TRADE SERVICES UPDATETRADE SERVICES UPDATE In This Issue: Features Comments, reflections and sources (pg. 3) Coronavirus, Force Majeure and L/Cs (13 March 2020) By Xavier Fornt (pg.

TRADE SERVICES UPDATE In This Issue:

Features

Comments, reflections and sources (pg. 3) Coronavirus, Force Majeure and L/Cs (13 March 2020) By Xavier Fornt (pg. 6) Trade Finance and the corona-virus (30 January 2020) By Kim Sindberg (pg. 7) Force Majeure or not Force Majeure (that’s the question) (5 February 2020) By Kim Sindberg (pg. 9) Rules & Practices By David Meynell (pg. 10) Standbys Are Of a Different Nature Than Documentary Credits By Xavier Fornt (pg. 14)

Force Majeure rules REVISITED

ICC Rules on Force Majeure (pg. 15)

Discussion Corner

Coronavirus

(pg. 23)

News

News from the Trade World

(pg. 30)

Dear reader!

While writing this, I am in a country that has practically closed down. All Danes are “called home” from abroad; people are urged no to leave the country (and their homes for that mat-ter) – and no one can enter the country without proper cause!

Banks all over the world have activated their contingency plans. Have split their departments

to different locations – and employees are asked to work from home.

In other words: Since the latest LCM Newsletter the world has changed com-pletely. This due to the tragic outbreak of respiratory illness caused by a new coronavirus first identified in Wuhan in the Hubei Province in China – but which has spread to many other – if not all – countries.

We have decided to push the publication of the LCM Newsletter. This for the purpose of offering as much help and guidance to the Trade Finance industry as possible. Especially I would recommend the country editors discussion. There are so many good comments and angles found there. For the Corona related articles, we have tried to label those with the date of writing the arti-cle. The reason for that is of course that we seem to be building the road as we drive! Let’s hope that – we mutual help – the road will end at a good place.

In any case, we hope you will find it valuable.

My thoughts and prayers go out to you. I hope we will all make it well through this extraordinary situation.

Kind regards,

Kim Sindberg Editor in Chief Trade Services Update [email protected]

Ps. We also squeezed in room for two non-corona related articles.

Covering practical aspects of payment instructions in international trade

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Volume 22, Issue 1, January- March 2020

Editors

Trade Services Update is published quarterly by

GlobalTrade Corporation. Views expressed herein are solely

the views of the authors of each article and do not necessarily

reflect the official positions of their employers or organizations

with which they are associated. This publication is designed

to provide accurate and authoritative information with regard

2

URL: www.tradeservicesupdate.com Email: [email protected] Tel: +1 416-661-8520

Editor in Chief: Kim Sindberg Assistant Editor: Zahoor N. Dattu Executive Editors: Jacob Katsman & Nick Pachnev

Legal Editors: Robert M. Parson, Partner Reed Smith LLP, U.K. Robert M. Rosenblith, Attorney at Law, U.S.A. George F. Chandler III, Hill Rivkins & Hayden, U.S.A. Saibo JIN, Beijing Commerce & Finance Law Offices, China.

Contributing Editors: Heinz Hertl, LC Trainer, Austria Christopher Gregory, BBK, Bahrain ATM Nesarul Hoque, Mutual Trust Bank Ltd., Bangladesh T.O. Lee, T.O. Lee Consultants Ltd., Canada Olga Schwarzkopf, GlobalTrade Corporation, Canada Mitesh Patel, GlobalTrade Corporation, Canada Wang Xuehui (Ofei), Anhui Agricultural University, China Radek Dobáš, Česká spořitelna, Czech Republic Ken Nyberg, SEB Merchant Banking, Finland Giuseppe Ricchiuti, Sidel Blowing & Services SAS, France David Meynell, Germany CS Vijaya Kumar, RBS Services LTD, India Mohammad Sohail Hussain, Abu Dhabi Islamic Bank, Pakistan Muhammad Jawad Iqbal Khan, Bank Alfalah Limited, Pakistan Jee Meng Chen, Ernst & Young, Singapore Andreu Vilà, Banco Sabadell, Spain Ingrid Fornt Sesmilo, CaixaBank - LA CAIXA, Spain Mohammed Ahmad Naheem, Seven Foundation, Switzerland Alan C.Y. Liu, EnTie Commercial Bank, Taiwan Hasan Apaydin, HSBC, Turkey Ron Wells, BarrettWells Credit Research, U.K. Muhammad Yaseen, Abu Dhabi Islamic Bank, United Arab Emirates Danielle Austin, LC Advisor, U.S.A. Peter Deisenbeck, UniCreditBank AG, USA Wu Yihai, AHCOF Holdings Co., Ltd. Muhammad Khalilullah, Habib Bank Ltd.

About Trade Services Update

TSU Country Editors: Australia and New Zealand, Hari Janakiraman, Australia and New Zealand Banking Group Ltd Austria, Karl Mayrl, ERSTE BANK Bahrain, Pradeep Taneja, ICC Bahrain Trade Fi-nance Forum Bangladesh, Shahriar Masum, The City Bank Ltd Belgium, Emile Rummens, Senior Risk Manager, KBC Bank NV Canada, Vincent Barboza, RBC Financial Group Chile, Rodolfo Guzmán Bastidas, China, Sheilar Shaffer(Shi Xiaoling), Agricultural Bank of China Czech Republic, Pavel Andrle, Banking Commis-sion of ICC Denmark, Jakob Ingerslev, Nykredit Bank Estonia, Piret Veeorg, Swedbank AS India, Rupnarayan Bose, Director of the Institute of Bank Studies (I) Indonesia, Saul Daniel Rumeser Iran, Hamid Farrokhi , Bank Tejarat Iraq, Prasad Gadwal, Trade Bank of Iraq Ireland, Vincent O'Brien, The electronic Business School International Israel, Sarah Younger, Bank Leumi Le- Israel B.M. Latvia, Inna Smaļe, AS DnB NORD Banka Lebanon, Joseph Rizk, SGBL Malaysia, Tang Seng Fatt, EON Bank Berhad Netherlands, Johan Bergamin, ING Bank Nigeria, Hedgar Ajakaiye, Zenith Bank Group Pakistan, Ahmir Mansoor, MCB Bank Ltd. Romania, Bogdan Ilie, UniCredit Bank S.A. Saudi Arabia, Abdulkader A. Bazara, Samba Finan-cial Group Singapore, Soh Chee Seng, DCTrade Consultants South Korea, Chang-Soon Thomas Song, Korea Exchange Bank Spain, Xavier Fornt, Professor at High School for International Trade Sweden, Fredrik Lundberg, Business School in Stockholm Switzerland, Daniel Devahive, Turkey, Ali Polat, Turkiye Finans Katilim Bankasi Ukraine, Lyudmyla Yeremenko, Public JSC Kredit-prombank, Kiev United Kingdom, Abrar Ahmed, Ghana International Bank PLC U.A.E., Laxmanan Sankaran, Commercial Bank of Dubai U.S.A., Glenn D Ransier, American Express Bank Vietnam, Nguyen Huu Duc, Vietcombank Danang Design & Layout: Mitesh Patel Copy Editor: Jens Hammer

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Comments, reflections and sources The below aims to capture some of the comments, reflections and sources relevant in the coronavirus situation.

Other articles relevant to the situation: UNCTAD: Global trade impact of the Coronavirus (COVID-19) Epidemic https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdf Financial Times: Coronavirus trade disruption could start a ‘dash for cash’ https://www.ft.com/content/28df6fe4-6467-11ea-b3f3-fe4680ea68b5 CNN Business: Global shipping has been hit by the coronavirus. Now goods are getting stranded https://edition.cnn.com/2020/02/05/business/shipping-coronavirus-impact/index.html NBC News: Coronavirus has potential to shake up China trade more than tariffs https://www.nbcnews.com/business/economy/coronavirus-has-potential-shake-china-trade-more-tariffs-n1150571 CNBC: China invokes ‘force majeure’ to protect businesses — but the companies may be in for a ‘rude awaken-ing’ https://www.cnbc.com/2020/03/06/coronavirus-impact-china-invokes-force-majeure-to-protect-businesses.html Arnold & Porter: What to Do When You Receive a Coronavirus-Related Force Majeure Notice https://www.arnoldporter.com/en/perspectives/publications/2020/03/what-to-do-when-you-receive-a-coronavirus Baker McKenzie: Coronavirus Outbreak: Global Guide to Force Majeure and International Commercial Contracts https://www.bakermckenzie.com/en/insight/publications/2020/03/coronavirus-outbreak-global-guide Lexology: Coronavirus and business and trade disruption: a force majeure event? https://www.lexology.com/library/detail.aspx?g=8261ec10-c96f-4ec7-92dd-4732d67830b3 Osler: Is coronavirus a force majeure event under your project contract? https://www.osler.com/en/resources/transactions/2020/is-coronavirus-a-force-majeure-event-under-your-project-contract ChiefExecutive: Force Majeure In The Time Of Coronavirus https://chiefexecutive.net/force-majeure-in-the-time-of-coronavirus/ JDSUPRA: New Coronavirus and force majeure clauses https://www.jdsupra.com/legalnews/new-coronavirus-and-force-majeure-54647/ Bird&Bird: Coronavirus (COVID-19) and Force Majeure Clauses https://www.twobirds.com/en/news/articles/2020/global/coronavirus-and-force-majeure-clauses SeafoofSource: Coronavirus may trigger force majeure issues for seafood companies trading in China https://www.seafoodsource.com/news/premium/business-finance/coronavirus-may-trigger-force-majeure-issues-for-seafood-companies-trading-in-china

https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdfhttps://www.ft.com/content/28df6fe4-6467-11ea-b3f3-fe4680ea68b5https://edition.cnn.com/2020/02/05/business/shipping-coronavirus-impact/index.htmlhttps://www.nbcnews.com/business/economy/coronavirus-has-potential-shake-china-trade-more-tariffs-n1150571https://www.nbcnews.com/business/economy/coronavirus-has-potential-shake-china-trade-more-tariffs-n1150571https://www.cnbc.com/2020/03/06/coronavirus-impact-china-invokes-force-majeure-to-protect-businesses.htmlhttps://www.arnoldporter.com/en/perspectives/publications/2020/03/what-to-do-when-you-receive-a-coronavirushttps://www.bakermckenzie.com/en/insight/publications/2020/03/coronavirus-outbreak-global-guidehttps://www.lexology.com/library/detail.aspx?g=8261ec10-c96f-4ec7-92dd-4732d67830b3https://www.osler.com/en/resources/transactions/2020/is-coronavirus-a-force-majeure-event-under-your-project-contracthttps://www.osler.com/en/resources/transactions/2020/is-coronavirus-a-force-majeure-event-under-your-project-contracthttps://chiefexecutive.net/force-majeure-in-the-time-of-coronavirus/https://www.jdsupra.com/legalnews/new-coronavirus-and-force-majeure-54647/https://www.twobirds.com/en/news/articles/2020/global/coronavirus-and-force-majeure-clauseshttps://www.seafoodsource.com/news/premium/business-finance/coronavirus-may-trigger-force-majeure-issues-for-seafood-companies-trading-in-chinahttps://www.seafoodsource.com/news/premium/business-finance/coronavirus-may-trigger-force-majeure-issues-for-seafood-companies-trading-in-china

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Comment from Nesarul Hoque

Leaving aside the technical ICC rules application in general, Commercial Letters of Credit operations under UCP

600 in particular, there is another situation prevails in our country. Although I personally think, you will also face simi-

lar situation, particularly when you are the issuing bank:

The goods have already been arrived at destination port.

Reasonably, no documents arrive.

The applicant approaches the issuing bank for issuance of shipping guarantee.

When the applicant approaches the shipping line with the shipping guarantee for releasing the goods, the appli-

cant has come to know that the beneficiary has already made holding instruction to the shipping line.

In some occasion, the beneficiary removes the holding instruction, after getting confirmation from the issuing bank

regarding payment. However, in most of cases, this will not sufficient to the beneficiary.

Moreover, the consignee on bill of lading are the issuing bank [as per LC stipulation]. Therefore, the issuing bank or

the applicant may face huge demurrage both for the shipping line and port authority.

Comment from Emile Rummens

2 possible practical suggestions concerning the problems in delivering the original documents under L/C’s (if couri-

ers cannot deliver at the required address, or if the production / submission of the original documents is delayed or

impossible due to corona):

For L/C’s between parties which know each other to some extent and where the buyer urgently needs his goods

there a balanced alternative for the original docs as required under the L/C: parties can agree that the bene

sends a scan of all required docs to the buyer, which checks them ( in cooperation with the bank or not, de-

pending on the case). If OK the importer can pay them by clean wire transfer outside the L/C, or can instruct

his issuing bank to accept scans instead of originals to the applicant, on condition the supplier will instruct the

carrier to release the goods to the applicant without the need to present an original B/L.

This technique is not without risk but it’s acceptable in case of urgency and if all parties involved are acting in

good faith

Issuing banks should be more flexible to agree with requests from their applicant (but in reality coming from the

bene) to amend their L/C by inserting a clause that scanned docs are also acceptable instead of originals if

accompanied by a declaration from the bene that he’ll send the originals outside the L/C to the applicant. We

banks are by routine always insisting on original documents while in ¾ of all L/C’s we don’t really need them.

Depending on the case let our routine not hamper genuine business between normal business parties…

FYI

Major law firms are publishing guidelines on the impact of corona virus. Googling learns a lot!

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Issues to consider:

All products:

Have an ongoing dialogue with your counterpart to carefully discuss how to best solve this unfortunate situation.

Guarantees:

1: Consider the required content and form of the demand. If there is, or may be, a problem in presenting the de-mand within expiry, check if it is possible to amend the guarantee so that it is possible to make an electronic de-mand and/or

2: Consider if it is possible to extend the validity of the guarantee.

Documentary Credits

1: Before goods are shipped – connect with the buyer and carrier to ensure that it is possible to deliver the goods.

2: The beneficiary should check carefully the L/C availability; and avoid having export Ls/C that expire in China.

3: The beneficiary should ensure that documents comply with the Documentary Credit.

4: For the L/C applicant bear in mind that a complying presentation will obligate the issuing bank, regardless of the fate of the goods.

Documentary Collections

1: Before shipping the goods - connect with the buyer and carrier to ensure that it is possible to deliver the goods.

2: Consider if it is possible to get the documents to the collecting bank.

3: Consider if it is possible to use an “alternative” collecting bank (e.g. the head office of the buyer’s bank).

4: Consider if payment is to be made considering the fate of the goods.

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In the 1983 revision known as UCP 400 article 19 ad-dress the issue but in a slightly refrased manner, i.e.:

“Banks assume no liability or responsibility for conse-quences arising out of the interruption of their business by Acts of God, riots, civil commotions, insurrections, wars or any other causes beyond their control, or by any strikes or lockouts. Unless specifically authorized, banks will not, upon resumption of their business, incur a de-ferred payment undertaking, or effect payment, ac-ceptance or negotiation under credits which expired dur-ing such interruption of their business.” .

This does not seem to change the approach.

In the 1993 revision (UCP 500), the words “Force Majeure” is used as a header to article 17. It reads:

“Banks assume no liability or responsibility for the conse-quences arising out of the interruption of their business by Acts of God, riots, civil commotions, insurrections, wars or any other causes beyond their control, or by any strikes or lockouts. Unless specifically authorised, banks will not, upon resumption of their business, pay, incur a deferred payment undertaking, accept Draft(s) or negoti-ate under Credits which expired during such interruption of their business.”

Again, besides some format changes, the approach is the same as in previous versions.

Finally, in the current UCP 600, published in 2007, the concept of Force Majeure it is governed by article 36. In full the article reads:

“A bank assumes no liability or responsibility for the con-sequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.

A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such inter-ruption of its business.”

It is noted that “acts of terrorism” is added to the list of Force Majeure events. However, besides that the main content and approch is basically the same as it has been since 1933.

It goes without saying, that all of us just want to forget the coronavirus. However, this situation has clearly shown that the UCP Force Majeure rule in reality raises more questions than answers. For example:

What about presentations made to a bank bafore the Force Majeure event – but not paid.

What about complying presentations made to a nomi-nated bank when the issuing bank is closed for business due to a Force Majeure event.

Coronavirus, Force Majeure and L/Cs (15 March 2020)

By Xavier Fornt (http://tradeservicesupdate.com/editor?editor=editor_xavier) with Kim Sindberg

With the appearance of the damned coronavirus, the L/C world has be-come aware of the importance of the concept “Force Majeure”.

However, this is a concept that is not at all new in the L/C rules.

Let us take a look at how it has evolved over time.

The concept was introduced in ICC Publication 74 (1929). Section B “Liability”, point 3 states:

“Banks assumes no liability or responsability for the conse-quences arising out of the interruption of their business ei-ther by a decision of a public authority, or by strikes , lock-outs, riots, wars, causes beyond their control, or acts of God. On credits expiring during such interruption of busi-ness the Banks will be able to make no setttlement after maturity except on specific instructions from the customer”

Interesting to note the mentioning of the "acts of God". I wonder if the coronavirus (i.e. a Pandemic) would be con-sidered an act of God in 1929?

In ICC Publication 82, known as the Vienna Rules (1933), Force Majeure is regulated in article 13, in which the men-tion of acts of God continues to appear, but in which we do not find the specific denomination of Force Majeure. The article reads:

“Banks assume no liability or responsibility for consequenc-es arising out of the interruption of their business either by a decision of a public authority, or by strikes, lockouts, riots, wars, acts of God or other causes beyond their control. On credits expiring during such interruption of business, Banks will be able to make no settlement after expiration, except on specific instructions from their principal.”

Interesting to note that the outset for the article to come into force is an interruption of the business of the affected bank. The consequence of the article is the same as in 1929; namely that if the LC expire during the interruption (for any of the reasons listed) then the affected bank will not make settlement.

In ICC Publication 151 (1951), article 13 is similar to ICC Publication 82. The same apply to ICC Publication 222 (1962) as well as ICC Publication 290 (1974).

http://tradeservicesupdate.com/editor?editor=editor_xavierhttp://tradeservicesupdate.com/editor?editor=editor_xavierhttp://tradeservicesupdate.com/editor?editor=editor_xavier

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Those could be questions ot consider during the next revi-sion, the possible UCP 700. Trade Finance and the

Coronavirus (30 January 2020)

By Kim Sindberg (https://www.tradeservicesupdate.com/editor?editor=editor_kim)

(The below has previously been published as a blog post in lcviews: http://www.lcviews.com/index.php?page_id=779)

There is currently a tragic outbreak of respiratory illness caused by a new coronavirus first identified in

Wuhan, Hubei Province, China.

My sympathies go to the people affected by the virus.

A secondary consequence of the coronavirus is that it may be difficult to deliver or receive documents to and from Hubei Province. For example, it has been reported that DHL have stopped delivering to the Hubei Province. This of course is affecting delivery of documents under Trade Finance transactions where the counterpart bank is in the Hubei Province.

For the purpose of the Trade Finance transactions – and the relevant ICC rules the situation is somewhat similar to the situation in 2010 where a volcanic eruption in Iceland led to delays in the presentation of Trade Finance docu-ments.

As was the case in 2010, the coronavirus is – for the pur-pose of the Trade Finance – not a “force majeure event”. The relevant force majeure rules i.e. UCP 600 article 36, URDG 758 article 26 and URC 522 article 15, all assume that the concerned banks, guarantors and instructing par-ties are closed for business. This is not the case here; here the issue is that the documents are being delayed in transit to the banks.

The articles from the Trade Finance practice rules that are applicable in this situation are:

UCP 600 article 35:

“A bank assumes no liability or responsibility for the con-sequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messag-es or delivery of letters or documents, when such mes-sages, letters or documents are transmitted or sent ac-cording to the requirements stated in the credit, or when

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* Consider if electronic copies of documents will suffice until the situation changes.

* Consider if the documents can be forwarded to the issu-ing bank – located at another place.

• Ensure to keep copy of the mail/courier receipt – as well as copies of the documents (in order to be able to prove that it was a complying presentation).

2: The L/C is available with the issuing bank

Only when a complying presentation is made to the issu-ing bank, the obligation of the issuing bank is triggered. Hence, when the L/C require that presentation be made to an issuing bank that is in an inaccessible location, the beneficiary should consider seeking an amendment that will allow presentation to be made to another bank that is more accessible to them.

Guarantees

Because this event is not force majeure for the purpose of URDG 758, the undertakings and obligations of the involved banks have not changed. For example, if a com-plying demand is made to the guarantor, that is obligated to honour or negotiate.

In guarantees, often demands must be made directly to the guarantor – at their place of business.

In other words, only when a complying demand is made to the guarantor, the obligation of that bank is triggered. Hence, when the guarantee requires that the demand be made to a guarantor that is in an inaccessible location, the beneficiary should consider seeking an amendment that will allow the demand to be made to another bank that is more accessible to them. Or allow for an electronic demand to be made.

Documentary Collections

The collecting / presenting banks can only act when they receive the collection instruction from the remitting bank. Hence, if the documents are not forwarded from the re-mitting bank to the collecting / presenting bank nothing happens really. In that respect, I may be wise to consider the new rules for electronic presentations made under collections; i.e. eURC version 1.0. Those may indeed be useful in such situation.

As said, the backdrop on which the above is written is very tragic – and it is my hope that the situation will be contained as soon as possible; not to solve the above – which in reality are technicalities – but to ensure that the virus does not make any more harm than it already has.

the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.”

URDG 758 article 28(a):

“The guarantor assumes no liability or responsibility for the consequences of delay, loss in transit, mutila-tion or other errors arising in the transmission of any document, if that document is transmitted or sent ac-cording to the requirements stated in the guarantee, or when the guarantor may have taken the initiative in the choice of the delivery service in the absence of instructions to that effect.”

URC 522 sub-article 14 (a):

“Banks assume no liability or responsibility for the con-sequences arising out of delay and/or loss in transit of any message(s), letter(s) or document(s), or for delay, mutilation or other error(s) arising in transmission of any telecommunication or for error(s) in translation and/or interpretation of technical terms.”

Below, some comments in respect of the main Trade Finance products.

Documentary Credits

Because this event is not force majeure for the pur-pose of UCP 600, the undertakings and obligations of the involved banks have not changed. For example, if a complying presentation is made to the confirming bank, that bank is obligated to honour or negotiate.

Likewise, it is the responsibility of the beneficiary, to ensure that the documents are presented to the nomi-nated bank or issuing bank (at the place specified in the L/C) within the expiry date / presentation period.

There are different scenarios possible; the main ones are:

1: The L/C is available with a nominated bank

When a complying presentation is made to the nomi-nated bank, the obligation of the issuing bank is trig-gered. I.e. the issuing bank is bound to honour when they receive the documents.

If it is not possible for the nominated bank to forward the documents to the issuing bank, the following should be considered:

* Reach out to the issuing bank to agree the next steps

* Consider different means of sending e.g. via other courier services – or registered airmail. In such situa-tions, also consider the instructions – if any – in the L/C.

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Force Majeure or not Force Majeure (that’s the question) (5 February 2020)

By Kim Sindberg (https://www.tradeservicesupdate.com/editor?editor=editor_kim)

(The below has previously been published as a blog post in lcviews: http://www.lcviews.com/index.php?page_id=780)

I have received many comments to my previous blog post “Trade Finance and the coronavirus”. A number of those circled around the issue of Force Majeure.

For example, there was the com-ment that CCPIT (China Council for the Promotion of International Trade) has already declared it is

issuing Force Majeure certificates to Chinese companies impacted. Also, it has been mentioned that it already has been reported that Force Majeure is declared by the Chinese authorities.

These are good and relevant comments – and indeed highly appreciated.

The fact is, that the issue of Force Majeure – also when it comes to Trade Finance transactions – is indeed diffi-cult and complex. The relevant practice rules (in scope here is UCP 600 article 36, URDG 758 article 26, URC 522 article 15), aim to set a standard. For example, UCP 600 article 36 states:

“A bank assumes no liability or responsibility for the con-sequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.

A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such in-terruption of its business.”

There are a number of comments relevant in respect of this.

First of all, it is important to stress that the list of events (Acts of God, riots, civil commotions etc.) is not exhaus-tive and there may well be other events that would be deemed as “Force Majeure”.

That said, it is indicated in the rules (e.g. in article 36 mentioned above) that there must be an “interruption of the banks business” for the Force Majeure rule to be “triggered”. This is generally understood so that the bank is closed for business because of the Force Majeure event. However, at the end of the day, that will be for a court of law to determine.

At the time of writing the blogpost it was my impression (and it still is – but that may well change as the situation changes) that the banks in the Hubei Province in China is not closed for business. Rather, there is a problem in getting physical documents to and from the banks in the Hubei Province in China. Adding to the complexity, it is fair to say that UCP 600 article 36 asks a lot of (unanswered) questions. It seems not to take into account 1) that the counterpart banks may have different statuses (nominated, advising, con-firming) and 2) that there are many phases during an L/C transaction – and a Force Majeure event will have dif-ferent consequences depending on the phase; e.g.

• Documents delivered to the nominated bank – but not forwarded to the issuing bank.

• Documents received at the issuing bank – but not examined.

• Documents received at the issuing bank, examined – but not honoured.

This makes UCP 600 article 36 difficult to apply in prac-tice. Not least because there (fortunately) are very few Force Majeure events, meaning that there is little docu-mented practice.

In that respect it is fair to say, that the most “mature” Force Majeure rule is expressed in URDG 758 article 26. Simply look at the number of words in the article; 396 words.

This compared to 66 words in UCP 600 article 35 – and 37 words in URC 522.

Here I will not quote the full text of URDG 758 article 26 (Editor comment: This article is quoted in full elsewhere in this Newsletter), but rather outline the scenarios cov-ered by it:

• The guarantee expires when presentation or pay-ment under that guarantee is prevented by Force Majeure

• A complying demand under the guarantee is pre-sented before the Force Majeure but not paid be-cause of the Force Majeure

• The counter-guarantee expire at a time when presentation or payment under that counter-guarantee is prevented by Force Majeure

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Rules & Practices

By David Meynell (https://www.tradeservicesupdate.com/editor?editor=editor_meynell)

As always, a very illuminating article by Rupnarayan Bose in Trade Services Update Volume 21, Issue 4, October-December 2019 (What the UCP does not tell you about documentary credits?)

I would like to take the opportunity to provide my thoughts on the many is-sues that were raised within the article.

As Rup has pointed out, UCP 600 are the most successful privately drafted rules for trade ever developed. I do accept, as stated in his article, that there are gaps in the rules … but I would argue that these are currently very minimal and, as I have stated elsewhere (1), are not even sufficient to amount to a rational justification for undertaking the huge exercise of revising the UCP.

As a matter of record, below are a few of the issues that could be addressed, at a future indeterminate date, when the UCP is eventually revised:

• ISBP 745 paragraph A3, concerning the signing of certifi-cates, certifications, declaration or statements is more equivalent to a rule rather than a practice. There is no existing article in UCP 600 addressing this issue. ISBP 745 paragraphs P1 and L1 also stipulate the requirement for a signature on various certificates.

• ISBP 745 paragraph A21 (b), (d), (e) regarding language are also much closer to a rule than a practice. UCP 600 does not currently regulate the language of documents even though this is a very important issue. These para-graphs, rephrased, could become part of a revised UCP. Paragraph A21 (e) would require amendment if it was to be considered as a rule.

• There could be great benefit in rephrasing ISBP 745 par-agraph A31 (original and copy documents) and subse-quently incorporating it as an element of a revised UCP (Original Documents and Copies, currently UCP 600 arti-cle 17).

• ISBP 745 paragraph A35 (d), regarding authentication via URL, is definitely more akin to a rule and could cer-tainly be recommended for incorporation within a revision of UCP. It would naturally fit within the signature require-ment stated in UCP 600 article 3, thereby amending/enhancing the interpretation of ‘electronic method of au-thentication’. Although very few documents are issued in this way, this may well change in the future

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• A complying demand under the counter-guarantee is presented before the Force Majeure but not paid because of the Force Majeure

In other words, it may indeed be difficult to determine if an event is actually a Force Majeure event for the purpose of the applicable Trade Finance rules, and has been stated, there is indeed quite some difference in the potential outcome.

If there is a Force Majeure event (for the purpose of the applicable Trade Finance rules), “A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business” (UCP 600 article 36). I.e. the potential consequence is that the bank may not pay at all.

However, if there is not a Force Majeure event, the Force Majeure article does not apply. If that is the case, then the other relevant rules apply. For example, in the situation where it is not possible to send the documents presented under an L/C to the issuing bank. In such case the 2nd paragraph of UCP 600 ar-ticle 35 will apply. It reads as follows:

“If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominat-ed bank has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reim-burse that nominated bank, even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank.”

The consequence of the above is that, if:

1: A presentation has been made to a nominated bank (which may or may not be a confirming bank) AND

2: The nominated bank has forwarded the documents to the issuing bank (according to the instructions in the L/C) AND

3: The documents are delayed or lost in transit be-tween the nominated bank and the issuing bank THEN

4: The issuing bank must reimburse the nominated bank, THIS APPLIES

5: Regardless if the nominated bank has acted on its nomination (i.e. has honoured or negotiated)

In other words, in this case the issuing bank is obligat-ed to reimburse the nominated bank…

The above said, let’s hope that the situation related to the coronavirus gets under control – and that it will not be necessary to have to determine if article 35 or 36 applies …

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• It is arguable that ISBP 745 paragraph C12, which addresses over-shipment and goods not called for in a credit, is also a rule. It could well become part of a revised UCP not only with regard to an invoice, but all documents required under a credit because if, for example, a bill of lading or weight list shows over-shipment or goods not called for in the credit, it would also not be acceptable.

• ISBP 745 paragraph K9, expiry date for insurance claims, is also a worthy item for consideration to convert to a rule. If so, it could amend the current UCP 600 article 28.

Let’s take a look at some of the other issues that were mentioned in the article. It is highlighted that UCP 600 does not define payment and negotiation credits. Per-sonally, I believe this is arguable. In my opinion, there is sufficient clarity within Article 2, in the definitions of ‘Honour’ and ‘Negotiation’, and Article 7 Issuing Bank Undertaking. Furthermore, I would not expect to find a definition within ISBP 745 for the simple reason that this publication is restricted to the examination of docu-ments.

It is further highlighted that UCP 600 does not ‘define’ credits available at sight payment, deferred payment, acceptance or negotiation. Again, I see this as arguable when referring to the definition of ‘Honour’ in Article 2 of UCP 600. Sight credits are clearly payable at sight, i.e. immediately, deferred payment credits at maturity of the deferred payment period, and acceptance credits at ma-turity of the draft. As stated above, ‘Negotiation’ is cov-ered by a specific definition. With respect to the issue of drafts, I would refer to the ICC Guidance Paper (2) on this matter.

Another concern addressed the lack of information re-garding presentations that include only copies of transport documents, not their originals. First of all, I dis-pute that ISBP 745 contains ‘rules’ regarding non-negotiable (copies of) transport documents. ISBP 745 is not a set of rules – it does, in fact, tackle the application of practices. This is a major difference. Secondly, UCP 600 sub-article 14 (c) very specifically refers to original transport documents only. In the event that a credit re-quires copy transport documents to be presented, then UCP 600 sub-article 14 (f) applies. Paragraph A6 of ISBP 745 is not a rule – it clarifies the practice to be ap-plied in the event of a copy transport document being presented.

The article goes on to ask, what are the rules for arriving at the maturity date for presentations that are initially deemed as non-complying? If documents are non-complying, then they will not be honoured unless agreed to by the parties concerned. How they are honoured _______________________________________________________ (2) https://iccwbo.org/publication/guidance-paper-use-drafts-bills-exchange-documentary-credits-executive-summary/

must then, necessarily, be outside the scope of UCP 600. If the documents are converted into being compli-ant within the timeframes of the credit, then UCP 600 applies as usual.

It is further queried as to what should be done if an ex-ception is made to UCP 600 sub-article 38 (k). This is clearly allowed by dint of article 1 which refers to modifi-cations or exclusions. Should there be an exception, then it is obviously a matter of good banking practice to outline how the exception should apply. I have frequent-ly emphasised that banks must have in place a recom-mended approach on how to deal with any exceptions or exclusions. This is not a matter for the rules. Banks need to understand what they are doing and why they are doing it, whilst appreciating any implications and subsequent consequences.

With respect to UCP 600 sub-article 9 (b), it is queried whether an advising bank can add its own conditions. Whether or not it can do so, this is not a matter for UCP 600 to opine upon. Failure to comply with a rule needs a consequence, and how could a rule define an actual consequence in such circumstances when the situation may be constricted by local or regional practices? This is clearly a practice and not a matter for the rules.

Contrary to what is stated in the article, ISBP 745 defini-tively does not lay down new rules. There are practices, as I have outlined in the bullet points above, that could, at a future date, be converted to rules. It needs to be borne in mind that it is not a simple process to revise UCP. As such, if revisions of ISBP can help alleviate concerns or misunderstandings in practice, then it is cer-tainly more practical to take this route.

As is widely known, I have been very vocal and vocifer-ous in the past in stating that ISBP 745 must be made more widely available and at the right price, possibly even free of charge. Until this is the case, we are faced with the fact that not all practitioners have access to ISBP 745. However, I also believe that banks have a duty to educate their own staff and their clients if they wish to be a part of the trade finance world – ISBP 745 should be an integral part of this education.

Mention is also made in the article of UCP 600 sub-article 14 (g) and what should happen if a ‘disregarded’ document contains data that is essential in order to check compliance of the presentation. The fact is that, as the document is to be disregarded in accordance with sub-article 14 (g), it is clear that the content of the docu-ment should not be checked. As such, any ‘trigger’ in such document has no function.

Incidentally, I absolutely do not agree that there is any conflict between UCP 600 and ISBP 745.

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A further query within the article relates to UCP 600 article 25, and questions whether practitioners would be aware that this article does not relate to evidence of ‘sending’ documents. In my opinion, this should be absolutely clear after reading the content of this article which specifically refers to ‘receipt of goods’. It is not correct to state that ISBP 745 paragraph A10 is a rule covering the sending of documents – this is a practice.

Regarding whether or not an ICC Opinion from the pre-UCP 600 era continues to be valid, this is not an is-sue that can be addressed by the existing UCP 600. What should be pointed out is that no Opinion has identified that UCP is wrong.

One further question that has been raised in the article is with regard to the dissemination of information, in which it is stated that all rules should be in one place. As I have argued above, I believe this is already the case. In summary, I do not agree that rules that are vital to documentary credits are ‘spread all over the place’. Besides the possible exceptions that I have outlined, rules are in UCP 600 and practices in ISBP 745.

It is stated in the article that apart from the fact that ISBP 745 is very costly, how many practitioners know about them or are keen to make them available given that most do not even read the UCP 600 or the Inco-terms rules thoroughly? My counterargument is that if they cannot even be bothered to read UCP 600, then why would they bother with ISBP 745? It is absolutely correct that ISBP 745 must be disseminated further. This can only help in education and understanding and the reduction of discrepancies. But this is not a UCP 600 issue! It is all about education and guidance. It is clearly apparent that a lack of understanding does exist in respect of the application and practice of UCP 600 within both banks and corporates.

UCP 600 is not perfect – no such publication can ever be so but, as identified in the review of UCP 600 by the ICC Banking Commission in 2017, it is not consid-ered, at this stage, to be appropriate to undertake a revision of UCP 600. However, there is a definitive viewpoint that a greater understanding of practices should be the way forward, rather than a revision of the rules.

My above comments must not be construed as a criti-cism of Rup’s article. It is only by debate that we can solve problems, therefore I much appreciate the fact that he has taken the time and energy to record his observations.

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Standbys Are Of a Differ-ent Nature Than Docu-mentary Credits

By Xavier Fornt (http://tradeservicesupdate.com/editor?editor=editor_xavier)

Nothing new: Standby Letters of Credit and documentary credits are two instruments often used in Inter-national Trade. They are, however, different in nature.

As Professor James E. Byrne, James G. Barnes and Gary W. Collyer wrote in the Preface to the ICC Publica-tion 590, International Standby Practices:

“Standbys are issued to support payment, when due or after default, of obligations based on money loaned or advanced, or upon the occurrence or non-occurrence of another contingency.”

However, according to article 2 (Definitions) of the ICC Publication 600, Uniform Customs and Practice for doc-umentary credits, a “Credit” [i.e. a documentary credit] is defined as follows:

“Any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertak-ing of the issuing bank to honour a complying presenta-tion”.

The difference is thus clear. The beneficiary to a standby prefers to never have to use it, while the benefi-ciary to a documentary credit will expect to use it to re-ceive payment under it.

There are many differences that demonstrate the differ-ent nature of standby’s and documentary credits, but we will not deepen into those here because they are suffi-ciently known.

In 1998 the Standbys got their own set of practice rules; namely the ISP98, drafted by the Institute of Internation-al Banking Law & Practice Inc, and approved by the ICC Commission on Banking Technique and Practice (ICC Publication number 590). These rules are not drafted to support commercial documentary credits.

The documentary credits also have their own practice rules; namely the Uniform Customs and Practice for Documentary Credits. Those have been revised several times during their lifetime. The latest version is the one quoted previously, i.e. ICC publication 600 – also known as UCP 600.

However, where the ISP98 do not support commercial documentary credits, UCP 600 do support standbys. This is explicitly stated in UCP 600 article 1 which reads:

“The Uniform Customs and Practice for Documentary Credits, 2007 Revision , ICC Publication No. 600 (UCP) are rules that apply to any documentary credit ( credit ) (including , TO THE EXTEND TO WHICH THEY MAY BE APPLICABLE, any standby letter of credit ) when de text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit.” [emphasis added]

Since commercial documentary credits and standbys are operations of a different in nature, it is clear that not all articles of the UCP 600 are suited for Standbys. The difficulty is to precisely identify the articles that are not suited for Standbys.

An example is UCP 600 article 17(a) which reads “at least one original of each document stipulated in the credit must be presented”. In a standby this would only be applicable to the declaration of non-compliance, which is the most important document to request its execution. Usually the remaining documents would be presented in copy form.

Many of the documents that a standby would normally require can be considered complementary, and conse-quently, the UCP 600 would not apply to them.

On the other hand, the articles that regulate the issu-ing banks undertaking, the review deadlines, or forms of notification of discrepancies among others would be equally applicable to Standbys.

In the Swift Standard Release 2020 it is stated:

To clearly emphasizes that some messages in catego-ry 7 are linked to documentary credits, others for guar-antees / standby letters of credit and some can be used for both, the publication of the Message Refer-ence Guide (as of 24 July 2020) will be divided into 4 parts, as follows:

• Part 1 - Documentary Credits MT 700, MT 701, MT 705, MT 707, MT 708, MT 710, MT 711, MT 720, MT 721, MT 730, and MT 734.  

• Part 2 - Common to Several Instruments MT 732, MT 740, MT 742, MT 744, MT 747, MT 750, MT 752, MT 754, MT 756, and MT 759.  

• Part 3 - Guarantees / Standby Letters of Credit MT 760, MT 761, MT 765, MT 767, MT 768, MT 769, MT 775, MT 785, MT 786, and MT 787.  

• Part 4 - Common Group MT 790, MT 791, MT 792, MT 795, MT 796, MT 798, and MT 799.

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This is a clear demonstration that the market considers SBLC operations of a different nature than documentary credits.

It would be advisable that issuing banks would issue standby's subject to the rules drafted for standbys – i.e. ISP98 – and would reserve the UCP 600 for commercial documentary credits.

As the proverb goes, a shoe for every foot.

ICC Rules on Force Majeure

The ongoing series of analysis of ISBP 745 paragraphs has been postponed. Instead, the space is reserved for analysis of the relevant Trade Finance Force Majeure rules.

The purpose of the below is to outline the potential con-sequences of a Force Majeure event for the purpose of the ICC rules applicable to the Trade Finance products.

In general, the Force Majeure articles in the ICC rules are disclaimers (with the exception if ISP98) – meaning that the bank affected by the Force Majeure event as-sumes no liability or responsibility for the consequences arising out of the Force Majeure event. Naturally the rules are drafted to match the product in question. Com-mon for all is that – in order for Force Majeure to be “activated” the business of the affected bank must be interrupted. This is generally understood so that the af-fected bank is closed for business due to a Force Majeure event.

The extreme consequence of a Force Majeure event is that the affected bank does not honour, negotiate or pay – where it is otherwise obligated to.

Disclaimers and notes:

Whether a bank can call Force Majeure under the applicable ICC Rules will rely on a legal judgement, based on the actual facts of the case. In other words, if the below is tested in a court of law the outcome could potentially be different than listed below.

Also, many guarantees are not issued subject to any ICC Rules (like URDG 758). Hence local law will ap-ply. The actual consequence for those guarantees is subject to a legal evaluation and is out of scope for this document.

Last, the charts below mention the product – and the applicable rules. It must be noted that the evaluation is based upon the applicable rules rather than the product. So, for example, for a standby letter of cred-it issued subject to UCP 600, please refer to the charts covering UCP 600 for guidance (and not to the charts covering ISP98).

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Transaction: Documentary Credit

Applicable rules: UCP 600

Force Majeure Rule:

Article 36

Full wording of the Force Majeure rule:

A bank assumes no liability or responsibility for the consequences arising out of the inter-ruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.

A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business.

Is the corona-virus one of the Force Majeure events potentially in scope?

The article states: “...Acts of God, riots, civil commotions, insurrections, wars, acts of ter-rorism, or by any strikes or lockouts or any other causes beyond its control”.

Although pandemics (as the coronavirus has been labelled by the World Health Organiza-tion) is not on the list of events mentioned, it must be assumed that it can be classified as “any other causes beyond its control”.

It is therefore assumed that the coronavirus is one of the Force Majeure events potentially in scope.

Potential conse-quence if a bank is closed for business due to a Force Majeure event:

The last part of UCP 600 article 36 reads: “A bank will not, upon resumption of its busi-ness, honour or negotiate under a credit that expired during such interruption of its busi-ness.”

The consequence of that is that the documentary credits that have expired during the Force Majeure event (i.e. while the affected bank was closed for business due to the coro-navirus) are considered expired, and the affected bank will be able to refuse to honour if a presentation is made after expiry (i.e. after the bank is again open for business).

In that respect it is important to bear in mind that the place for presentation may be differ-ent from (or rather in addition to) that of the issuing bank. Therefore, it may be expected that:

1: A complying presentation to the nominated bank will obligate the issuing bank.

2: If it is not possible to present to the nominated bank, the beneficiary has the option to present directly to the issuing bank (if possible).

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Transaction: Documentary Collection

Applicable rules: URC 522

Force Majeure Rule: Article 15


Banks assume no liability or responsibility for consequences arising out of the interrup-tion of their business by Acts of God, riots, civil commotions, insurrections, wars, or any other causes beyond their control or by strikes or lockouts.

Is the coronavirus one of the Force Majeure events po-tentially in scope?

The article states: “...Acts of God, riots, civil commotions, insurrections, wars, or any oth-er causes beyond their control or by strikes or lockouts”.

Although pandemics (as the coronavirus has been labelled by the World Health Organi-zation) is not on the list of events mentioned, it must be assumed that it can be classified as “any other causes beyond their control”.

It is therefore assumed that the coronavirus is one of the Force Majeure events potential-ly in scope.

Potential conse-quence if the bank is closed for business due to a Force Majeure event:

A documentary collection does not involve any undertaking by the involved banks.

In general, if the documents cannot be delivered to a bank, then that bank cannot act on the instructions, hence are not bound by those.

For collections received by a bank before the Force Majeure event there may be instruc-tions within the collection instruction, that the bank is not able to carry out. According to URC 522 article 15 the bank assumes no liability or responsibility for that.

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Transaction: Guarantee issuance

Applicable rules: URDG 758

Force Majeure Rule:

Article 26


a. In this article, "force majeure" means acts of God, riots, civil commotions, insurrections, wars, acts of terrorism or any causes beyond the control of the guarantor or counter-guarantor that interrupt its business as it relates to acts of a kind subject to these rules.

b. Should the guarantee expire at a time when presentation or payment under that guarantee is prevented by force majeure:

i. each of the guarantee and any counter-guarantee shall be extended for a period of 30 cal-endar days from the date on which it would otherwise have expired, and the guarantor shall as soon as practicable inform the instructing party or, in the case of a counter-guarantee, the counter-guarantor, of the force majeure and the extension, and the counter-guarantor shall so inform the instructing party;

ii. the running of the time for examination under article 20 of a presentation made but not yet examined before the force majeure shall be suspended until the resumption of the guaran-tor's business; and

iii. a complying demand under the guarantee presented before the force majeure but not paid because of the force majeure shall be paid when the force majeure ceases even if that guar-antee has expired, and in this situation the guarantor shall be entitled to present a demand under the counter-guarantee within 30 calendar days after cessation of the force majeure even if the counter-guarantee has expired.

c. Should the counter-guarantee expire at a time when presentation or payment under that counter-guarantee is prevented by force majeure:

i. the counter-guarantee shall be extended for a period of 30 calendar days from the date on which the counter-guarantor informs the guarantor of the cessation of the force majeure. The counter-guarantor shall then inform the instructing party of the force majeure and the exten-sion;

ii. the running of the time for examination under article 20 of a presentation made but not yet examined before the force majeure shall be suspended until the resumption of the counter-guarantor's business; and

iii. a complying demand under the counter-guarantee presented before the force majeure but not paid because of the force majeure shall be paid when the force majeure ceases even if that counter-guarantee has expired.

d. The instructing party shall be bound by any extension, suspension or payment under this article.

e. The guarantor and the counter-guarantor assume no further liability for the consequences of the force majeure.

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The article states: “...acts of God, riots, civil commotions, insurrections, wars, acts of terrorism or any causes beyond the control of the guarantor or counter-guarantor”.

Although pandemics (as the coronavirus has been labelled by the World Health Organization) is not on the list of events mentioned, it must be assumed that it can be classified as “any causes beyond the control of the guarantor or counter-guarantor”.



URDG 758 article 26 lists the following scenarios:

1: The guarantee expires when presentation or payment under that guarantee is pre-vented by force majeure.

In such case the guarantee is extended for a period of 30 calendar days from the date on which it would otherwise have expired (= “new expiry”).

The consequence of that, is that if the “new expiry” is during the Force Majeure event (i.e. while the guarantor is closed for business due to the coronavirus) the guarantee is considered expired, and the guarantor will be able to reject a demand made after the “new expiry” (i.e. after the guarantor is again open for business).

However, if the “new expiry” is after the Force Majeure event has ended, and a complying de-mand is presented to the guarantor before the “new expiry” then the guarantor is obligated to pay.

2: A demand has been made – but not examined before the start of the Force Majeure event

In such case the guarantor must examine the demand once open for business. I.e. the exami-nation period is extended.

If the demand complies, the guarantor must pay when the Force Majeure ceases. This applies even if that guarantee has expired.

If the guarantee is issued on the basis of a counter guarantee the guarantor shall be entitled to present a demand under the counter-guarantee within 30 calendar days after cessation of the force majeure. This applies even if the counter-guarantee has expired.

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Transaction: Counter-guarantee issuance

Applicable rules: URDG 758

Force Majeure Rule:

Article 26


a. In this article, "force majeure" means acts of God, riots, civil commotions, insurrections, wars, acts of terrorism or any causes beyond the control of the guarantor or counter-guarantor that interrupt its business as it relates to acts of a kind subject to these rules.

b. Should the guarantee expire at a time when presentation or payment under that guaran-tee is prevented by force majeure:

i. each of the guarantee and any counter-guarantee shall be extended for a period of 30 cal-endar days from the date on which it would otherwise have expired, and the guarantor shall as soon as practicable inform the instructing party or, in the case of a counter-guarantee, the counter-guarantor, of the force majeure and the extension, and the counter-guarantor shall so inform the instructing party;

ii. the running of the time for examination under article 20 of a presentation made but not yet examined before the force majeure shall be suspended until the resumption of the guaran-tor's business; and

iii. a complying demand under the guarantee presented before the force majeure but not paid because of the force majeure shall be paid when the force majeure ceases even if that guarantee has expired, and in this situation the guarantor shall be entitled to present a de-mand under the counter-guarantee within 30 calendar days after cessation of the force majeure even if the counter-guarantee has expired.

c. Should the counter-guarantee expire at a time when presentation or payment under that counter-guarantee is prevented by force majeure:

i. the counter-guarantee shall be extended for a period of 30 calendar days from the date on which the counter-guarantor informs the guarantor of the cessation of the force majeure. The counter-guarantor shall then inform the instructing party of the force majeure and the extension;

ii. the running of the time for examination under article 20 of a presentation made but not yet examined before the force majeure shall be suspended until the resumption of the counter-guarantor's business; and

iii. a complying demand under the counter-guarantee presented before the force majeure but not paid because of the force majeure shall be paid when the force majeure ceases even if that counter-guarantee has expired.

d. The instructing party shall be bound by any extension, suspension or payment under this article.

e. The guarantor and the counter-guarantor assume no further liability for the consequences of the force majeure.

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The article states: “...acts of God, riots, civil commotions, insurrections, wars, acts of terror-ism or any causes beyond the control of the guarantor or counter-guarantor”.

Although pandemics (as the coronavirus has been labelled by the World Health Organiza-tion) is not on the list of events mentioned, it must be assumed that it can be classified as “any causes beyond the control of the guarantor or counter-guarantor”.



URDG 758 article 26 lists the following scenarios:

1: The counter-guarantee expires when presentation or payment under that guaran-tee is prevented by force majeure.

In such case the counter-guarantee is extended for a period of 30 calendar days from the date on which the counter-guarantor informs the guarantor of the cessation of the force majeure.

2: A demand has been made – but not examined before the start of the Force Majeure event

In such case the counter guarantor must examine the demand once open for business. I.e. the examination period is extended.

If the demand complies, the counter guarantor must pay when the Force Majeure ceases. This applies even if that guarantee has expired.

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Transaction: Standby letter of credit

Applicable rules: ISP98

Force Majeure Rule:

Rule 3.14


a. If on the last business day for presentation the place for presentation stated in a standby is for any reason closed and presentation is not timely made because of the closure, then the last day for presentation is automatically extended to the day occurring thirty calendar days after the place for presentation re-opens for business, unless the standby otherwise provides.

b. Upon or in anticipation of closure of the place of presentation, an issuer may authorise another reasonable place for presentation in the standby or in a communication received by the beneficiary. If it does so, then

i. presentation must be made at that reasonable place;

and

ii. if the communication is received fewer than thirty calendar days before the last day for presentation and for that reason presentation is not timely made, the last day for presenta-tion is automatically extended to the day occurring thirty calendar days after the last day for presentation.


This question is not relevant for ISP98, as it does not address the Force Majeure directly.

However, Rule 3.14 does address the situation where a bank is closed on a business day; for whatever reason. If that reason is the coronavirus then Rule 3.14 will apply.


If the affected bank is closed due to the coronavirus, then the last day for presentation is automatically extended to the day occurring thirty calendar days after the affected bank re-opens for business.

Rule 3.14 opens for the possibility for the issuer to authorise another (reasonable) place for presentation to the beneficiary.

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Discussion Corner

Coronavirus

A discussion amongst the country editors.

The country editors have been discussing the following issue. The below answers are excerpts of the discussion.

The following LCM editors took active part in the discussion:

Bogdan ILIE

Nesarul Hoque

Radek Dobáš

T.O. Lee

Mohammad Sohail

Abrar Ahmed

Kim Sindberg

Emile Rummens

Nguyen Huu Duc

Domenico Del Sorbo

Zahoor N. Dattu

Xavier Fornt

Robert Parson

Dave Meynell

[Disclaimer: This discussion took place between 28 January 2020 and 3 February 2020 and covers the situation as it was known at that time.]

Quote

A nominated bank was to send L/C documents to the issuing bank – located in Hubei in Wuhan City - China.

After contact with DHL the nominated bank was informed that DHL have stopped delivering to the Hubei Province due to the Coronavirus.

On top of that it is Chinese New Year, so a dialogue with the issuing bank is difficult.

What is – in your view – the consequence of this from a UCP 600 perspective? Is this Force majeure? What would be the best approach of the nominated bank?

Kindly share your thoughts.

Unquote

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From Bogdan ILIE, Romania

First of all is regrettable we discuss about such a thing. There is a tragedy going on, and I do believe that the true, real, whole picture is much more terrifying than what the Chinese authorities present to us.

About the case, is clear one of force majeure and UCP 600 article 36 applies.

Nominated bank may ask the issuing bank if they agree for documents to be sent to their head office, presuming that issuing bank’s H/O is in Beijing or Shanghai where DHL is still delivering.

Good luck, good health and my best wishes to all,

From Nesarul Hoque, Bangladesh

The beneficiary has already made complying presentation to the nominated bank. So, his part is done. Therefore, there is no expiry date issue.

Now, the presentation cannot be made to the issuing bank as DHL is not delivering the presentation to the issuing bank.

On that background, I think, the issuing bank is not obligated to honour the presentation till the presentation made to it. As soon as the situation is improved and presentation made to the issuing bank, the issuing bank has an obli-gation to honour the presentation provided that its complying.

Changing the place of presentation to another place is something not covered in UCP but possible subject to deliv-ered action taken by the issuing bank and all related parties agree on it.

Regarding course of action for the nominated Bank:

1: Has nothing to do during holiday.

2: May communicate with Head Office after resume the operation.

From Radek Dobáš, Czech Republic

I to high extent agree with Nesar. But the whole unfortunate situation may get more complicated in different scenar-ios.

So, let me summarise.

First of all, remember that apart from a few exceptions we are not lawyers. So, the first advice is to get in touch with your lawyers, explain the situation (and explain UCP position, they may not be well acquainted with it).

From the very point of UCP there are a few aspects / questions:

1. Is it, above all, a matter of force-majeure under UCP?

From the query we do not know. Remember, the definition of "force majeure" in UCP:

"A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, ... or any other causes beyond its control." (emphasis added)

The query states that it was the DHL who refuse to take the delivery, not the issuing bank. So, regardless of wheth-er the L/C is available with the nominated bank or with the issuing bank, we do not know at this stage whether the issuing bank is in force-majeure situation under UCP definition, i.e. whether it is closed at all or not.

It seems that it is closed mainly for holidays (which were extended due to the situation in place), so force-majeure article under UCP may not even apply.

25

Remember, the above solely describes the position of UCP 600, not a legal position under force-majeure defini-tion that may apply under applicable law!

2. Is the credit available with nominated bank?

If so, the force-majeure article in UCP 600 may be inapplicable, either.

If complying presentation was made to the nominated bank, the nominated bank is entitled to reimbursement pro-vided it has acted in accordance with the credit instructions. What are the credit instructions? Do they require a specific courier service to deliver documents? If so and if you contacted this courier and they refused, you have done all you could in order to meet the instructions. You should not be made responsible for their "agent" they chose themselves for its inability to proceed as instructed. Did they merely require "courier"? Then you should try with other courier companies. Did they say nothing specific about delivery? You may try any method, including registered airmail. If the (national) mail service takes the mail, you have done what was requested. You are not responsible for possible inability of the mail service to deliver for any reason.

In any case, if any of the services mentioned above refused to accept the delivery, I recommend that you hold evi-dence thereof.

If you were unable to proceed in accordance with the issuing bank's instructions, it is advisable to try to contact the issuing bank and seek advice on where the documents are to be forwarded. At least you may find out whether they are open for business (if they reply).

If they don't reply, I recommend that you contact another office of the issuing bank in the same country (possibly the head office) or, if the issuing bank is a branch of an international bank, then its head office to seek advice.

If nothing of the above worked, you may prove that you have done all your best in trying to deliver the documents. Since credit conform documents were presented, you are entitled to reimbursement and you only have to forward the documents as soon as it is possible.

3. Is the credit available with the issuing bank?

Then two situations may apply, both unease for the beneficiary:

a. The issuing bank is closed due to force-majeure (or will be closed after the holiday period elapses) and regard-less of whether you are able to present documents to them or not, if the credit (or presentation period) expires dur-ing their force majeure, they are not obliged to consider the presentation timely. It will be solely their decision whether they accept it (and honour) or not.

b. The issuing bank is open, and it is only impossible to send documents to them (by that particular courier). You should try the other possibilities available (see above) to deliver documents to them. But unless the documents are timely presented to the issuing bank, they are not responsible and obligated to honour. The risk of loss / non-delivery / late delivery in case of a credit available with the issuing bank lies solely on beneficiary.

From T.O. Lee, Canada

In this Force majeure situation, thinking outside the box, is it possible for the parties to agree otherwise presenta-tion by electronic means instead?

From Mohammad Sohail, UAE

It is indeed a pity situation beyond controls and hence UCP 600 article 36 is applicable due to which commercial documents are on hold, payment/acceptance is pending, and the goods cannot be released from port authorities.

May we explore following exception/option to handle this issue in hands:

1) Nominated bank to confirm issuing bank about complied presentation via authenticated swift;

2) Issuing bank to assist their customer to release the goods from the port authorities based on a shipping guaran-tee; and

3) payment/acceptance may effectuate to the nominated bank.

But, of course, the solution may be workable subject to all parties agreement.

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From Abrar Ahmed, UK

If a complying presentation has already been made, I am not clear on the relevance of DHL refusing to deliver to Hubei? Is it the case that DHL are refusing to handle the pickup from Hubei?

If the presentation is not yet received by the nominated bank, I would consider this to be a Force Majeure event oc-casioned by an “Act of God”. In any case, the event is “beyond the bank’s control” to allow it to receive the presen-tation. However, assuming that DHL would return the documents to the sender under such event, this would not preclude the presenter/beneficiary making a direct presentation to the issuing bank. Late presentation or L/C expiry at the counter of the issuing bank would nevertheless be subject to the second paragraph of Article 36 of UCP 600.

If the documents have already been delivered and has been confirmed to be a complying presentation, in the event that the nominated bank is unable to deliver the documents to the issuing bank, the issuing bank would remain bound to honour, even if this requires copy documents to be sent by email to the issuing bank to the nominated bank.


Dear Abrar, from the wording of the question I presume that documents arrived in China but cannot be delivered to final destination. At this moment, most probably, DHL is waiting for instructions from the sender.


Hi Bogdan,

From the original query I believe it is a different story: The nominated bank received documents, possibly found them compliant but one courier company refused to accept them for delivery to Hubei due to the actual situation.

As I tried to explain earlier, legally speaking it is a Force Majeure situation. But from the UCP point of view it is probably not - the complying documents are with the nominated bank; the nominated bank is able to ascertain com-pliance. After resumption of business in the issuing bank and as soon as the courier service companies are ready to deliver there, the nominated bank should strive to re-send the documents. The nominated bank will still be enti-tled to reimbursement because the force majeure does not apply to the nominated bank.

In any case, legal advice should be sought if there is a lot of money at stake.


Hi Radek. Take this scenario:

Nominated bank reimbursed itself on issuing bank via MT754. Issuing bank is closed due to force majeure (authorities extended New Year Holiday till Feb.2nd, furthermore except hospitals and hypermarkets everything is closed in Wuhan).

Issuing bank cannot honour with the value date claimed. In respect of force majeure article 36 I do not think that issuing bank will be liable for payment of any interest related to.

From Kim Sindberg, Denmark

Thanks for valuable comments. The story is as outlined by Radek: The presentation was made to the nominated bank (and found complying). Subsequently DHL refused to receive the documents.

From Emile Rummens, Belgium

Regardless the protection of the UCP 600 I would like to stress that it would be “good banking practice” and make “common sense” that the nominated bank does all reasonable efforts to find a solution for the problem of the issu-ing bank such as:

1: contacting the issuing branch but also their Head Office requesting them alternative solutions

2: scanning the documents to the Issuing bank

3: inform the commercial parties (or at least the beneficiary/exporter) so that they can take appropriate measures to minimize the delay, extra costs etc

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The Trade Finance community may never forget that solidarity, common sense and acting in good faith remain very important in international trade. By the way, similar events can unfortunately overcome us all sooner or lat-er…

I know such principles are not well defined in the regulations, but they remain important. Otherwise robots with AI could do our job…

From Nguyen Huu Duc, Vietnam

The question just says the L/C was available with the nominated bank and the complying presentation was made. The nominated bank in this situation was not a confirming bank, hence, it was not so innocent to agree to act on its nomination, i.e., negotiate or honour the presentation.

The question was raised based on a true event that happened in Wuhan, Hubei. Due to the coronavirus outbreak the Chinese authorities announced the lockdown that stopped all public transit in and out of Wuhan including trains, buses and ferries.

This could be treated as a Force Majeure event at least to the issuing bank in Hubei. There will be two scenarios:

1/ Where the nominated bank has honoured or negotiated the complying presentation:

The issuing bank must reimburse the nominated bank upon resumption of its business and receipt of a complying presentation notwithstanding whether the L/C has expired.

2/ Where the nominated bank does not honour or negotiate the presentation:

The issuing bank will not honour upon resumption of its business.


Hi Nguyen,

Under UCP 600 article 35 you are not right in your scenario 2.

The article (second paragraph) reads:

Quote

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit ...

Unquote (emphasis added)

Consequently, it is not a matter of whether the nominated bank acted on its nomination but only of whether it ex-amined documents and determined that they were compliant.

And, by the way, UCP 600 themselves do not determine what is or is not a "force majeure", that is a matter of ap-plicable law or, possibly, international law. UCP merely determine how such general force majeure applies to doc-umentary credit.

It appears to be clear that the banks in the concerned region are in a force majeure situation. However, the effects thereof are out of scope of UCP 600 article 36 (except maybe as stated below) insofar as article 35 applies (the nominated bank received complying presentation, examined it and forwarded - or acted reasonably in trying to forward them - to the issuing bank).

Here we get back to Emile's and Nesar's posting - the nominated bank should try other courier companies, if pos-sible, contact the issuing bank or its head office or parent bank via various channels. If everything fails, I believe it is fully covered by article 35.

Of course, under force majeure situation the issuing bank will not be able to honour or reimburse immediately but it will have to do so after resumption of its business.

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Ad Bogdan:

Yes, under UCP 600 article 36 it seems to be so that the issuing bank will not be liable for any interest. To be hon-est, I believe that the nominated bank will not even claim it…

From Domenico Del Sorbo, Italy

Q: What is – in your view – the consequence of this from a UCP 600 perspective?

There are 2 issues on the nominated bank:

The query is just assuming that DHL have stopped delivering to the Hubei Province due to the Coronavirus, not that the issuing bank is closed. So:

a) The nominated bank is the confirming bank: In this case, the nominated bank must honour/negotiate a complying presentation. As the nominated bank, as per UCP 600 article 35 "assumes no liability or responsibility for the con-sequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.", the issuing bank must reimburse the nominated bank as per UCP 600 article 7(c).

The same apply in the case that nominated bank has negotiated/honoured the documents without recourse.

b) The nominated bank is not confirming bank and has NOT honoured or negotiated a complying presentation: The bank as per UCP 600 article 35 "assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or docu-ments, when such messages, letters or documents are transmitted or sent according to the requirements stated in the credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.", the issuing bank will honour a complying presentation. If not, i.e. documents pre-sented after expiry of the credit or after the allowed time, the issuing bank will not honour the credit.

Q: Is this Force majeure?

According to me, yes: As per UCP 600 article 36, Force Majeure is "Acts of God, riots, civil commotions, insurrec-tions, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its (bank) control."

Q: What would be the best approach of the nominated bank?

Contacting DHL to obtain the documents and trying to contact issuing bank, inviting beneficiary to obtain an agree-ment with applicant.

From Zahoor N. Dattu, UAE

First of all, my sympathies go to the citizens of People's Republic of China and all other people who have been trapped and cannot leave the City due to Coronavirus and all other people outside China who have been affected by this outbreak. We pray to GOD that the human suffering comes to end ASAP.

Coming back to question - the answer is very simple.

It is not a Force Majeure and the issuing bank is bound to honour the docu