exam purposes, assume Incoterms 2020 apply unless stated otherwise. These terms greatly

assist in international business by providing a common language of trade – every party knows their
duties and risk points, which is crucial in logistics and pricing.

In summary, CISG and Incoterms are fundamental in international transactions: CISG harmonizes the legal
rules for contracts, and Incoterms harmonize the commercial terms of trade. Together, they reduce
uncertainty – the CISG tells you what happens if something goes wrong in the contract, and Incoterms
tell you who does what in shipping the goods.

2. Obligations of the Seller and Buyer, and Provisions Common to Both (International
Sales)

In an international sale of goods, whether under the CISG or general principles, the seller and buyer each
have core obligations. Many of these are mirrored in the CISG’s provisions, which we will use as a

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framework. We will also cover the common provisions that apply to both parties, especially remedies and
risk allocation.

Seller’s Obligations: The seller’s primary duty is to deliver conforming goods as promised. Under Article 30
of CISG, the seller must deliver the goods of the quantity, quality, and description required by the
contract, and hand over any required documents, and transfer the property in the goods 19 . Key aspects
include:

• Delivery of Goods: The seller must deliver the goods at the agreed time and place. If the contract
specifies a date or period, delivery must occur then; if not, within a reasonable time. Any agreed
trade term (Incoterm) will detail the delivery point. For example, under FOB the seller delivers once
goods are loaded on the ship at the port; under CIF, delivery includes arranging carriage to
destination. Failure to deliver on time or at all is a breach.
• Conformity of Goods: The goods must conform to the contract specifications (quality, type,
packaging). CISG Article 35 elaborates that goods must be fit for their ordinary use, fit for any
particular purpose expressly or impliedly made known to the seller, and match any sample or model
shown 40 . If goods are non-conforming (e.g. defective or different goods delivered), the seller is in
breach. The buyer may then seek remedies (discussed below). The seller is generally liable for any
lack of conformity that exists at the time risk passes to the buyer (even if it becomes apparent later).
• Title and Documents: The seller must provide a good title (ownership free of third-party claims) and
usually deliver documents related to goods (such as bill of lading, insurance policy, or certificates) as
required by the contract. For instance, in a CIF sale, the seller must hand over the bill of lading,
insurance certificate, and invoice to the buyer, enabling the buyer to take delivery from the carrier.
• Packaging: If not specified, packaging must be sufficient to preserve and protect the goods for
transport. Poor packaging that leads to damage can amount to breach by the seller.

Buyer’s Obligations: The buyer’s main duties are to pay the price for the goods and take delivery as
agreed 19 . Specifically:

• Payment of Price: The buyer must pay the amount and currency stipulated by the contract. CISG
Article 54 clarifies this includes taking necessary steps to effect payment (such as securing an import
license or complying with currency exchange formalities) 41 . If no price is fixed, CISG provides that
the price is the one generally charged for such goods at the time of contract conclusion (or a
reasonable price). Payment is due at the time and place specified (often exchange of goods for
payment). If the contract or applicable term is silent on place of payment, the default under CISG is
that the buyer pays at the seller’s place of business (or if payment is against handing over goods,
then at that place) 42 . Failure to pay the full price on time is a breach by the buyer.
• Taking Delivery: The buyer is obligated to take delivery of the goods. That means doing all acts
reasonably expected to enable the seller to make delivery (e.g. providing shipping instructions or
picking up goods) and actually accepting the goods. For example, if the contract is CIF, the buyer
must accept the documents and arrange to receive the goods at the port of arrival. Refusal to take
delivery without valid reason can itself be a breach.
• Inspection and Notice of Non-Conformity: Under CISG, once goods are delivered, the buyer must
inspect them within as short a period as practicable in the circumstances (Article 38) 43 . If the goods
are non-conforming, the buyer must give notice to the seller specifying the nature of the lack of
conformity within a reasonable time (Article 39). If the buyer fails to notify, they lose the right to rely
on that non-conformity later. This obligation ensures issues are raised promptly.

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Provisions Common to Both Parties (Remedies and Other Aspects): International sales laws provide a
set of common rules for breach of contract and remedies, applicable to either party when the other fails
to perform. Under the CISG (Part III):

• Breach of Contract: A failure by one party to perform any of its obligations is a breach. The CISG
distinguishes a fundamental breach – one that substantially deprives the other party of what they
were entitled to expect under the contract. A fundamental breach allows the innocent party to avoid
the contract (terminate). Lesser breaches may allow other remedies but not avoidance unless not
cured. There is also the concept of anticipatory breach (Article 71), where if it becomes clear one
party will not perform a substantial part of their obligations (e.g. buyer will be unable to pay, or
seller will miss delivery), the other may suspend performance or declare the contract avoided before
the actual breach occurs 44 .

• Remedies for Seller’s Breach: If the seller breaches (e.g. late delivery or delivery of non-conforming
goods), the buyer’s remedies include:

• Right to performance: The buyer can require the seller to fulfill their obligations (e.g. deliver missing
goods or replacement for non-conforming goods), provided this is not unreasonable. CISG allows
requiring cure of defects if feasible.
• Price reduction: If some goods are non-conforming, the buyer can keep them but ask for a
proportionate reduction in price.
• Damages: The buyer can claim damages for any loss suffered due to the breach, including
consequential loss, measured by the loss in value or cost of cover purchase, etc., subject to
foreseeability (Article 74).
• Avoidance (Termination): For a fundamental breach, the buyer can declare the contract avoided. This
releases both parties from their obligations, and usually the buyer must return any goods received
and the seller returns the price. For example, if a machine delivered is so defective that it cannot be
used for its essential purpose, that likely is fundamental, allowing avoidance.

• Specific examples: If delivery is late and time was of the essence, buyer might avoid and buy
elsewhere. If goods are slightly non-conforming, perhaps claim damages or price reduction rather
than avoid. The CISG tries to keep contracts in force if possible, so avoidance is reserved for serious
breaches.

• Remedies for Buyer’s Breach: If the buyer breaches (e.g. fails to pay or take delivery), the seller’s
remedies mirror the above:

• Right to require payment or taking delivery: Seller can insist the buyer pays the price or takes delivery
(unless the seller has resorted to an inconsistent remedy like avoidance).
• Additional time (“Nachfrist”): CISG lets a seller grant a short extension for the buyer to perform (e.g.
an extra week to pay). If the buyer still fails, that can be treated as fundamental breach.
• Damages: Seller can claim damages for losses (e.g. if buyer refuses goods, the seller may resell them
at a lower price and claim the difference as damages, plus any extra costs).
• Avoidance: If the breach is fundamental (e.g. buyer absolutely refuses to pay), the seller may avoid
the contract. Then the seller doesn’t have to deliver, and can reclaim goods if delivered, while
claiming damages. There is also a right to avoid if the buyer doesn’t pay within the Nachfrist period.

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 • Resale: If goods are not accepted, the seller can resell them in a reasonable manner and recover any
loss from the original buyer.

• Common Issues – Interest and Exemptions: If a party fails to pay money when due, the other party
is entitled to interest on the amount in arrears (CISG Article 78) 45 . The rate is not fixed by CISG, so
often determined by applicable law or average bank rates. There is also a concept of exemption
(Article 79) – a party is not liable for failure to perform if it was due to an impediment beyond their
control that they could not reasonably have foreseen or overcome (akin to force majeure). This
applies to both seller and buyer. For example, if an export ban suddenly prohibits the seller from
shipping goods, the seller might be exempt from damages for non-delivery, provided they promptly
notify the buyer of the impediment.

• Passing of Risk: An important aspect in sales is when the risk of loss or damage to goods passes
from seller to buyer. CISG’s default rules (Articles 66–70) are often overridden by Incoterms.
Generally, if the contract involves carriage: risk passes when goods are handed over to the first
carrier (unless the circumstances indicate otherwise) – this aligns with terms like FOB (risk at loading)
or CIF (risk at shipment). If the buyer is required to take goods at seller’s place (no carriage), risk
passes when delivery is due and goods are placed at buyer’s disposal. A notable rule: if the seller
knew the goods were lost or damaged at the time of contracting and didn’t inform the buyer, the risk
remains with the seller 46 . In practice, specifying an Incoterm clarifies the risk point.

• Avoidance Effects & Preservation of Goods: When a contract is avoided, both sides must return
what they received (restitution). CISG also requires that if goods are delivered and a party intends to
reject or return them, that party must preserve the goods with reasonable care 46 . For instance, if
a buyer is rejecting defective goods, they should store them properly on the seller’s behalf for a time.
The party is entitled to reimbursement for reasonable preservation expenses. There are even
provisions allowing a party in possession of the other’s goods to sell them in certain conditions to
mitigate loss, if storage is unreasonable (Article 88).

Case examples: If a buyer in an international deal fails to open a promised letter of credit, the seller can treat
that as a fundamental breach (since payment mechanism failed) and avoid the contract, possibly reselling
the goods. Or if a seller ships goods that are non-conforming, the buyer might first request the seller to
cure (e.g. send replacement parts) if time allows; if not cured, and the non-conformity is fundamental, the
buyer can avoid and claim damages. The CISG’s remedy system (or similar principles in other laws) attempts
to put the innocent party in the position they would have been if the contract was properly performed,
while also giving chances to mitigate issues (such as allowing the breaching party to cure minor breaches).

In summary, the seller must deliver conforming goods and documents, and the buyer must pay the
price and accept the goods 19 . If either fails, the other has an arsenal of remedies: damages, specific
performance, and contract avoidance in serious cases 29 . Both parties must act in good faith, and even in
breach situations must take reasonable steps (like preserving goods or mitigating losses). These rules,
especially under the CISG, create a balanced structure that is fair to both exporters and importers in
international trade.

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C. Transportation and Payment in International Business
Transactions

1. Transportation Documents and Means of Payment

Moving goods and getting paid are core concerns in international business transactions. There are
specialized documents used for transport and established mechanisms for payment to manage the risks of
cross-border deals. Below, we discuss key transportation documents and payment methods commonly
encountered:

• Bill of Lading (B/L): This is the most important shipping document in sea transport. A bill of lading
is issued by a carrier to a shipper, acknowledging that specified goods have been received on board
for shipment to a named destination 47 . It serves a three-fold function: (a) it is a receipt for the
goods shipped, (b) it is evidence of the contract of carriage between the carrier and shipper, and (c) it is
a document of title to the goods 48 . That last role is crucial in trade finance – the bill of lading can be
negotiated (transferred by endorsement to new holders), which allows trade while goods are in
transit. The holder of an original B/L can claim the goods from the carrier at the destination. Bills of
lading can be negotiable (consigned “to order”) or non-negotiable (straight consigned to a named
party). A negotiable B/L allows the seller to endorse it to, say, a bank in exchange for payment, and
the bank can later transfer it to the buyer. In contrast, a non-negotiable B/L (often called a sea
waybill if straight) means only the named consignee can claim the goods 49 50 . The exam may test
the functions: for example, knowing that only a negotiable B/L gives title to goods (ownership
rights) while a straight B/L or air waybill does not, though both act as receipt and contract evidence.
There are also types of B/Ls: inland B/L (for domestic leg of transport), ocean B/L (for sea voyage) and
through B/L (covering multi-modal transport) 51 . Air Waybill (AWB) is the equivalent document for
air freight; it is generally non-negotiable (goods go to the named consignee) 52 .

Example: A UK exporter selling to a buyer in China (CIF Shanghai) will receive a B/L from the shipping line
when the goods are loaded. The B/L will be made out to the exporter’s order. The exporter then endorses
the B/L to its bank in exchange for the payment (under a letter of credit, perhaps). The bank in turn passes
it to the buyer (or buyer’s bank) when the buyer pays. The buyer needs the original B/L to claim the goods
at Shanghai port. If it’s a negotiable B/L, possession of it essentially equates to ownership of the cargo 53 .
If instead an air shipment was used, the air waybill would name the buyer directly and the buyer can claim
goods by showing identification, without a negotiable instrument.

• International Bank Transfers: The simplest payment method is a direct bank-to-bank transfer, also
known as a wire transfer or telegraphic transfer (T/T). The buyer instructs their bank to send a
payment to the seller’s bank account in another country 54 . This is typically done electronically via
networks like SWIFT. SWIFT transfers are common for open-account trade where the buyer pays
upon invoice. Bank transfers rely on trust – the seller ships goods hoping the buyer will pay (or the
buyer pays hoping the seller will ship). They are cheap and quick, but they expose one party to risk
(either payment risk for the seller if paid after shipment, or performance risk for the buyer if paid in
advance). Many international deals use a compromise: a deposit upfront by transfer and the rest
after delivery, to share risk. Because of potential complications, UNCITRAL created a Model Law on
International Credit Transfers to provide consistent rules on electronic funds transfers between
countries 55 56 . This model law (if adopted in a country) defines roles like originator (payer),
originator’s bank, intermediary bank, and beneficiary’s bank, and outlines their obligations 57 58 . For

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 example, once a bank accepts a payment order, it must execute it within a set time or be liable 59 . It
also allocates responsibility for unauthorized or erroneous payments, generally placing risk on
banks if they failed to use proper security procedures 60 61 . While details of the Model Law are
beyond the exam’s scope, it’s important to know it exists as a framework to make international
transfers safer and more predictable.

• Bills of Exchange and Promissory Notes: These are traditional negotiable instruments used for
international payment. A bill of exchange is essentially a written order by one party (the drawer)
directing another party (the drawee, usually a buyer or buyer’s bank) to pay a certain sum to the
order of a third party (the payee, often the seller) at a fixed or determinable future time 62 . It’s
comparable to a post-dated check. In trade, a seller might draw a bill of exchange on the buyer for
the invoice amount, often payable say 60 days after shipment. If the buyer “accepts” the bill (signs it),
it becomes a binding promise to pay on the due date – at that point the bill of exchange is also called
an accepted draft or trade acceptance 63 . The seller can hold it to maturity or even discount it
with a bank for early payment. A promissory note is similar but slightly different – it’s a written
promise by the buyer (maker) to pay the seller (payee) a certain sum at a future date. Both are
governed in many countries by statutes (like Bills of Exchange Acts or equivalents). There was an
attempt to harmonize these via the UN Convention on International Bills of Exchange and
International Promissory Notes 1988. This convention (not widely adopted yet) provides uniform
rules for form and enforcement of these instruments. It requires, for instance, that an international
bill of exchange contain an unconditional order to pay a definite sum and be signed by the drawer
62 . It also covers endorsements (signing over to others), guarantees on instruments, presentment

and dishonor, etc. For example, an endorsed bill can be transferred multiple times, and the
convention specifies that an endorsement must be written on the instrument and is unconditional
64 . If a bill is not paid (dishonored), formal protest may be required to hold endorsers liable 65 .

While technical, the key point is that bills of exchange allow sellers to extend credit to buyers with a
secure instrument that can be traded or banked. For ACCA LW, remember: a bill of exchange = a
written payment order (drawer -> drawee -> payee) that can circulate; a promissory note = a
payment promise by the debtor. These instruments facilitate trade by bridging timing gaps in
payment.

• Letters of Credit (L/C): A letter of credit is a widely used payment mechanism in international
trade which offers security to both seller and buyer. In an L/C arrangement, a bank (usually the
buyer’s bank, called the issuing bank) guarantees payment to the seller (beneficiary) on the
condition that the seller presents documents that strictly comply with the L/C terms 66 . For
example, a buyer in Country X arranges an L/C through their bank in favor of the seller in Country Y.
The L/C will specify documents (like a clean bill of lading, commercial invoice, packing list, maybe
inspection certificate) that the seller must present by a deadline. If the documents match the
requirements, the bank will pay the seller the agreed amount. This mechanism shifts the credit risk
from the buyer to the bank – the seller trusts the bank’s guarantee rather than the buyer’s ability to
pay. Letters of credit are governed by international rules, notably the UCP 600 (Uniform Customs
and Practice for Documentary Credits) published by the ICC, which standardize L/C practice
worldwide. Key points include the autonomy principle: the L/C is separate from the underlying
contract – the bank only deals in documents, not goods, and must pay if documents are in order,
regardless of any disputes between buyer and seller about the goods. There are types of L/Cs:

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 • Irrevocable L/C: cannot be unilaterally amended or canceled by the buyer or issuing bank without the
consent of all parties (this is the standard now; revocable L/Cs are now rare and generally not used
because they offer less security to sellers) 67 .
• Confirmed L/C: a second bank (often seller’s local bank) adds its confirmation, i.e. its guarantee of
payment. Sellers often ask for this if the issuing bank or buyer’s country is less trusted – the
confirming bank then takes on the risk.
• Sight vs. Term L/C: Sight means the bank pays immediately upon presentation (sight draft), whereas
term or usance L/C means the bank will pay at a future date (e.g. 60 days after shipment), essentially
financing the buyer for that period.
• Standby L/C: more like a guarantee – it’s only drawn upon if the buyer fails to pay otherwise.

Using an L/C significantly reduces non-payment risk for the seller and gives the buyer assurance that
payment will only be made if proper shipment is made (as evidenced by documents). However, buyers must
ensure the L/C terms are achievable (or they risk not having documents honored and still being liable to
pay). For exam purposes, remember that a letter of credit is an undertaking by a bank to pay a
beneficiary against specified documents within a stated time 66 . It is separate from the sales contract,
and banks pay against documents, not goods.

• Letters of Comfort: A letter of comfort is not a payment mechanism per se, but rather a support
document often seen in financing arrangements. It is typically a letter issued by a third party (often a
parent company of the buyer, or a government in some cases) to the seller or to a lending bank,
expressing support for a transaction or for the buyer’s obligations. Unlike a guarantee, a letter
of comfort is usually worded to avoid creating a legally enforceable promise 68 . It might say, for
example, “We are aware of our subsidiary’s contract and will ensure it has sufficient funds to meet its
commitments,” without explicitly promising to pay if the subsidiary defaults. The purpose is to
“comfort” the creditor that the parent will stand behind the subsidiary, but without the formal
liability of a guarantee. In the famous case Kleinwort Benson v. Malaysian Mining Corp (1989), the court
held that a letter of comfort stating the parent’s policy was to ensure the subsidiary could meet its
debts was not a binding guarantee – it was merely a statement of present intention and moral
responsibility 68 . Thus, generally, letters of comfort carry only moral or reputational weight,
not legal obligation 68 . They are used when a guarantor is unwilling or unable to give a formal
guarantee (perhaps to avoid balance sheet liabilities or regulatory issues). From a risk perspective, a
seller should not rely on a letter of comfort as security – it’s better than nothing, but not enforceable
if the promise is broken. However, a strongly worded letter of comfort may sometimes be
interpreted as a guarantee if it crosses the line into firm assurance, so drafting is key. For ACCA
exam, just know that a letter of comfort is “comforting” but not legally binding, unlike a guarantee
which is enforceable.

In international trade, these documents and payment methods work together to facilitate smooth
transactions. For example, a typical secure transaction might be: Buyer arranges a letter of credit; Seller
ships goods and obtains a bill of lading; Seller presents the B/L and other documents under the L/C to the
bank; The bank pays the seller (honoring the L/C); The buyer reimburses the bank and uses the B/L to get
the goods from the carrier. Alternatively, parties with high trust might simply ship on open account and pay
via bank transfer each month. Meanwhile, if a parent company is involved, they might provide a letter of
comfort to assure the seller. Understanding the function of each document – B/L for title, L/C for
guaranteed payment, etc. – is crucial for managing international business risks. Always ensure the correct
documents are in place: a missing or incorrect bill of lading or an expired letter of credit can mean no goods
or no payment despite a perfectly good sales contract. These mechanisms thus form the backbone of

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international trade logistics and finance, ensuring goods get delivered and payments are made with
confidence.

Exam Tip: Be prepared to define each of these terms and explain their purpose. For example, a question
might ask: "What is a bill of lading and why is it important in international sales?"; or "Explain how a letter of
credit operates and identify its advantages in export transactions." Use the defining features as outlined
above in your answers, and provide a brief example if possible for clarity. Always relate the concept back to
risk allocation – international trade is all about allocating risk of loss, damage, or non-payment to the party
best able to bear it or control it. Each document or term shifts or clarifies risk (Incoterms shift transport risk;
B/Ls control title and possession risk; L/C shifts credit risk to banks; etc.). Understanding that will help you
tackle scenario questions in the LW (GLO) exam confidently.

1 8 10 kaplanpublishing.co.uk
https://kaplanpublishing.co.uk/docs/librariesprovider3/look-inside/acca/applied-skills/corporate-and-business-law-global/look-
inside-pocket-notes-acca-corporate-and-business-law-global.pdf?sfvrsn=77737e01_2

2 3 4 5 6 7 9 11 12 13 14 15 16 17 21 23 39 40 42 43 44 45 46 47 48 49 50 51 52 53

54 55 56 57 58 59 60 61 62 63 64 65 66 67 (PDF) ACCA -LW CORPORATE AND BUSINESS LAW Study

Notes
https://www.academia.edu/41328976/ACCA_LW_CORPORATE_AND_BUSINESS_LAW_Study_Notes

18 19 20 24 25 26 27 United Nations Convention on Contracts for the International Sale of

28 29 30

Goods (Vienna, 1980) (CISG) | United Nations Commission On International Trade Law
https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg

22 Alternative dispute resolution – a refresher | ACCA Global

https://www.accaglobal.com/gb/en/technical-activities/technical-resources-search/2019/july/alternative-dispute-resolution-
refresher.html

31 32 33 34 35 36 37 38 International Commercial Terms | ACCA Global

https://www.accaglobal.com/us/en/student/exam-support-resources/fundamentals-exams-study-resources/f4/technical-articles/
icc-introduces-new-international-commercial-terms.html

41 Rights and Obligations of the Seller and Buyer | LawTeacher.net

https://www.lawteacher.net/free-law-essays/commercial-law/rights-and-obligations-law-essays.php

68 Kleinwort Benson Limited v. Malaysian Mining Corporation Berhad-A Comparative Note on Comfort
Letters - McGill Law Journal
https://lawjournal.mcgill.ca/article/kleinwort-benson-limited-v-malaysian-mining-corporation-berhad-a-comparative-note-on-
comfort-letters/

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