Name: Vincent O’Brien
Position: First Director
Location: Kiltimagh, Ireland
Specialisation: International Trade Finance
As a beneficiary under commercial LCs it is our company policy to request confirmation on all LCs issued by banks in certain markets.
Approximately five months ago we made a presentation to a confirming bank under a credit available by deferred payment at 180 days from bill of lading date.
The presentation was made within the presentation period and the expiry date at the counters of the confirming bank where the LC was available.
The documents were processed by the confirming bank without any communication to ourselves regarding discrepancies or otherwise.
However, it has transpired that due to military driven unrest itha s been impossible to unload the goods at the port of discharge stated in the LC and furthermore the issuing bank has been closed for some weeks.
We have been advised by the Confirming Bank that payment may be delayed due to a ‘Force Majeure Event’ at port and country of destination.
We argued that this is not correct as they had earlier added their confirmation to the LC.
The confirming bank replied stating that they have no liability as this situation is a ‘force majeure event’ quoting UCP 600Article 36 ‘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 anyother causes beyond its control’
Please clarify, as this appears to us to be bending the rules.
Yes, this is certainly ‘…a bend too far!’Let us take this step by step.
First, once the confirming bank added its confirmation then per UCP 600, article 2 it has given you a ‘definite undertaking’ to ‘honour a complying presentation’ of documents..
Second, as the confirming bank did not issue a notice of refusal by the close of the fifth banking day following the day of presentation, the confirming bank is now clearly precluded from claiming that the documents do not constitute acomplying presentation – and must honour.
Third, the unfortunate events you mention in your query did not interrupt or have an effect on the business of the confirming bank whose undertaking is additional and separate to that of the issuing bank.
Bluntly put, the confirming bank is quoting Article 36 out of context and must honour, which means the confirming bank has an obligation to effect payment to you as beneficiary on the maturity date.
If you have a query on documentary credits or UCP 600 why not contact Vincent at firstname.lastname@example.org!
This Article was originally printed in LC Monitor, a leading Documentary Credit Publication. www.lcmonitor.com/