A CASE OF FORCE MAJEURE

QUESTION

Dear Mr. Old Man,

We hope my email finds you well.

I need your assistance.

If the issuing bank closed for the causes mentioned in article 36 but LC was available and expired at the counter of the beneficiary’s bank’s country, and that bank honored or negotiated complying documents, can the issuing bank honor these documents irrespective of that expired LC during the time of its interruption.

Thanks

Firas

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ANSWER

Hi,

Article 36 says: ‘A bank assumes no liability or responsibility for the consequences 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 interruption of its business.’

You may agree with me that a prudent nominated bank will not agree to act on its nomination, i.e., not honour or negotiate the documents when it knows for sure that the issuing bank has closed for the causes mentioned in Article 36 as it is concerned that it may not be reimbursed by the issuing bank if it honours or negotiates in this situation.

Notwithstanding the above, I tend to say YES, especially when the nominated bank is also a confirming bank and the issuing bank must, upon resumption of its business, reimburse the nominated bank.

In your case, the force majeure event occurred in the issuing bank’s country while the LC was available and expired at the counter of the nominated bank in the beneficiary’s country. If the nominated bank honours or negotiates a complying presentation, hence, it is entitled to reimbursement from the issuing bank upon resumption of business operations.

For your further reference, please find at the following link the article “The Force Majeure Rule” co-written by Kim Sindberg and me:

https://mroldman.net/force-majeure-rule/

Best regards,

Mr. Old Man