Expired Letters of Credit When Banks Shut Down Due to Force Majeure: To Pay or to Refuse?

• An Analysis of Article 36 UCP 600 from a Real-Life Disaster

Mr. Old Man

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In international trade, the letter of credit (L/C) is often regarded as the “backbone” of transactions because of its ability to safeguard the interests of both the seller and the issuing bank. However, in practice, things do not always run smoothly. When the issuing bank or the nominated bank is forced to suspend operations—due to an earthquake, tsunami, political crisis, or any other force majeure event—what happens to an L/C that expires during the interruption?

According to Article 36 of UCP 600, a bank may not be held responsible to pay or negotiate an L/C that expires during the period of its business interruption. But is this absolute? In this article, we will examine three real-life scenarios to clarify:

1. What if documents were already presented or confirmed before the force majeure event, but payment had not yet been made?
2. What if presentation could not take place because the bank was closed, but the L/C stipulated presentation at that bank?
3. And if the nominated bank was disrupted locally, could the beneficiary bypass it by presenting directly to the issuing bank?

Through a lens of discipline, practice, and law, this article will explain: in which cases may a bank refuse payment, and in which cases does the beneficiary still have a chance to be paid even though the L/C expired during force majeure conditions.

On July 30, 2025, a massive 8.8-magnitude earthquake struck off the coast of Russia’s Far East, triggering a tsunami that impacted multiple countries and territories in the Pacific region. In Japan, more than 1.9 million people were ordered to evacuate as waves hit large portions of the northern and eastern coastlines. This force majeure event forced businesses—including banks—in the affected areas to shut down.

The question is:

If a bank is forced to suspend operations due to force majeure, is it released from its payment obligations under a letter of credit if that L/C expires during the closure?

In other words: If the issuing bank is closed due to a force majeure event, when it reopens, is it obligated to pay or negotiate an L/C that expired during the period of interruption?

The following are three case studies to analyze and answer this question.

What does Article 36 say?

Article 36 provides:

“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, honor or negotiate under a credit that expired during such interruption of its business.”

When reading Article 36, and assuming an issuing bank in Japan is forced to suspend operations due to an earthquake and tsunami, the beneficiary has every reason to fear that this bank—once it reopens—will refuse to honor the L/C. Similarly, a nominated bank that has paid or negotiated under an L/C may worry that it will not be reimbursed by the issuing bank.

Scenario 1

Bank P (Hokkaido, Japan) issues a confirmed L/C. Beneficiary: Ben B (Vietnam).

• L/C stipulates presentation available at the counter of Bank C by payment.
• Expiry: August 8, 2025, in Vietnam.

Bank C confirms the L/C and notifies Ben B.

Bank P closes on July 30, 2025.

Ben B ships the goods on July 28, 2025 (two days before the earthquake and tsunami) and presents a complying set of documents to Bank C on August 5, 2025.

Questions:

1. Can Bank C refuse payment by invoking Article 36, knowing that Bank P had closed due to the earthquake and tsunami?
2. Bank C has paid and forwarded the documents to Bank P via DHL, but delivery failed as Bank P was closed. Once Bank P resumes operations, may it refuse to reimburse Bank C?

Analysis & Conclusion – Scenario 1

1. The earthquake and tsunami occurred in Japan, but the L/C stipulated payment at Bank C with expiry in Vietnam. Ben B presented complying documents to Bank C, which remained fully operational at that time. Therefore, Ben B must be paid.

Article 36 does not apply to Bank C. As the confirming bank, Bank C is obligated to honor under UCP 600 Article 8(a), regardless of reimbursement from the issuing bank. This clearly demonstrates how a confirmed L/C protects the beneficiary against non-payment risks from the issuing bank or risks in the issuing bank’s country.

2. In this case, Bank C fulfilled its role and is entitled to reimbursement from Bank P. Article 36 does not protect Bank P here. Upon resuming operations, Bank P must reimburse Bank C, even if the documents were lost in transit. This is supported by UCP 600 Article 7(c) and Article 35 (covering loss of documents in transit).

Scenario 2

Bank P (Hokkaido, Japan) issues an L/C for Ben B (Vietnam).

• L/C stipulates presentation at the counter of Bank P by payment.
• Expiry: August 8, 2025, in Japan.

Bank C acts only as advising bank.

Ben B ships on July 28, 2025.

Bank P closes on July 30, 2025.

Question:

Bank C, not being nominated, forwards the documents to Bank P on Ben B’s behalf, but the documents cannot be delivered in time as Bank P is closed. When Bank P reopens, may it refuse payment under Article 36?

Analysis & Conclusion – Scenario 2

The L/C required presentation at Bank P, but presentation could not occur during validity because Bank P was closed. Here, Article 36 applies.

Thus, when operations resume, Bank P may refuse payment if the L/C expired during the interruption.

Two variations, however:

1. Documents were presented before the force majeure event, but not yet examined.

→ Article 36 does not apply. The bank must examine and pay upon reopening if the documents comply.

2. Documents were determined to be compliant before the force majeure event, but payment was not yet made.

→ Article 36 does not apply. The bank must still pay.

Scenario 3

Bank P (Hokkaido, Japan) issues a confirmed L/C. Beneficiary: Ben B (Vietnam).

• L/C stipulates presentation and payment at Bank C.
• Expiry: August 8, 2025, in Vietnam.

Bank C confirms and advises the L/C.

Ben B ships goods on July 28, 2025.

Bank C closes on July 30, 2025, due to an earthquake and tsunami in Vietnam.

On July 31, Ben B attempts to present documents but cannot, as Bank C is closed.

Question:

Here, the force majeure occurred in Vietnam. The L/C expired in Vietnam, requiring presentation at Bank C. Can Bank C refuse payment under Article 36 once it reopens? Is there any way Ben B can still be paid?

Analysis & Conclusion – Scenario 3

Yes, Article 36 applies. Bank C may refuse payment if the L/C expired during the period of interruption.

However, under UCP 600 Article 6(a), the beneficiary may also present directly to the issuing bank, bypassing the nominated bank. Since Bank C was closed, Ben B could have presented directly to Bank P within the L/C’s validity. If compliant, Bank P would be obligated to pay.

Final Conclusion

Article 36 of UCP 600 states that banks bear no liability for interruptions due to force majeure events (natural disasters, civil unrest, war, terrorism, strikes, or other causes beyond their control). Upon resumption of operations, banks are not required to honor or negotiate L/Cs that expired during the interruption.

However, whether a bank is truly discharged from its payment obligation depends on where presentation is required under the L/C and where the force majeure occurs.

In summary:

• If an L/C requires presentation at a bank that is closed due to force majeure, then under Article 36, that bank is not obligated to honor or negotiate if the credit expired during the closure.

This remains an area of UCP 600 with little precedent or reported practice. Therefore, some of the interpretations in this article may remain debatable—but hopefully they will spark further discussion in the trade finance community.

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Mr. Old Man