Volume 21, Issue 1, January- March 2019

TRADE SERVICES UPDATE

Covering practical aspects of payment instructions in international trade

In This Issue Dear reader!

Welcome to 2019. I hope that the beginning of

Features: the year has been good to you. For the Newslet-
Paying Hommage to ter we continue to do what we do best: Deliver
Amsterdam 1929 By high quality Trade Finance information free of
Xavier Fornt (pg. 3) charge to your mail box.

Force Majeure Claus-
es in ICC Rules – a
comparison By Mu-
hammad KhalilUllah
(pg. 4)
The feature article for this issue is the thorough
article about Force Majeure Clauses in ICC
Rules by Muhammad KhalilUllah. This article of-
fers insight into one of the most difficult topics around Trade Finance. I hope
you enjoy it. I did.

Letter of Credits how
to prepare a benefi-
ciary's certificate By
Domenico Del Sorbo
(pg. 18)
ISBP 745 Revisited
ISBP 745 – Paragraph
by Paragraph
(Paragraph A12)
(pg. 20)
While writing this editorial my visa and tickets for the ICC Meeting in China
are in place. The ICC Draft Opinions are out for comments – and the com-
ments are ticking in. In other words: Everything is as it should be in March.
As always, I look forward to the ICC Banking Commission meeting; to meet-
ing old friends – to having good discussions. But most of all, I look forward to
reporting to you afterwards. So stay tuned.
Kind regards,
Kim Sindberg / Editor in Chief / Trade Services Update
info@lcmonitor.com

Discussion Corner
Irrespective of insur-
ance, franchise, de-
ductible or Excess
(pg. 21)

News
News from the Trade
World (pg. 25)

1
 Editors
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:
Robert Ronai, Import-Export Services Pty Ltd, Australia
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.
About Trade Services Update
Trade Services Update is published quarterly by
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with which they are associated. This publication is designed
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URL: www.tradeservicesupdate.com Email: tsu@globaltradecorp.com
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
Germany, Markus Wohlgeschaffen, UniCredit Group
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, Romanian Commercial Bank
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
2
Tel: +1 416-661-8520

Paying Hommage to Am-
sterdam 1929
By Xavier Fornt (http://tradeservicesupdate.com/
editor?editor=editor_xavier)
The UCP 82 (the first Uniform Cus-
toms and Practice Rules for docu-
mentary credits) – also known as
the “Vienna rules 1933” have al-
ways been considered the first L/C
rules. However, even before that
the merchants of the peace, wrote
the Rules of Amsterdam 1929. The
purpose of this article is to pay
homage to these Rules – now cele-
brating its 90th anniversary.
In other words, this article will in-
vestigate the origin of the documentary credit.
Thomas Jefferson, the third President of the United States,
delivered on July 4th, 1803, a letter to the explorers Cap-
tains M. Lewis and W. Clark, authorizing them to take money
from the Secretaries of State, the Treasury, War or Naval for
your needs and those of your men, by presenting their cre-
dentials.
This letter is kept in the archives of the Librarian of the Unit-
ed States Congress and can be considered in a certain way,
as the embryo of a documentary credit available at sight,
since the beneficiary (the explorers), they were paid against
the presentation of a document that was their credentials.
Also, in Chapter 15 of the second part of the Count of Monte
Cristo, written in 1844 by Alexander Dumas, there is a men-
tion of “letters of credit.” It is a letter from Alberto de Morcerf,
and drafted as follows:
Dear friend: At the moment you receive the present, kindly
take my purse, which you will find in the square drawer of
the desk; the letter of credit, unite it to yours. If this is not
enough, run to Torlonia's house, take immediately four thou-
sand piasters and hand them over to the bearer. It is urgent
that this sum be addressed to me without delay. I do not
want to increase the punctuality, because I count on your
efficiency, as in the same case you could count on mine.
PD I believe now to be Italian banditti.
Your friend,
Alberto de Morcef
These are the first embryos of the documentary credit. But
back then, there were no rules.
These are the first embryos of the documentary credit. But
back then, there were no rules.
However, there are more ahead; namely in 1920,
when the banks established in New York, subscribed
to the document titled “Commercial Credits,” adopted
by the New York Bankers, in the Commercial Credit
Conference.
A total of 35 banks subscribed to this declaration, and
among them names that continue to be well known
also today. These are banks such as American Ex-
press Company, Banca Commerciale Italiana, Bank of
Montreal, Bankers Trust, JP Morgan and Standard
Bank of South Africa.
This statement included six rules and took the form of
a notification to correspondent banks.
The first rule stated that the banks did not assume
responsibility for the form, sufficiency, correct legal
effect of the documents, which would be examined on
their face.
The second rule, declared that the term “documents”,
was interpreted as bills of lading, marine and war risk
insurance policies as well as invoices.
In rule three they made it clear that bills of lading
“received for transportation”, were accepted, unless
otherwise indicated.
Rule four regulated “on board” and “endorsements”
on the bill of lading.
Rule five, the most extensive, was subdivided into
sections from A to J and mentioned, among other
things, the expressions used and partial shipments.
Finally, rule six indicated that correspondents should
understand that these rules governed for credits, un-
less there were other specific agreements.
It was not until the XX sesión of the ICC, held March
5th, 1926, that the American committee itself proposed
to begin the work to achieve a complete reunification
of the Rules.
October 20th, 1926, they decided to include their pro-
posal and pass it to the National Committees for study.
The next step was taken at the Stockholm Congress,
held in June 1927, in which merchants and industrial-
ists (that is, customers) were invited to participate in
the project.
Finally, July 13th, 1929 the Amsterdam Rules were
approved, to which some European countries – such
as Belgium and Holland – joined.
Although other countries would not do so until a few
years later, specifically in Vienna in 1933, the seed of
the international Uniform Rules for Documentary Cred-
its was already planted.
Serve this article as a tribute to those pioneers who
wrote the Amsterdam rules in 1929, 90 years ago.
3
Force Majeure Clauses in
ICC Rules – a comparison
By Muhammad KhalilUllah
Deputy General Manager,
Habib Bank Limited, Cen-
tralized Trade Operations,
Global Operations, Karachi
Almost 25 years of experi-
ence in Trade Operations
that includes heading Trade
Operations for 11 years in-
side Pakistan and in UAE.
1)-Currently-Deputy General Manager in Habib Bank
Limited, Centralized Trade Processing, Global Opera-
tions, Karachi. (November 2017 till date)
Currently Responsibility includes :
a)-Overseeing of all Trade Operations of HBL outside Pa-
kistan with respect to the Centralization Project whereby
all Trade Operations of the bank are to be centralized
centrally.
b)-Development and Implementation of TBML framework
for the bank.
c)-Overseeing all local Regulatory aspects of trade oper-
ations and compliance thereon.
d)-Overseeing System customization & Process Re-
engineering.
2)-Head of Trade Operations in Union National Bank,
Abu Dhabi, UAE. (December 20111 till March 2017)
3)-Head of Trade Operations and Acting Head of Opera-
tions in Dubai Islamic Bank Pakistan Limited (March 2017
-November 2017)
4)-Head of Trade Operations and Acting Head of Opera-
tions in erstwhile Emirates Global Islamic Bank Limited
(March 2006-February 2017)
———————————————————————-
What constitutes A Force Majeure?
The term “force majeure” is derived from French lan-
guage and its literal meaning is "superior force". It is a
common clause in contracts that essentially frees parties
from their liability or obligation as stated under such con-
tracts when an extraordinary event or circumstance be-
yond the control of the parties occur, such as war, strike
and riot.
A force majeure is an event best described by the legal
term “Act of Good” as it is generally intended to include
occurrences beyond the reasonable control of a party.
In practice, most force majeure clauses do not excuse a
party's non-performance entirely, but only suspend it for
the duration of the force majeure.
• In practice, most force majeure clauses do not ex-
cuse a party's non-performance entirely, but only sus-
pend it for the duration of the force majeure.
It therefore would not cover any result of
the negligence or malfeasance of a party, which has
a materially adverse effect on the ability of such party
to perform its obligations.
• Legal systems generally allow the parties to define
what constitutes a force majeure event and to allo-
cate or apportion its consequences in their contracts.
Statutory provisions in civil codes, laws of contract,
laws of obligation and similar provide rules that deter-
mine the consequences of force majeure only in the
absence of an agreement between the parties on this
issue. At one end of the spectrum, we find clauses,
under which the debtor commits to perform its obliga-
tion or alternatively to indemnify its creditor even in
the case of force majeure. At the other end of the
spectrum, there are clauses freeing the debtor of its
obligation where performance becomes more oner-
ous albeit possible.
• The successive versions of UCP, ISP98, URR and
URDG provide rules governing force majeure as do a
great number of international texts and model con-
tracts e.g Principles of European Contract Law, UNI-
DROIT Principles of International Commercial Con-
tracts, FIDC Conditions of Contract for Construction
etc.
The following events come within the scope of force
majeure events:
[a] war (whether declared or not), armed conflict or
the serious threat of same (including but not lim-
ited to hostile attack, blockade, military embargo),
hostilities, invasion, act of a foreign enemy, exten-
sive military mobilization;
[b] civil war, riot, rebellion and revolution, military or
usurped power, insurrection, civil commotion or
disorder, mob violence, act of civil disobedience;
[c] act of terrorism, sabotage or piracy;
[d] act of authority whether lawful or unlawful, compli-
ance with any law or governmental order, rule,
regulation or direction, curfew restriction,
4
 expropriation, compulsory acquisition, seizure of
works, requisition, nationalization;
[e] act of God, plague, epidemic, natural disaster
such as but not limited to violent storm, cyclone,
typhoon, hurricane, tornado, blizzard, earth-
quake, volcanic activity, landslide, tidal wave,
tsunami, flood, damage or destruction by light-
ning, drought;
[f] explosion, fire, destruction of machines, equip-
ment, factories and of any kind of installation,
prolonged break-down of transport, telecommu-
nication or electric current;
[g] general labor disturbance such as but not limited
to boycott, strike and lock-out, go-slow, occupa-
tion of factories and premises.
Nature of Force majeure event
The events constituting a force majeure under ICC Pub-
lications fall into two groups:
a) The first consists of events that are assumed to be
beyond the control of the banks namely as acts of God,
riots, civil commotions, insurrections, wars and acts of
terrorism.
b) The second consists of other events that suspend the
bank’s duty to perform only if they are beyond its control.
There is a possibility to argue that such events may be
caused by circumstances which are within the control of
the banks. For example: Strikes, lock-outs or an industri-
al action can be caused by the events which may or may
not be within the control of the banks. But if such events
were caused by circumstances that the bank did not pro-
voke and could not have been avoided by reasonable
measures then it will be construed to be a force majeure
event. Other such examples include a widespread ill-
ness affecting many members of the staff necessitating
closure of the branch, failure of the computer system
and back-up for reasons beyond the control of the bank
or economic sanctions precluding payment in any cur-
rency to nationals of the beneficiary’s country etc.
However, an electrical outage these days due to the
availability of various alternatives of electricity like gen-
erators, UPS etc. cannot be construed to be a force
majeure event.
Banks all over the world have BCP plans to counter
such eventualities and drills are regularly conducted af-
ter fixed intervals to test such preparedness.
The logical consequence of a force majeure event for a
bank would be that it would interrupt its business of:
a) Advising, issuing, confirming, negotiating, honoring
and examining documents against an L/C under UCP
600.
b) Effecting reimbursements against reimbursement au-
thorizations, reimbursement undertakings or raising re-
imbursement claims under URR 725.
c) Entertaining demands or claims against demand
guarantees under URDG 758.
d) Advising, issuing, confirming, honoring and examining
presentations or documentary demand against a
standby under ISP98.
e) Paying or incurring deferred payment obligations
against a Bank Payment Obligation under URBPO 750.
f) Collecting, remitting, accepting and paying against a
documentary collection under URC 522.
“Force Majeure” events have been stated almost similar-
ly in most of the ICC Publications like UCP 600, URC
522 and URR 725.
However, in other ICC Publications i.e. URDG 758,
ISP98 and URBPO 750, these clauses though almost
similar in their definition, are not only unique in respect
of their rules but also distinctly different when compared
with one another or with that of UCP 600 or URR 725 or
URC 525. The prime reason for this difference is the dis-
tinct nature of these instruments to which these rules
relate to.
In this article, we will cover all such ICC rules governing
force majeure events and compare their distinct features
in each of these rules.
Definition of Force Majeure events in ICC Publica-
tions
In most of the ICC rules, force majeure events have
been defined almost similarly, i.e. as “events beyond the
control of banks which result in disruption of their busi-
ness activities relevant to such rules, caused by acts of
God or causes beyond their control.”
Such definition if viewed minutely across different ICC
Publications do show slight variations in their wording
but such variations of text are ignorable as they do not
affect the meaning and coverage of force majeure
events. Thus, the principle governing the force majeure
events as “acts beyond the control of the banks or Acts
of God” is still applied in each of these rules.
In this respect, we observe that:
a) In URC 522, the “act of terrorism” is still not included
in the list of force majeure events.
Article 15 of this publication, describes the force
majeure events in the following manner:
5
 “Banks assume no liability or responsibility for con-
sequences arising out of the interruption of their
business by Acts of God, riots, civil commotions, in-
surrections, wars, or any other causes beyond their
control or by strikes or lockouts.”
This is due to the fact that the current applicable version
of URC was adopted by the ICC June 1995 i.e. well be-
fore the incidents of terrorism that took place in the next
decade in USA, Europe and in other parts of the world.
These incidents would have prompted drafters of these
ICC Publications to include “Acts of Terrorism” in its list of
force majeure events in the next revised versions. Thus
we find them in the revised editions of UCP, URR and
URDG. Also, the URC rules does not include the second
paragraph of UCP 600 article 36, i.e. “A bank will not,
upon resumption of its business, honor or negotiate
under a credit that expired during such interruption
of its business.” as honor or negotiation is not a part of
a documentary collection though banks are free to per-
form their responsibility as a collecting, remitting or pay-
ing bank upon resumption of business following a force
majeure event.
Publication URBPO 750 (published 2013) include the
words “Acts of terrorism” already incorporated in its first
and only version.
b) In ISP98, there has been no explicit mentioning of the
words “force majeure” and various events that can come
within its scope, yet the rule governing the closure of a
bank that may have been caused by any reason including
force majeure has been covered in a unique way which
will be discussed in this article below.
c) UCP 600, article 36 describes Force Majeure events
as follows:
“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, in-
surrections, 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 dur-
ing such interruption of its business.”
Here “strikes or lockouts” are included in the force
majeure event just like in URR 725, URBPO 750, URC
522 but unlike in URDG 758.
Whereas sub-article 26 (a) of URDG 758 defines
“force majeure” as:
“…..acts of God, riots, civil commotions, insurrec-
tions, wars, acts of terrorism or any causes be-
yond the control of the guarantor or counter-
guarantor that interrupt its business as it relates
to acts of a kind of subject to these rules.”
Strikes and lockouts though apparently have not been
specifically mentioned as a force majeure event in
URDG (as is the case in UCP 600), it is implied that it
is still in scope of these rules provided they are
caused by circumstances outside the control of banks.
There are two reasons for this variance:
1) The inclusion of strikes and lockouts as force
majeure events in UCP is historical. This is evident
from the text of article 13 of the very first UCP i.e.
UCP 82 issued in 1933:
"Banks assume no liability or responsibility for
consequences arising out of the interruption of
their business either by a decision of a public au-
thority, or by strikes, lockouts, riots, wars, acts of
God or other causes beyond their control. On
credits expiring during such interruption of busi-
ness, Banks will be able to make no settlement af-
ter expiration, except on specific instructions from
their principal.”
The context of the rule has not changed materially
since then, although, in 1951 article 13 removed the
reference to “instructions from their principal” and re-
placed it with “unless specifically authorized”.
The inclusion of the words ‘strikes and lockouts’ has
been appearing in UCP for over 80 years. To remove
it at the time of any future or previous revision would
have raised many unnecessary questions and doubts
in the minds of practitioners as there are not many
banks and companies that are aware of guides or
commentaries on a new UCP that would have high-
lighted the reason(s) for such changes.
2) Moreover, URDG was first published in the 1980’s.
The drafting process started with a clean sheet of pa-
per. Looking at the text in URDG 758, sub-article 26
(a) which reads “….. acts of terrorism, or any other
causes beyond the control of the guarantor or
counter-guarantor that interrupts its business…..”,
it is clear that the wording “or any other causes be-
yond its control” would capture strikes and lockouts
also. Hence, this wording in URDG 758 is in line with
the wording of UCP 600, URC 522 and URR 725.
d) Article 15 of URR 725 states:
6
“A reimbursing bank assumes no liability or respon-
sibility 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 be-
yond its control.”
The above definition is identical to that in UCP 600 apart
from the fact that it refers to a reimbursing bank only and
like in URC 522 does not include the second paragraph
of UCP 600 article 36.
e) Article 13 a of URBPO states
“An Involved Bank assumes no liability or responsi-
bility for the consequences arising out of the inter-
ruption of its business, including its inability to ac-
cess a TMA or a failure of equipment, software or
communications network, caused by Acts of God,
riots, civil commotions, insurrections, wars, acts of
terrorism, or by any strikes or lockouts or any other
causes, including failure of equipment, software or
communications networks, beyond its control.”
The above definition of force majeure in URBPO 750 Arti-
cle 13 is not different from other ICC rules. It extends for
obvious reasons, the scope of a force majeure event as
described in UCP 600 to an electronic environment in
which a BPO exists. Conceptually, the definition of force
majeure covers the inability of an Involved Bank / Sellers
Bank / Recipient Bank / Buyer’s Bank / Obligor Bank /
Submitting Bank to access a “Transaction Matching Ap-
plication” (i.e. a centralized data matching and workflow
Application which provides the service of processing
TSMT messages received from involved banks and per-
forms the automatic comparison of the data contained in
such messages and the sending of TSMT messages to
each involved bank in a BPO) or failure of the equipment,
software or communications networks .
From the above, it is clear that in all ICC rules, the force
majeure had a definite and a similar meaning i.e. it would
have occurred when the bank fails to perform one or
more of their contractual duties on account of a situation
caused by an impediment beyond their reasonable con-
trol.
How does a Force Majeure event under UCP 600 ef-
fect the different parties
Article 36 of UCP 600 primarily limits the obligations of
the nominated bank or confirming bank (if any) and the
issuing bank to examine the documents and to honor or
negotiate when a force majeure event interrupts its busi-
ness. Such banks can however perform their respective
functions upon the resumption of their business under an
L/C that expired during such period of interruption i.e. to
examine the presentation, honor or negotiate provided
the presentation is already made to the nominated / con-
firming bank or issuing bank before the force majeure
event with no responsibility of delayed payment and thus
not liable for any interest claims. Hence, if the benefi-
ciary is not able to draw upon the L/C and failed to pre-
sent documents to any of the above banks on account of
events beyond its control occurring on or just before the
expiry of the L/C, it will also not do so upon resumption
of the bank’s business after any force majeure. Article
36 does not address the beneficiary’s ability to draw
when a force majeure event affects beneficiary’s busi-
ness like other ICC Publications.
Impact of the Force Majeure on the bank’s business
for L/Cs under UCP 600
If the L/C is restricted to a specific nominated bank/
confirming bank (if any) and there is a force majeure
event affecting the nominated bank/confirming bank, the
beneficiary has the option to present documents directly
to the issuing bank provided enough time is available to
send the documents directly. Such documents must
reach the issuing bank within the expiry date and within
the prescribed period of presentation. The other option
could be to contact the applicant directly and ensure im-
mediate extension of expiry date and/or latest date of
presentation of documents, if possible. The situation
would however be different if a force majeure event
takes place at the issuing bank thereby preventing the
issuing bank to perform its obligations under the L/C. It
can perform honor only after resumption of banking ser-
vices at its counters provided it received the documents
before such interruptions but would not liable for any
interest for the delayed honor caused by a force majeure
event.
UCP 600 sub-article 29(a) does extend the L/Cs expiry
date when the bank is closed on the expiry date, but on-
ly if the closure is “for reasons other than those referred
to in article 36” (UCP 600, article 29 (“Extension of Expi-
ry Date or Last Day for Presentation”)). Thus, the expiry
date may be extended to the next banking day if, for ex-
ample, the bank’s closure is the result of an ordinary clo-
sure—a weekend or a holiday or the like—but not if the
closure is due to a force majeure event.
It requires little imagination to foresee the scenario in
which a beneficiary may be adversely affected by appli-
cation of these rules. Assume that the beneficiary under
a commercial L/C which has performed under a contract
of sale and goods has been shipped is prepared to pre-
sent documents to draw under the L/C when a force
majeure event closes the bank’s offices. If the L/Cs origi-
nal expiry date passes while the offices are still closed,
the expiry date is not extended by operation of article
36. If a presentation is made on the next banking day,
the bank is not obligated to pay beneficiary because the
L/C has expired, even if the documents are complying.
Beneficiary, of course, is not left without recourse. It has
performed under the contract, and it could seek recovery
of the contract price directly from buyer. But presumably
beneficiary may have required an L/C in the first place to
obtain the additional assurance of payment provided
7
when the bank undertakes to pay under the L/C. If the
beneficiary cannot rely upon payment when a force
majeure event occurs, the very reason it required an L/C
is frustrated.
The application of articles 29 and 36 is particularly harsh
to beneficiaries of standby L/Cs under UCP 600. Where-
as the beneficiary of a commercial L/C may retain con-
trol of the goods as security to enforce the obligation to
pay beneficiary, the beneficiary of a standby L/C under
UCP 600 does not usually have goods to retain and in-
stead relies upon the bank’s obligation and bears the
risk that a force majeure event will close the bank on the
expiry date.
In the case of a confirmed L/C, where force majeure af-
fects the business of the confirming bank, the benefi-
ciary is free to make a presentation to the issuing bank
which is separately liable and directly committed to the
beneficiary.
If the issuing bank /confirming bank cannot complete the
scrutiny process of documents received at their counters
as stated in UCP sub-article 16 (b) within the prescribed
period of 5 days following the date of receipt of docu-
ments due to a force majeure event, the examination
period allowed under UCP 600 remains suspended till
such time, the normal business resumes. After the re-
sumption of business, the issuing bank or a confirming
bank can have remaining number of days available from
the prescribed period of 5 banking days following the
date of receipt of documents. Thus if the examination
period is suspended let’s say after 2 days following the
day of presentation on account of a force majeure event,
when the bank resumes its business, they will have 3
more days to complete that examination process. With
regard to the refusal notice, the issuing bank or a con-
firming bank would need to prove that they were in a
position to issue the refusal within the time limits, had
the force majeure event not occurred within the UCP
prescribed timeline. There is no grace period provided to
the issuing bank or a confirming bank in this respect.
If an issuing bank fails to honor at maturity under a us-
ance credit due to a force majeure event, the issuing
bank may or may not be bound to pay any delay interest
claims for delayed period if received from the nominated
bank. This would depend on a lot of other factors like
whether there is another branch of that bank located in
that jurisdiction which could have paid or fulfilled the ob-
ligations of the issuing bank to honor and effect payment
on the due date without any delay. Banks these days do
have BCP plans tested and implemented to counter
such situations. Thus normally a force majeure event
should not hold an issuing bank to default on such pay-
ments at the maturity date. Banks usually do not wait
until the maturity date to make the reimbursement ar-
rangements (or, at least, they should not). If the force
majeure event happens at the time the bank is preparing
the reimbursement, there will be other offices that
should be able to pick up the transactions (through a
contingency plan) and ensure compliance. Only where
there is a bank with a single branch in a jurisdiction,
there would there be grounds for not to pay interest for
delayed payment or honor.
During the revision process of UCP 600, the Drafting
Group discussed whether to align this article with
ISP98 rule 3.14 which reads as follows:
“3.14 Closure on a business day and authorization
of another reasonable place for presentation
(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 be-
cause 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 pro-
vides.
(b) Upon or in anticipation of closure of the place of
presentation, an issuer may authorize another reason-
able place for presentation in the standby or in a com-
munication 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 presentation is automatically extended to
the day occurring thirty calendar days after the last
day for presentation.”
As per the ICC Commentary on UCP 600, in one of
the drafts submitted to ICC national committees during
the revision process of UCP 600, article 36 included a
form of “grace period” during which the beneficiary
could make a presentation following resumption of the
bank’s business. Whilst, thirty day period as stated in
the ISP98 rule, was considered to be too excessive for
an L/C, a period of five banking days was offered as
an alternative to the structure prevailed under UCP
500 article 17. However, the responses from ICC na-
tional committees indicated a preference for the exist-
ing structure, as banks did not seem to agree to the
idea of an obligation without a determinable expiry
date as stated under ISP98.
Grey Areas in UCP 600
If it was determined subsequently that the closure of a
bank is not because of a force majeure event as de-
scribed in UCP 600 i.e. the instance of closure of ser-
vices turned out to be an event which is within the
8
control of the bank and not beyond its control, but the bank is
still closed, it is unclear what consequence would follow un-
der UCP 600. Thus, there is much uncertainty in UCP, in re-
spect of consequences of force majeure events that may im-
pact banks. One example in such a situation would be that
the bank will be forced to receive documents that could not
be presented during the alleged force majeure event, includ-
ing after the expiry date of the L/C and accept them if they
otherwise comply.
The notion of a cause “beyond the control” of a bank de-
creases the usefulness of the concept of a force majeure as
it is not always clear whether a closure of bank is caused by
an event that is beyond its control.
The approach to “force majeure” events under commercial L/
Cs has been to place the risk of non-performance on the
beneficiary. While this makes sense with respect to commer-
cial L/Cs because the applicant typically wants the docu-
ments and if they are credit compliant he is contractually
bound to pay while the beneficiary on his part typically re-
tains control of the documents which in turn gives him the
control of the goods. This approach has not caused signifi-
cant problems for beneficiaries of commercial L/Cs. It how-
ever makes no sense under UCP 600 demand guarantees or
standbys where the issuer/guarantor is unlikely to waive the
discrepancy in the documents presented under the L/C if the
closure is not because of “force majeure” and the documents
do not typically represent control of goods. The beneficiaries
of standbys therefore insist that a UCP standby does not
provide for an extension of the expiration date in such a situ-
ation.
Because rational beneficiaries would not accept the UCP
solution, the rule prescribed in UCP 600 is regularly varied or
modified in standbys/demand guarantees subject to the UCP
to cater the requirements of a standby L/C.
Force majeure events happening around the world did not
often result in large-scale bank closure, they do serve as
useful reminders that parties to an L/C also must allocate the
risk of or otherwise plan for how unanticipated events may
affect the L/C transaction. That is especially true of benefi-
ciaries, who must at least be aware how the applicable rules
treat force majeure events and who should consider varying
certain provisions.
In addition, though ISP98 and UCP 600 both address force
majeure events, there are important distinctions between
them—particularly insofar as the beneficiary’s right to de-
mand payment is concerned. As a result, even the choice
which rules govern a standby L/C could impact whether the
beneficiary is able to demand payment following a force
majeure event.
In such a situation, the parties to an L/C especially banks
may take following steps to protect their interests:
a)- The beneficiary may seek incorporation of “ICC Force
Majeure Clause 2003” in the text of any underlying contract,
executed between him and the applicant before issu-
ance of any commercial or standby L/C under UCP 600.
This can be achieved by incorporating these rules ex-
pressly in the terms of the contract or by a mere refer-
ence.
This would help achieve the following three objectives:
Firstly, it would assist the drafters of the contract and
save them from the hassle of incorporating all force
majeure rules in the contract. A mere reference to the
rules could help encompass all aspects of the force
majeure events.
Secondly, the rules are comprehensive and provide
coverage for all possible force majeure events giving
clarity to all the parties to a contract.
Thirdly, it is expected that incorporation of such rules in
the contract would prevent a party from a wrong invok-
ing of an event listed as a force majeure event by simply
pointing towards the mere occurrence of that, the effects
of which it could reasonably have avoided or overcome,
and to claim relief on that basis from its duty to perform.
b)-Secondly, though the beneficiary of a commercial L/C
cannot seek application of ISP98 to a commercial L/C, it
would be wise to seek modification of the UCP 600 arti-
cle 36 rule in the text of the L/C either by including lan-
guage on the lines of ISP98 rule 3.14 or even incorpo-
rating a similar language allowing for an extension in the
expiry date of the L/C for closures due specifically to
force majeure events. This would protect the beneficiary
without a significant change in the bank’s obligations. In
this way, the expiry date of the L/C can be extendable in
such situations to protect the interests of the beneficiary.
Parties can go one step further by either asking the issu-
ing bank through a communication received from the
applicant or by providing express authority to an issuing
bank in the original L/C terms (if it deemed necessary),
either at its own or in response to a communication re-
ceived from the beneficiary, to make amendments to the
L/C to cover provisions as stated in sub-paragraph (b) of
rule 3.14 of ISP98. This would give the issuer of the L/C
authority, to change place for presentation of documents
where documents can be presented for examination and
honor/negotiation in anticipation of any force majeure
event like tsunami, general strike etc. This would allevi-
ate any of the issuer’s concerns as to extending the ex-
piry date. Issuer may avoid as a result any potential ex-
penses incurred through extension of the expiry date,
and beneficiary is also allowed to present its documents
and be paid timely.
Thus, the language in rule 3.14 if incorporated partially
or in entirety into a commercial L/C may offer more pro-
tection to the beneficiary than article 36 of UCP 600 of-
fers.
9
Even if a beneficiary does not incorporate the text of
ISP98 rule 3.14 or use similar language, it should not
blindly accept the terms of UCP 600 article 36 without
understanding the risks that it takes in doing so. The
beneficiary, who counts on an L/C for payment but does
not address the risks presented by article 36, does itself
no favors. Instead, it should vary the terms to properly
account for the risk that a force majeure event can
cause.
Impact of Force Majeure events on standby L/Cs un-
der ISP98
Recognizing that the approach of the UCP to closure on
a business day was inapt for standbys/demand guaran-
tees, ISP98 rule 3.14 (Closure on a Business Day and
Authorization of Another Reasonable Place for Presen-
tation) sought to impose uniformity by adopting a default
rule based on the format used in standby L/Cs all across
the world by more powerful beneficiaries whereby there
is no requirement to determine cause of the closure of
the bank on the last business day of presentation. Clo-
sure of business thus may have been caused by a force
majeure or an event within the control of the bank and in
both the cases, the expiry date is extended automatical-
ly for a period of further 30 calendar days after the place
of presentation re-opens for business.
For a standby issued under ISP98, claims (if any) are
normally submitted close to (or on) the expiry date,
thereby allowing the applicant ample time to honor its
obligations under the contract. Therefore, the wording in
ISP98 reflects this stance by allowing the 30 day period
(it is also standard practice in the standby L/C industry.
The period of 30 calendar days was picked because
most beneficiaries that varied the UCP rule for standbys
chose a 30 calendar day extension). Under commercial
L/Cs, however, in a normal situation, it would be unwise
of a beneficiary to present its documents on or close to
the expiry date as it does not allow any time to correct
any discrepancies.
It is to be noted that ISP98 rule 3.14(a) (Closure on a
Business Day and Authorization of Another Reasonable
Place for Presentation) is a default rule that can be var-
ied by the terms of the standby that can provide for a
longer or shorter period of time for presentation after re-
opening of the place for presentation, hence the use of
the words “unless the standby otherwise provides” in the
text of the clause 3.14(a).
Under ISP98 rule 3.14(a), the same extension applies,
but only if presentation is not made on the last day for
presentation because of the force majeure event. If the
beneficiary was not in a position to make a presentation
on that day, then under ISP98 rule 3.14(a) the benefi-
ciary does not receive the benefit of the extension and
the L/C is deemed to have expired without a drawing
made. In other words, the ISP98 rule injects an element
of “but for” causation into its force majeure provision ex-
tending the expiration date, which the usual UCP for-
mulation does not. To avail the benefit provided by this
rule, the beneficiary needs only to show that its failure
to timely make a presentation under a standby was
caused by the closure of the bank. This situation is a
bit tricky for an issuing bank which has to make a deci-
sion in such a situation to confirm the claim of the ben-
eficiary based on the production of satisfactory docu-
mentary evidences by the beneficiary; else its position
can be challenged by the applicant in a court of law. In
case of a dispute on this account, the matter may be
decided through arbitration or through a court injunc-
tion.
In case a presentation is made before the last day for
presentation as stated in the standby and the exami-
nation of presentation is in process but the bank is
closed on that last day due to any reason, the bank is
bound to honor such presentations if they were found
to be compliant as per the terms of the standby when-
ever the bank re-opens for business. If the examina-
tion process is not completed, the period of examina-
tion of the presentation will remain suspended till such
time the bank reopens for business. It will re-start from
the day the bank re-opens for business and has to be
completed in line with the prescribed time limit as stat-
ed in the ISP98 rule 5.01 (a). In case, the examination
process of documents have already been completed
before the interruption and the payment is contemplat-
ed when the bank is closed on account of any reason
(including any force majeure event) on or just before
the last date for presentation, the bank will be bound
to honor such presentation as soon as it opens for
business after interruption.
There are however, occasions where the issuer/
guarantor is not content to wait until the place for
presentation re-opens, such as when a considerable
length of time will pass before the place for presenta-
tion re-opens. Indeed, the place for presentation may
not re-open at all.
length of time will pass before the place for presenta-
tion re-opens. Indeed, the place for presentation may
not re-open at all.
ISP98 rule 3.14(b) (Closure on a Business Day and
Authorization of Another Reasonable Place for
Presentation) allows the issuer/guarantor to designate
a “reasonable” alternative place for presentation. The
alternative designation under this rule is not a pro-
posal to amend and does not require the beneficiary’s
consent to be effective. The provision functions as an
automatic amendment. However, ISP98 rule 3.14(b)
(Closure on a Business Day and Authorization of An-
other Reasonable Place
for Presentation) also provides important protections
for beneficiaries. First, it requires that the beneficiary
must have received notice of this designation. Second,
10
it requires that the place designated must be
“reasonable” (i.e. commercially practicable for the benefi-
ciary to reach).
The ISP98 provision permitting the designation of an al-
ternative place for presentation is attractive for both the
issuer/guarantor and beneficiary where there has been
closure because of a supervening event. However, there
does not need to be a closure caused by a supervening
event. ISP98 Rule 3.14(b) (Closure on a Business Day
and Authorization of Another Reasonable Place for
Presentation) also permits the issuer/guarantor to desig-
nate an alternative place for presentation in advance of a
closure, or relocation, without risking a repudiation of its
obligations. As long as the notice of an alternate, reason-
ably located place for presentation is received more than
30 calendar days before the change, it would be automat-
ically effective under ISP98 rule 3.14(b) (Closure on a
Business Day and Authorization of Another Reasonable
Place for Presentation).
There is not a similar provision permitting designation of
an alternative place for presentation under UCP 600 or
URDG 758. Under these practice rules, the best that the
issuer/guarantor can do in a situation where it wishes to
close or relocate a facility is to propose an amendment
and hope that the beneficiary will consent. However,
most beneficiaries simply ignore such requests and, in
any event, need not consent to them.
Impact of Force Majeure events on bank-to-bank re-
imbursements under URR-725
The impact of article 15 under URR 725 in a bank-to-
bank reimbursement is that a reimbursing bank would not
be held responsible for consequences arising of the force
majeure events. This virtually means that the whole onus
of responsibility in such a situation for reimbursement to
the nominated bank and to the beneficiary would come
on the shoulders of the issuing bank under a commercial
L/C or in a standby L/C issued either under UCP 600 or
ISP98. (Reimbursements under standbys as per rule 8.04
of ISP98 are governed by URR 725 rules).
The issuing bank will be bearing the responsibility of any
delays that may have occurred due to a force majeure
event at the place of the reimbursing bank and as a con-
sequence thereof would have to entertain claims of de-
layed interest from the nominated bank.
Thus, the following functions of reimbursement under
URR 725 will be affected, if the force majeure event oc-
curs at the reimbursing bank:
a) Request to issue a reimbursement authorization or an
amendment to reimbursement authorization by the issu-
ing bank to the reimbursing bank or
b) An irrevocable request to issue reimbursement under-
taking or amendment to reimbursement undertaking by
the issuing bank to the reimbursing bank or
c) Issuance of an irrevocable reimbursement undertak-
ing or amendment to irrevocable reimbursement under-
taking by the reimbursing bank or
d) The lodgement of reimbursement claims by the claim-
ing bank.
If a force majeure event occurs at the claiming/
negotiating bank which does not allow it to lodge a claim
subsequent to the determination of a compliant presen-
tation with the reimbursing bank of the issuing bank; re-
imbursing bank and issuing bank will not be held re-
sponsible for any consequences that may arise in such
a situation. The nominated bank or claiming bank will
have to request any other branch of the bank to perform
this function, otherwise it would be held responsible for
any delays in reimbursement by the beneficiary. The
situation might be uncertain if there is only branch of the
bank in that jurisdiction as banks all across the globe are
expected to have contingency plans in place to cater
such situations.
In case a force majeure event persists for a longer dura-
tion, the issuing bank may opt to change the reimbursing
bank (if there exist any other reimbursing bank) or
change the reimbursement instruction in its L/C altogeth-
er to cater untoward situation.
After resumption of business at the counters of a reim-
bursing bank due to a force majeure, the reimbursing
bank can resume its responsibility of
a) Giving effect to reimbursement authorization or
amendments thereto.
b) Issue Reimbursement undertaking or amendments
thereto.
c) Processing claims so received on or before the force
majeure event.
If a reimbursement undertaking already issued by the
reimbursing bank to the claiming bank, expires during
such interruptions of business at the counters of reim-
bursing bank thereby preventing a claiming bank to
lodge a claim under a reimbursement undertaking, it will
not be held liable for not acting thereon. In such situa-
tions, the issuing bank will be required to issue a fresh
request to the reimbursing bank to issue an irrevocable
reimbursement undertaking. Request to incorporate a
force majeure clause in the text of reimbursement un-
dertaking on the lines of ISP98 rule 3.04 can also be an
option. Such would automatically extend the reimburse-
ment authority up to a certain period of time as stated in
the reimbursement undertaking, if the claim cannot be
presented at the counters of reimbursing bank on the
last claim presentation date as stated in the reimburse-
ment undertaking on account of force majeure.
11
Impact of Force Majeure events on Bankers Pay-
ment Obligation under URBPO-750
In URBPO-750, Article 13 titled “Force Majeure” covers
the Force Majeure events as follows:
a. An Involved Bank assumes no liability or re-
sponsibility for the consequences arising out of
the interruption of its business, including its in-
ability to access a TMA or a failure of equip-
ment, software or communications network,
caused by Acts of God, riots, civil commotions,
insurrections, wars, acts of terrorism, or by any
strikes or lockouts or any other causes, includ-
ing failure of equipment, software or communi-
cations networks, beyond its control.
b. Notwithstanding the provisions of sub-article 13
( a), an Obligor bank will, upon resumption of its
business, remain liable to pay or to incur a de-
ferred payment obligation and pay at maturity a
specified amount to a Recipient Bank in respect
of a BPO that expired during such interruption
of its business and for which there has been the
Submission of all Data Sets required by an Es-
tablished Baseline on or before the expiry date
of the BPO resulting in a Data Match or a Mis-
match Acceptance pursuant to sub-article 10
(c ).
c. In the event of force majeure, a Submitting bank
or (subject to sub-article 13 (b)) another in-
volved Bank may terminate its role in an Estab-
lished Baseline by sending a Special Request to
a TMA, following which a TMA will send a Spe-
cial Notification to each Involved Bank.
The above article shows that the concept of force
majeure is the same in URBPO as in other ICC rules but
is extended to cover the inability of an Involved Bank to
access a TMA. The rules also includes due to their pe-
culiar nature of BPO product events such as “failure of
equipment, software or communication networks” within
its scope of force majeure events provided there resto-
ration is beyond the ability of the Involved Bank. The
onus of proof that such events are beyond their control
rest with the bank at which the Force Majeure event oc-
curs. If, however, it is proved that such events are
caused by the negligence of the related bank, then that
bank will be held responsible for the likely consequenc-
es of such an event. Such consequences include incur-
ring payment obligation even after the expiry of a BPO
provided a Data Match or Acceptance of a Mismatch
has already taken place before the force majeure.
The following stages can be affected due to Force
Majeure under a BPO:
a)-Submission of Data Set to a TMA by an Involved
Bank.
b)- During Data matching process at the counters of
an Obligor’s Bank, after Submission of Data Set to a
TMA.
c)-Upon completion of Data Match or Mismatch Ac-
ceptance by the Obligor Bank.
d)-At the time of sight payment after generation of Da-
ta Set Match Report with zero mismatches or upon
Acceptance of a Mismatch or at the time of payment at
maturity under a deferred payment obligation.
A Force Majeure event occurring on or before the Ini-
tial Baseline Submission or on or before ReSubmis-
sion will not affect a BPO as it only come into force to
become a legally enforceable, irrevocable obligation
upon matching of specified data when TMA generates
a Baseline Match Report with Zero Mismatches.
The Obligor Bank will be responsible to pay or incur a
deferred payment obligation once it reopens for busi-
ness provided a Data Set Submission has been made
before a force majeure event within the expiry date of
a BPO. It is to be noted that an expiry date under a
BPO is the last date for submission of data and not the
date of completion of the matching process by a
Transaction Matching Application.
In the event of force majeure, a Submitting bank or
(subject to sub-article 13 (b)) another involved Bank
may terminate its role in an Established Baseline by
sending a Special Request to a TMA, following which
a TMA will send a Special Notification to each In-
volved Bank.
There are two circumstances in which a Special Re-
quest message may be submitted to the TMA under a
BPO:
i)-If a Submitting Bank is unable to submit a Data Set
under the terms of its agreed role in an Established
Baseline. In this case, the Submitting Bank has to sub-
mit a Special Request Message with the code CSDS
(Cannot Submit Data Set) or
ii)-If an Involved Bank must withdraw from its agreed
role in an Established Baseline. This option may only
be exercised in a force majeure event. In this case,
the Involved Bank submits a Special Request mes-
sage with the code MWFT (Must Withdraw from
Transaction). In either circumstance, the remaining
banks involved in a BPO must decide as to the course
of action they wish to take which could be:
12
a)-to replace the bank that is unable to perform its obliga-
tion due to a Force Majeure situation at its counters or
b)-to close the transaction altogether.
It is up to the banks involved in a BPO transaction to sep-
arately incorporate terms that would protect their interests
in a force majeure situation in their agreements with their
customers.
Impact of Force Majeure events on demand guaran-
tees under URDG 758
Impact of Force Majeure events on demand guaran-
tees under URDG-758
In URDG-758, the Force Majeure events are covered in
Article 26 as follows:
“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 busi-
ness 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 pre-
vented by force majeure:
i. each of the guarantee and any counter-guarantee
shall be extended for a period of 30 calendar days
from the date on which it would otherwise have ex-
pired, and the guarantor shall as soon as practicable
inform the instructing party or, in the case of a coun-
ter-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 arti-
cle 20 of a presentation made but not yet examined
before the force majeure shall be suspended until the
resumption of the guarantor's business; and
iii. a complying demand under the guarantee present-
ed 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 demand under the counter-guarantee with-
in 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 peri-
od of 30 calendar days from the date on which the
counter-guarantor informs the guarantor of the ces-
sation 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 arti-
cle 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 ex-
tension, suspension or payment under this article.
e. The guarantor and the counter-guarantor assume
no further liability for the consequences of the force
majeure.”
Article 26 of URDG -758 (Uniform Rules of Demand
Guarantees) is the most extensive of the force majeure
articles in ICC rules. While URDG 758 Article 26 (Force
Majeure) uses the UCP600 concept of force majeure, it
does not shift the risk of closure onto the Beneficiary as
does UCP600.
This provision is new as it reverses the approach from
URDG 458, Article 13 which covered the force majeure
clause as follows:
“Guarantors and Instructing Parties assume no lia-
bility or responsibility for consequences 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 strikes, lock
-outs or industrial actions of whatever nature.”
Comparison between Force Majeure rule in URDG-
758, UCP 600 and ISP-98
Although URDG 758 extends the time for re-
presentation (as does ISP98 and unlike UCP600), it op-
erates quite differently both UCP 600 & ISP98. It can be
said that Force Majeure rules both in UCP 600 and ISP-
98 are inadequate for demand guarantees. In UCP 600,
if a force majeure event prevents presentation on the
day before expiry and the impediment ends the day after
expiry, the beneficiary is deprived of the whole benefit of
the documentary credit. The impact of such a rule is
more pronounced in the case of demand guarantees,
because it not only affects the primary beneficiary but
may also preclude a guarantor that has made payment
under the guarantee from obtaining payment under the
counter guarantee. ISP98 rule 3.14 (a ) goes to the oth-
er extreme, extending the guarantee for a period of 30
days after the place of presentation reopens for busi-
ness.
13
This could leave the guarantor exposed for an indeter-
minate period after expiry. Accordingly, a middle course
was adopted in URDG whereby the guarantee and any
counter-guarantee under such circumstances would be
automatically extended for a period of 30 calendar days,
after which, if the impediment still exists, the guarantee
will not be extended any further and would come to an
end. The period of 30 calendar days was picked be-
cause most Beneficiaries that varied the UCP Rule for
standbys chose a 30 calendar day extension.
However, it is to be noted that this affects the benefi-
ciary only where it is the presentation that has been pre-
vented by the force majeure. Where a demand has been
presented before the advent of force majeure and only
examination or payment is prevented, the beneficiary
whose demand has been found to be compliant with the
demand guarantee subsequently after the place of
presentation of demand reopens for business would be
entitled to be paid within the prescribed time limit of 5
business days following the presentation of demand as
per Article 20 ( a ) of URDG 758. This is because the
only condition of the beneficiary’s right to be paid is that
a complying demand is presented before guarantee ex-
piry. However, the extension of 30 calendar days re-
mains important where a demand has been presented
but not examined, or not completely examined, before
the force majeure. This is because, if the demand turns
out not to be a complying demand, it may be that a no-
tice of rejection sent within the extended period of exam-
ination is received in time to allow the beneficiary to
make a fresh and a complying presentation. However,
where the force majeure merely prevents payment of a
demand already found to be a compliant demand, the
payment has to be effected without any delay after the
guarantor re-opens for business and the 30 day exten-
sion period granted in this article in that case has no sig-
nificance.
It should be noted that an event of force majeure pre-
venting presentation is irrelevant only where the benefi-
ciary’s inability to present is due to the guarantor’s ina-
bility to receive the presentation because of the force
majeure. If the force majeure affects only the beneficiary
it falls outside the scope of article 26, as is clear from
the fact that “force majeure” is defined in terms of events
beyond the control of the guarantor or counter-guarantor
and that the duty to give information about the force
majeure is imposed only on the guarantor not the bene-
ficiary.
Thus URDG offers a novel solution that is considered to
be the most adapted to demand guarantee practice. It
seeks to offer fairer treatment to the beneficiary, while
protecting the guarantor and counter-guarantor from the
consequences of suspending, extending or making pay-
ment under their undertaking. Under URDG 758, there
would be no extension if there was no force majeure
event. The question that ought to be asked instead of
whether closure was caused by a force majeure event
is whether an Issuer/Guarantor or Beneficiary of a
standby/demand guarantee is prepared to take a
chance on the interpretation of the term.
In a nutshell, the rules stated in the Article 26 of
URDG-758 can be described as :
i)-Where the guarantee expires at a time when force
majeure prevents the beneficiary from making a
presentation under the guarantee, the guarantee and
the counter-guarantee both are extended for a period
of 30 calendar days from their original expiry date, af-
ter which, if force majeure persists, the guarantee and
counter-guarantee come to an end even if the benefi-
ciary was unable to make its presentation.
ii)-Where a presentation has been made but force
majeure prevents its examination and the guarantee
expires before the cessation of that force majeure, the
guarantee and any counter-guarantee are extended
for a period of 30 calendar days from their original ex-
piry date. During this period, force majeure either
ceases, whereupon the running of time for examina-
tion resumes where it was interrupted by force
majeure, or it does not, in which case examination
starts to run again upon resumption of the guarantor’s
business when the force majeure ceases, whenever
that may be. If the presentation is then found to be
complying, the beneficiary is entitled to be paid. Thus
in case of a complying demand being presented be-
fore the expiry of the guarantee and the advent of a
force majeure, the extension of the guarantee is of no
relevance to the beneficiary. When determined as
compliant and when possible, the demand has to be
paid, the guarantee as well as counter-guarantee is
not extinguished till such time. However, if the presen-
tation made is not complying when determined after
examination, the beneficiary is at risk of being unable
to make a fresh and complying presentation before the
expiry of the 30 day extended period. This is because
the only condition for the beneficiary’s right to be paid
is that a complying demand is presented before expiry
of the guarantee.
iii)-Where force majeure merely prevents payment of a
complying demand already found to be a complying
demand, and the guarantee expires before the cessa-
tion of the force majeure, the beneficiary’s right to pay-
ment has crystallized and cannot be affected by force
majeure or any expiry that might occur before the
force majeure ceases. The guarantee and any counter
guarantee is extended for a period of 30 calendar
days from their original expiry date and payment is
due as soon as the guarantor resumes its business,
whenever that may be.
iv)-Three cumulative conditions have to be met for an
event to be regarded as a force majeure that triggers
the consequences outlined in article 26.
14
1)-the event must fall within the scope of events covered in
article 26 (a).
2)-the event must interrupt the guarantee business of the
guarantor or in the case of a counter-guarantee, the coun-
ter-guarantor‘s business.
3)-the event must have prevented presentation, examina-
tion or payment because the guarantee (or counter-
guarantee) expired before the resumption of business.
1)-First Condition-The Force Majeure Event
URDG 758 has classified force majeure events into two
groups. The first group consists of six types of events as-
sumed to be beyond the guarantor’s control that are de-
scribed specifically in URDG-758. They are named as “Acts
of God” like earthquakes, volcanic eruptions, tsunamis, hur-
ricanes; Riots; civil commotions; insurrections; wars and
acts of terrorism.
The second group consists of any other event that is be-
yond the guarantor’s control e.g
i)-industrial action that the guarantor did not provoke and
that could not have avoided by reasonable measures.
ii)- widespread illness affecting the guarantor’s staff neces-
sitating closure of the branch out of which the guarantee
business is conducted.
iii)- strike in the city completely paralyzing the transport and
other means of transport thereby preventing staff of the
guarantor from attending the office.
iv)- a failure of the computer system and possible back-ups
for reasons beyond the guarantor’s control.
2)-Second Condition-Impact on the guarantor’s guaran-
tee business
In order to be regarded as a force majeure event that event
must lead to an interruption of the demand guarantee busi-
ness of the guarantor or in the case of a counter-guarantee,
the counter-guarantor for a certain period during which the
guarantee expires.
Following points should be noted in this respect:.
First, a force majeure affecting only the beneficiary by pre-
venting it from making a timely presentation falls outside
the scope of the URDG 758.
Take an example of a volcanic eruption at a place where
beneficiary resides, which affects only the ability of the ben-
eficiary to make a timely presentation to the guarantor be-
cause the courier companies and air transporters were una-
ble to deliver documents shipped to the guarantors at the
scheduled time. This will not be a force majeure event un-
der URDG rules as it did not lead to an interruption of the
guarantors’ business relating to demand guarantees.
Second, a force majeure affecting the guarantor’s ordi-
nary banking business but not its demand guarantee
business falls outside the scope of article 26 and indeed
of the whole URDG as a whole. Thus if ordinary busi-
ness is conducted at branch (A) of a bank and demand
guarantee business at branch (B ) in the same country,
force majeure affecting branch (A) but not branch (B) is
irrelevant. Where the branches are in different countries,
this result is reinforced by article 3 (a) , under which
branches of a guarantor in different countries are re-
garded as different entities.
Third, if the guarantee indicates a place for presentation
other than the place of issue, as allowed in article 14(a),
and force majeure only interrupts the guarantor’s guar-
antee related business at the place of issue, article 26
will not apply. The reason is that force majeure did not
impact the guarantor’s examination of the presentation
or its payment capacity at the place for presentation,
assuming that it is indeed the intention that the presen-
tation is examined and the demand is paid in that place
for presentation. By contrast, if the agreed place for
presentation is simply a representative office of the
guarantor or an intermediary acting as “mail box”, on the
understanding that the presentation will then be forward-
ed to the guarantor’s place of business where guaran-
tees are transacted, examined and paid, and the guar-
antor’s place of business is impacted by force majeure,
article 26 applies. The reason is that the test for suspen-
sion and extension that appears in article 26 does not
relate to the difficulty caused by force majeure to the
beneficiary’s ability to make a timely presentation but to
the guarantor’s ability to examine that presentation to
determine its compliance and if so, pay the beneficiary.
Contrary to ISP98 Rule 3.14 (b), article 26 does not al-
low the guarantor to change the place for presentation
with a view to proposing a reasonable substitute to the
place affected by the force majeure. Nevertheless, it is
free to do so but needs the agreement of the party from
which it received its instructions to issue the guarantee
i.e the instructing party, to avoid possibly risking the for-
feiture of its right to reimbursement because it has uni-
laterally altered the terms of the guarantee. Of course,
this prospect depends largely on the applicable law.
3)-Third Condition-Preventing Presentation, Exami-
nation or Payment because of expiry
The third condition laid down by article 26 for an event to
be regarded as a force majeure is that the interruption of
the guarantor’s demand guarantee business prevents
the beneficiary from making a presentation or the guar-
antor from examining a presentation or paying a de-
mand before the expiry of the guarantee.
Following rules should be noted in this respect:
15
If the force majeure ends before the expiry of the guar-
antee, it no longer prevents presentation and examina-
tion of a demand and payment there against. Thus arti-
cle 26 does not apply in such a situation.
-Whereas articles 26 (b) and (c) refer only to the expiry
of the guarantee and counter-guarantee, a case can be
made for their application to any other deadline indicat-
ed in the guarantee or counter-guarantee.
For example, a guarantee may provide for payment to
be made in installments, where each installment is pay-
able only if a complying demand is presented within a
fixed time window, following which the installment ceas-
es to be available for drawing and the guarantee amount
is decreased proportionately. Now if force majeure re-
sults in an interruption of the guarantor’s business dur-
ing this time window, article 26 could provide a useful
solution to the parties. However, this is not specifically
provided in the URDG and it is up to the parties to agree
to incorporate such a clause in the text of the demand
guarantee.
-If the guarantee has expired before the force majeure
event occurs, it is too late for the beneficiary to make a
presentation. In such a case, force majeure is irrelevant
and article 26 does not apply.
Force majeure affecting presentation under the
guarantee
Article 26 covers force majeure events both for the guar-
antee as well as for the counter-guarantee.
Following rules should be noted in this respect:
Even when force majeure only affects presentation un-
der the guarantee but not under the counter-guarantee,
article 26 (b) (i ) requires an automatic extension of both
the guarantee and the counter guarantee. Where force
majeure affects presentation under the counter-
guarantee but not the guarantee, article 26 (c) (i) applies
instead of article 26 (b) (i).
For the purpose of calculating the 30 day extension peri-
od, the original date of expiry of the guarantee and the
counter-guarantee is included.
Responsibilities of a Guarantor in case of a Force
Majeure event
URDG imposes certain responsibilities on the guarantor
in case of a force majeure event. In case of a force
majeure event at the counters of the guarantor, it has to
inform the instructing party or in case of a counter-
guarantee, the counter-guarantor of the force majeure
and about the 30 day extension (by default it is 30 days
but can be any number of days if stated in the guarantee
text) as soon as possible.
This rule is meant to serve the purpose of informing
the counter-guarantor so that he can be aware that his
counter-guarantee has been extended on account of a
force majeure event that prevented a presentation un-
der the guarantee at the counters of the guarantor. In
such a situation, a counter-guarantor that receives
such information from the guarantor is in turn required
to inform the instructing party accordingly. Words “As
soon as practicable” were preferred to “without delay”
by the drafters of URDG because it takes better ac-
count of the impediments that a force majeure can
sometimes place in the way of providing information.
For instance, an act of terrorism that causes the com-
munications system in the area of the guarantor’s
place of business to shut down makes it impracticable
for the guarantor to inform the instructing party of the
force majeure until normal communications resume.
Conversely, widespread illness that causes a guaran-
tor to close the branch out of which its guarantee busi-
ness is transacted does not normally prevent the guar-
antor from informing the instructing party of the force
majeure by using means of communication available
outside that branch. If necessary, regard should be
had to international standard demand guarantee prac-
tice in order to determine what is practicable in case of
this type.
Force Majeure affecting examination under the
guarantee
When force majeure occurs after a presentation is
made under the guarantee but prevents the examina-
tion of the demand and the related documents from
being commenced or completed within the five busi-
ness days allowed by article 20 (a), then
1)-the guarantee and any counter-guarantee are both
extended for a period of 30 days from the date on
which they would otherwise have expired; and
2)-the running of time for examination is suspended
until the resumption of the guarantor’s business,
whenever that may be. Thus, if two business days
have elapsed between the presentation of the demand
and the advent of the force majeure, the guarantor has
three further business days after the resumption of its
business to complete its examination of the demand.
Suspension until resumption of the guarantor’s busi-
ness is the right solution where a presentation has al-
ready been made, because the beneficiary has al-
ready crystallized its right under the guarantee by en-
suring that the presentation was made to the guaran-
tor on time. If, following the completion of examination,
the demand is found to be a complying demand, the
beneficiary’s right to payment is not affected by the
supervision of the force majeure subsequent to
presentation. If the force majeure ceases before the
end of the 30 day extension period, the beneficiary
can use the extra time of the extension to cure any
16
discrepancies that the guarantor may have indicated in the
notice of rejection if the demand is found to be a non-
complying demand and present a fresh complying demand.
Moreover, if the demand presented before the force
majeure is a partial demand and the guarantee does not
prohibit multiple demands, the beneficiary can present one
or more other partial demands up to the maximum guaran-
tee amount during the 30 day extension period as well.
Consequences of a permanent force majeure
Article 26 (b) (ii) assumes that the effect of the force
majeure is only temporary and accordingly caters for the
rights and obligations of the parties after it has ended.
Where a force majeure establishes a permanent state of
affairs, for instance because all the records of a presenta-
tion made before the force majeure are destroyed as a re-
sult of the force majeure, the question would be whether
other evidence is available to establish the facts, such as
providing the guarantor with copies of the already made
presentation through backup systems. Where no such evi-
dence is available, the URDG do not provide a particular
rule and leave the matter to the applicable law stated in the
demand guarantee to determine.
Force majeure affecting payment under the guarantee
Where the demand, along with any related documents, has
been examined before the force majeure and found to be a
complying demand but the force majeure prevents pay-
ment, payment must be made when the force majeure
ceases, even if the guarantee has expired by then.
Cessation of force majeure should not be taken literally as
meaning the very day on which the pandemic or other
event of force majeure comes to an end but the day on
which, as the result of its coming to an end, the guarantor is
able to resume business, having taken reasonable steps to
do so. When the guarantee is paid after cessation of the
force majeure, the guarantor may present a demand under
the counter-guarantee within 30 days of its cessation (and
not after the actual payment under the guarantee), even if it
has already expired.
If the complying demand presented before force majeure is
a partial demand and the guarantee does not prohibit multi-
ple demands, the beneficiary can present one or more oth-
er partial demands up to the maximum guarantee amount
during the 30-day extension period as well.
Force majeure affecting payment under the counter-
guarantor
Where the force majeure affects presentation, examination
or payment under the counter-guarantee, article 26 (c ) co-
vers its consequences with a rule similar to that provided
under article 26 (b ) where the force majeure affects the
guarantor’s business, subject to one basic difference. In-
deed, where force majeure affects presentation under the
counter-guarantee, that counter-guarantee is extended for
30 calendar days from the date on which the counter-
guarantor informs the guarantor of the cessation of the
force majeure. Contrary to article 26 (b) (i), the guaran-
tee itself is not extended.
The reason for the departure from the rule in article 26
(b ) (i ), which provides that the 30-day extension com-
mences from the expiry date of the guarantee and coun-
ter-guarantee, is that a demand under the counter-
guarantee necessarily assumes that the guarantor has
received a complying demand under its guarantee and
that it has the obligation to make payment there under,
even if payment has not necessarily already taken place
(Note: there exist no underlying relationship between the
counter-guarantor and the beneficiary). Extending the
counter-guarantee for 30 days from its date of expiry
could still leave the guarantor exposed to the risk of hav-
ing to pay the beneficiary under the guarantee without
being able to present a demand under the counter-
guarantee if force majeure persists after the 30 day ex-
tension. This would be unfair to the guarantor at a time
when it is engaged in the guarantee process only to car-
ry out the instructions of the counter-guarantor. It ap-
pears that this clause is meant to benefit the guarantor
to the maximum by providing him the extra time as it is
the one who has issued the guarantee on the instruc-
tions of the counter-guarantor.
Until it receives the information from the counter-
guarantor required under article 26 ( c ) ( i), the guaran-
tor will not necessarily know that the force majeure has
ended, thus starting the 30-day period. The counter-
guarantor must “then” inform the instructing party of the
force majeure and the extension in the counter-
guarantee. The word “then” used in URDG article 26
(c ) (i), refers to the time when the counter-guarantor
has informed the guarantor of the cessation of the force
majeure which marks the start of the 30 day extension
period in the counter-guarantee and not to the time of
cessation of the force majeure.
The rules in article 26 (c ) (ii ) and (iii) governing the
suspension of the time for examination and prescribing
the time for payment are the same as those applicable
to force majeure affecting the guarantor under article 26
(b )(ii) & (iii) i.e
-the running of time for an examination whose comple-
tion is prevented by the force majeure is suspended until
resumption of the counter-guarantor’s business; and
-a demand determined to be a complying demand but
not paid before the advent of force majeure must be
paid when the force majeure ends.
Instructing party bound by the provisions of article
26
Article 26 (d) provides that the instructing party is bound
by any change to the terms of its instructions that may
17
be prompted by the application of article 26. Because it
is the instructing party that chooses or ultimately ratifies,
the incorporation of the URDG in the guarantee or coun-
ter-guarantee issued upon its instructions, it will come
as no surprise- and should be regarded as a fair solution
-that the instructing party is expected as per the URDG
rules to cover the consequences of its instructions being
carried out, including in the case of force majeure and
the application of article 26.
Guarantor and counter-guarantor have no further
liability
As per article 26 (e), the guarantor and the counter-
guarantor assumes no further liability for the conse-
quences of the force majeure. Thus, for example, if the
beneficiary suffers loss of interest or any other loss as a
result of the delay in payment, it has to bear this loss
itself.
Letter of Credits how to
prepare a beneficiary's
certificate
By Domenico Del Sorbo (http://
tradeservicesupdate.com/editor_domenico)
UCP 600 article 2 states that a
"Complying Presentation […]
means a presentation in accord-
ance with the terms and conditions
of the credit, the applicable provi-
sions of these rules and the uni-
form international banking prac-
tice". The beneficiary to an L/C
must therefore, in order to obtain
the expected benefits from the bank, prepare the docu-
ments required by the L/C, observing - in terms of hier-
archy - the L/C conditions, the provisions of the UCP
600 and the international banking practice, partially codi-
fied in the ISBP 745 publication.
This article offers an analysis on how to prepare a
"beneficiary's certificate" in compliance with the L/C con-
ditions and the provisions mentioned above.
The "beneficiary's certificate": what is it?
The "beneficiary's certificate" is a document issued by
the beneficiary of an L/C that must certify the content
requested by the L/C.
“Beneficiary’s certificate”: what do the UCP 600
say?
The UCP 600 do not contain specific indications on
how to prepare the "beneficiary's certificate". The doc-
ument must therefore be prepared in compliance with
the provisions of UCP 600 article 14 which indicates
the "Standard for Examination of Documents".
UCP 600 sub-article 14 (d) states that "Data in a docu-
ment, when you read in context with the credit, the
document itself and the international standard banking
practice, need not be identical to, but must not conflict
with, data in that document, any other stipulated docu-
ment or the credit.” Therefore, the document under
consideration must be issued by the beneficiary, which
will bring the content in line with the function of the
document requested. In addition, the data indicated in
the document may not be identical to what is stipulat-
ed in the L/C or other required documents but must
not conflict with them.
UCP 600 article 14 (e) reports the following: "In docu-
ments other than the commercial invoice, the descrip-
tion of the goods, services or performance, if stated,
may be in general.” In light of this, it can be said that
the description of the goods, possibly included in the
document under examination, need not be identical to
that of the L/C, provided it is not incompatible with it.
It is also specified, in sub-article 14 (j) that “the ad-
dresses of the beneficiary and the applicant appear in
any stipulated document, they need not be the same
as those stated in the credit or in any other stipulated
document, but must be within the same country as the
respective addresses mentioned in the credit. Contact
details (telefax, telephone, email and the like) stated
as part of the beneficiary’s and the applicant’s address
will be disregarded.” Article 14 (k) finally states that
"The shipper or consignor of the goods indicated on
any document need not be the beneficiary of the cred-
it." and this, obviously, also applies to the
"beneficiary's certificate".
Finally, it is recalled that, again sub-article 14 (i) which
states that "A document may be dated prior to the is-
suance date of the credit, but must not be dated later
than its date of presentation.” 18
“Beneficiary’s certificate: The ISBP 745 viewpoint

Below are further indications regarding the correct setting of

the "beneficiary certificate" with reference to the indications
in paragraph A39 (Title of documents and combined docu-
ments) and P1-P4 (Beneficiary's Certificate) of the ISBP
publication number 745.

- a document may be named as a request for credit, with a

similar indication or not be called at all provided that the
content of the document respects the function of the docu-
ment requested. Therefore, the request for a "Beneficiary's
Certificate" will be satisfied by presenting a document con-
taining the indications required by the credit called
"Beneficiary's Certificate" or similar indications or without
any name;

- if a credit requires the presentation of a "beneficiary's cer-

tificate", the request will be satisfied by presenting a signed
document called as credit or with similar indications or not
called at all that "fulfils its function by containing the data
and certification required by the credit.". Such data (which
must not be in conflict with the credit or other requested
documents) or such certification need not be identical to
what is required by the credit, but must clearly indicate that
wording requested by the credit has been respected;

- A "beneficiary's certificate" must be signed by the benefi-

ciary or "for [or on behalf of]" and it is not necessary to in-
clude the description of the goods or other references to
the credit or other documents required by the credit.

Beneficiary’s Certificate under transferable credits

Under transferable credits, if the first beneficiary substitutes

its documents for those of the second beneficiary, a benefi-
ciary’s certificate should be issued by first beneficiary. If no
substitution has occurred (whether the transfer was effect-
ed on a full or partial basis), then a beneficiary’s certificate
should be issued by the second beneficiary.

Conclusions:

In conclusion, it should be emphasized that the documents

to be presented in use of an L/C must be prepared in com-
pliance with the L/C conditions, the provisions of the UCP
600 and the international banking practice, following the
relative hierarchy (as explained above). The preparation of
the "beneficiary's certificate" requires, as for all documents,
accurate attention by the beneficiary.
19
ISBP 745 –Paragraph by Paragraph (Paragraph A12)
Following the last issue, we here cover paragraph A12 of ISBP 745:

ISBP 745 Paragraph A11 (Dates)

Relevant references:

ICC Official Opinion R268

Comments:
The paragraph deals with documents that certify that a certain activity / event has been carried out in respect of the
shipped goods. That may for example be certificate of analysis, inspection certificate or fumigation certificate.
The paragraph makes a distinction between
1: Where the L/C requires a certificate to evidence a pre-shipment event (like: “inspection certificate showing that
goods have been inspected prior to shipment by xxx, and that they comply with Standard yyy”).
Such document need not be dated prior to the date of shipment (as evidenced by the transport document), but it
must somehow indicate that the activity / event took place prior to shipment. This can be done by a number of ways
i.e. by the title, content – or of course the date of the document.
2: Where the L/C requires a certificate that do not evidence a pre-shipment event. This is for example the case
when the L/C merely requires an “inspection certificate.” This is NOT a requirement for the document to evidence a
pre-shipment event.
Such document need not be dated prior to the date of shipment.

20
Discussion Corner
Irrespective of insurance, franchise, deductible or excess

A discussion amongst the

country editors.
Quote
The country editors have
been discussing the follow-
ing issue. The below an-
swers are excerpts of the I shall be grateful if you could please explain me in a simple language
discussion. terms used in insurance I.e. irrespective of insurance, franchise, deducti-
ble or excess.
The following LCM editors
took active part in the dis-
cussion:
Unquote

• Ahmir Mansoor
• Xavier Fornt
• Bob Ronai
• David Meynell
• Nguyen Huu Duc
• Sheilar Shaffer
• Kim Sindberg
• T.O. Lee
• Domenico Del Sorbo
• Daniel Devahive

21
From Xavier Fornt, Spain
I am not an expert in insurance, but so far as i know:
Excess and Umbrella Liability - liability coverage of an
insured above a specific amount set forth in a basic
policy issued by the primary insurer; or a self-insurer
for losses over a stated amount; or an insured or self-
insurer for known or unknown gaps in basic coverages
or self-insured retentions.
Excess of Loss Reinsurance - loss sharing mechanism
where an insurer pays all claims up to a specified
amount and a reinsurance company pays any claims in
excess of stated amount.
Excess Workers' Compensation - either specific and/or
aggregate excess workers' compensation insurance
written above an attachment point or self-insured re-
tention.
Deductible - Portion of the insured loss (in dollars) paid
by the policy holder (Franchise is the French word).
From Bob Ronai, Australia
The simplest way is to use Mr Google!
AVERAGE IRRESPECTIVE OF PERCENTAGE (not
"insurance" as you stated):
The term average irrespective of percentage implies
that partial losses will be paid regardless of any fran-
chise or percentage. This is the broadest form of cov-
erage in marine insurance under which any partial or
total loss is paid in full, without regard to any average.
AVERAGE:
The term 'subject to average' means that if the sum
insured at the time of a loss is less than the insurable
value of the insured property, the amount claimed un-
der the policy will be reduced in proportion to the under
-insurance. Also called average clause.
FRANCHISE:
A minimum amount of loss that must be incurred be-
fore insurance coverage applies. A franchise deducti-
ble differs from an ordinary deductible in that, once it is
met, the entire amount of the loss is paid, subject to
the policy limit.
DEDUCTIBLE / EXCESS:
In an insurance policy, the deductible is the amount
paid out of pocket by the policy holder before an insur-
ance provider will pay any expenses.
From David Meynell, UK
To reflect commercial practice, there is nothing that
prevents an insurance document stating that cover is
subject to a franchise or excess (deductible).
However, if there is to be no franchise or excess
(deductible) applied, a credit may state “irrespective of
percentage”. In such circumstances, there must be no
indication on the insurance document of a franchise or
excess (deductible).
Franchise represents an amount which must be
reached before the insurer will agree to pay any claim.
This is to deter multiple small claims.
An Excess represents the amount that will be deduct-
ed from the value of any claim.
From Nguyen Huu Duc, Vietnam
For your reference, I would like to quote from my web-
site www.mroldman.net my answer to a question simi-
lar to yours:
Quote
Paragraph K14 ISBP 745 has two terms that need to
be clarified by examples, they are “franchise” and
“excess” (deductible).
Franchise
If the insurance document for amount of USD100,000
states: “SUBJECT TO FRANCHISE OF 0.187% TO-
TAL INSURED FOR ANY ONE LOSS”, it means that
the insurer will not pay any claim below 0.187%, i.e.,
below USD187. Any claims above USD187 will be paid
in full.
Excess (deductible)
If the insurance document for amount of USD100,000
states: “SUBJECT TO EXCESS OF 0.187% TOTAL
INSURED FOR ANY ONE LOSS”, it means that the
insurer will deduct USD187 from the amount of any
claim that is paid.
According to paragraph K14 ISBP 745, an insurance
document may indicate that cover is subject to a fran-
chise or excess (deductible). When the LC requires the
insurance cover to be irrespective of percentage, the
insurance document is not to contain a clause stating
that the insurance cover is subject to a franchise or an
excess (deductible).
So, if you want the insurance not to indicate “subject to
a franchise or excess (deductible)”, the LC should re-
quire the insurance cover to be IRRESPECTIVE OF
PERCENTAGE.
Unquote
22
Please also refer to here: http://mroldman.net/claims-
payable-settling-agent-franchise-excess-deductible/
From Sheilar Shaffer, China
I would like to share some of my thoughts about fran-
chise, deductible or excess:
Franchise is an expression used in Marine Insurance –
and is commonly confused with another expression
"deductible or excess.
Suppose 1: An Insurance Policy is indicating a
"franchise of USD 100", and the claim is USD 90, no
payment would be forthcoming from the underwriter as
the claim is below the franchise threshold (USD100);
2: An Insurance Policy is indicating a "franchise of
USD 100", and the claim is USD 120, i.e. above the
franchise, then the whole claim would be honoured.
By comparison, if an Insurance Policy is indicating a
"deductible of USD 100", and the claim was USD120,
the result is that the underwriter would make a pay-
ment of USD 20 for a claim of USD 120, i.e. less the
deductible excess. The deductible excess, in my
views, represents the first layer of loss incurred by the
insured.
From Kim Sindberg, Denmark
I want to share with you Chapter 15 of my book “From
A to UCP”. I am not sure if it explains it in simpel lan-
guage — but that is the intention :-)
Link to the book:
https://www.amazon.co.uk/UCP-Documentary-Credit-
concepts-explained-ebook/dp/B01EYM4VDG/
ref=sr_1_1?ie=UTF8&qid=1552574740&sr=8-
1&keywords=from+a+to+ucp
QUOTE
_____________________________
15: Franchise or excess
(deductible)
UCP 600 article 28(j) reads:
An insurance document may indicate that the cover is
subject to a franchise or excess (deductible).
UCP 600 article 28 is the article that explains how an
insurance document presented under a documentary
credit must be examined.
The purpose of this chapter is to explore how
“franchise or excess (deductible)” is handled in the
documentary credit rules and practice.
The meaning of franchise or excess (deductible)
Franchise:
When there is a franchise the insured party is alone
responsible for losses up to a certain amount, but will
be covered in full for losses exceeding the agreed
amount.
I.e. the insurance company is not responsible for the
loss not exceeding an agreed amount. It is however
responsible in full for the entire amount of a loss which
exceeds the agreed amount.
Example 1:
Insured amount: EUR 150.000
Franchise 5 per cent (EUR 7.500)
Total loss: EUR 7.000
In this example the insured is fully responsible for the
entire loss, as it is below EUR 7.500
Example 2:
Insured amount: EUR 150.000
Franchise 5 per cent (EUR 7.500)
Total loss: EUR 20.000
In this example the insured is fully recovered for its
loss (i.e. EUR 20.000), as it is above EUR 7.500
Excess (deductible):
When there is an excess (deductible) the insured is
responsible for an agreed amount of the loss, and the
insurance company is responsible for the amount in
excess of that amount.
Example 1:
Insured amount: EUR 150.000
Excess 5 per cent (EUR 7.500)
23
Total loss: EUR 7.000
In this example the insured is fully responsible for the
entire loss, as it is below EUR 7.500
Example 2:
Insured amount: EUR 150.000
Franchise 5 per cent (EUR 7.500)
Total loss: EUR 20.000
In this example the insured is responsible for EUR
7.500, and the insurance company is responsible for
the amount in excess of that; i.e. (EUR 20.000 – EUR
7.500) total EUR 12.500
The following diagram illustrates the difference be-
tween franchise or excess (deductible):
Documentary credit practice
As indicated in the opening, an insurance document
may indicate that cover is subject to a franchise or ex-
cess (deductible). I.e. the UCP 600 does not distin-
guish between franchise and excess (deductible). Like-
wise, (subject to the next chapter), the fact that the in-
surance document does indicate that cover is subject
to a franchise or excess (deductible) does not in itself
constitute a discrepancy.
However, when the documentary credit requires that
the insurance cover must be “irrespective of percent-
age” then the insurance document must not indicate
that the insurance cover is subject to a franchise or an
excess (deductible).
If the documentary credit includes such requirement
the insurance document need not state the words
“irrespective of percentage”.
“Irrespective of percentage” indicates that partial loss-
es will be paid regardless of any franchise (deductible)
or percentage. I.e. it is an attempt by the drafter of the
documentary credit to avoid that there is a portion of the
loss that is not covered by the insurance company.
UNQUOTE
From T.O. Lee, Canada
I wish to share with you my experience in handling
"franchise, excess/deductible" and particularity "held
covered irrespective of percentage" and the surprising
consequences on the buyer/insured and the seller.
This is also one example to demonstrate my usual state-
ment: "Sometimes, knowing nothing is safer than know-
ing something new (learnt from a seminar)".
I have seen some smart (but not intelligent) traders learn
from the cargo insurance seminar these terms and are
eager to show off what they have learnt in their own trad-
ing. They do not know that while they are thinking of
smarter trade but in fact, they are killing themselves as
sellers and as buyers as well.
I always recommend my clients not to touch the term
"held covered irrespective of percentage" or they are dig-
ging the graves for themselves.
If you ask for this term, the one who calculate the premi-
um for the insurer is the actuator who will determine the
additional premium to ensure the insurer would make
reasonable profits out of this risk, based on the statistics
of claims plus the reasonable margin of safety of the in-
surer for this special cover. Enough to stop right here to
make it simple to demonstrate my advice.
In a nutshell, that means the insured would end up pay-
ing much more than necessary and one thing is quite
sure that the insured would end up after many years
paying much more than the one who accepts franchise
and excess, with much reduced premium in comparison.
It is simple common sense that the actuary would not do
a losing business. It is also like going to a Michelin 3 star
restaurant asking for a cuisine not on the menu. You
give a chance for the chef to clean up your wallet :-)
Some buyers put this term in their LC on CIF term, for
example from India, and once the intelligent seller knows
that he pays more than necessary, he would raise the
price in the next shipment and ultimately the buyer would
suffer too.
24
News from the Trade World
SWIFT Postpones Category 7 Changes to 2020

Changes to SWIFT Category 7 messages for guarantees and standby letters of credit that had been scheduled to
take effect in November 2019 have been deferred to November 2020.
Following country voting by User Group Chairpersons in December 2018, the SWIFT Banking Services Committee
ratified voting results in January 2019 which overwhelming supported deferral of Standards Release (SR) 2019 for
Category 7 (Guarantees/Standby Letters of Credit) messages to SR 2020.
The significant upgrade to Documentary Credit messages occurred as scheduled in November 2018. But the up-
grade to Guarantee and Standby LC messages anticipated for 2019 is now planned for November 2020.
To ensure SWIFT users are aware of the upcoming changes in SR 2020 and MT 798, SWIFT Standards has orga-
nized and made available on the SWIFT site a webinar recording, slides, and FAQs.

(Source: Documentary Credit World, Volume 23, Number 2, February 2019)

ICC BC Meeting 2019 April Beijing – Draft Opinions are out

The consolidated draft Opinions, in the sequence TA886-890, that will be discussed at the April 2019 Banking Com-
mission meeting to be held in Beijing, were circulated beginning of February to the National Committees for com-
ments. The deadline for the comments is 27 March 2019.
The Draft Opinions to be discussed are:
TA886 – Invoice issued by the beneficiary?
TA887 – Issuer of performance bond
TA888 – UCP 600 article 16 (c) (iii) (b) modified
TA889 – Consignee conflict between B/L and EUR1
TA890 – B/L not indicating Agent

ICC eRules update

The deadline for comments on the 4th drafts of eUCP Version 2.0 and eURC Version 1.0 expired on 4 January
2019.
Based upon the feedback received from ICC National Committees, the decision was made to produce a final draft of
the rules to be put forward for approval by ICC National Committees.
This was sent on 31st January 2019, with a voting deadline of 22nd March 2019. The voting will be done via elec-
tronic voting.

25
NVOCC Register Launched
The International Chamber of Commerce’s International Maritime Bureau (IMB) announced on 15 January
2019 launch of its Non-Vessel Owning Common Carriers (NVOCC) Register and Code of Conduct.
The effort puts into motion a project introduced by IMB Director Pottengal Mukundan to the international
banking community at the April 2018 ICC Banking Commission Meeting in Miami (May 2018 DCW 25).
Based on IMB estimates, 95% of false bills of lading identified by IMB are issued by NVOCCs.
The goal of the IMB NVOCC Register is to improve anti-fraud standards and provide a mechanism to recog-
nize participating NVOCCs who adhere to a minimum set of anti-fraud measures in their operations. As de-
scribed in a news release announcing the launch, when an NVOCC signs up to the Register it assumes com-
pliance with the 12-point IMB NVOCC Code of Conduct for the issuance of B/Ls. NVOCC signatories are re-
quired to keep records of back-up documentation which may include master bills of lading and authority to
issue the bills of lading. Should IMB detect a suspect NVOCC-issued B/L, NVOCC will be asked to furnish its
back-up documentation. If the result is inadequate, the NVOCC could be removed from the Register unless
the NVOCC puts its staff through an IMB-designed online training course and assessment module.
(Source: Documentary Credit World, Volume 23, Number 2, February 2019)

26
Events Calendar

Organiser: ICC
Event: ICC Banking Commission Annual Meeting
Venue: Beijing, China
Date: 8-11 April 2019

Description: With upwards of 600+ delegates from around the world expected to attend, this year’s conference will
discuss innovation and change within the trade finance sector from the benefits of digitalisation to the growing in-
terest in sustainable trade finance and the enormous global potential of China’s Belt & Road Initiative.

Organiser: IIBLP
May 16-May 17; 2019 Annual Trade Finance Compliance Conference
July 13; 2019 Asia Annual Survey of Letter of Credit Law & Practice | Hong Kong
July 15-July 16; 2019 SE Asia Annual Survey of Letter of Credit Law & Practice | Singapore

July 17; 2019 SE Asia Guarantee & Standby Forum | Singapore

July 18; SE Asia LC Law Summit | Singapore

Famous Last Word

The key to success is to focus our conscious mind on things we desire not things we fear.
Brian Tracy

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