A volcanic eruption led to a week-long closure of airports in Europe in April, resulting in delays in delivery of goods and documents under letters of credit. Readers have sent in some queries in this regard. Here are the answers.
According to Article 36 of the Uniform Customs and Practices for Documentary Credits, International Chamber of Commerce Publication number 600, known as UCP 600, "A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control. A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business."
In Europe, the banks were open for business. The delays were in dispatch of goods or documents. So, if any exporter in Europe could not send his goods through air or courier or could not get his documents from transporters/forwarders, due to force majeure and, therefore, could not present his documents to the negotiating bank within the validity of the credit, then he had no option but to ask for extension.
But, his banker was under no obligation to accept the plea of delay due to Acts of God. It is the responsibility of the beneficiary, to ensure the documents are presented to the nominated bank or negotiating bank at the place specified in the LC within the expiry date and the applicable presentation period.
Indian exporters who had presented the documents under letter of credit to the negotiating bank or nominated bank in India can very well take a stand vis-a-vis their customers that they had presented the documents to the nominated/negotiating bank within the validity of the LC and the LC-issuing bank must honour its commitment.
Importers may be hit by delay in receipt of documents. But, they cannot hold the negotiating bank or the nominated bank or the LC-issuing bank responsible for the delay.
According to Article 35 of the UCP 600, "A bank assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit."
The position would be no different in case of standby letters of credit or guarantees. Article 12 of the Uniform Rules for Demand Guarantees, ICC Publication number 458 (known as URDG 458) also relieves the guarantors and the instructing parties from any liability for consequences arising out of delays in transmission of documents.
Even in case of documents sent on collection basis, Article 14 (a) of the Uniform Rules for Collection, ICC Publication number 522 says that banks assume no liability for the consequences arising out of delay in transit of any documents.
Will the same protection be available to banks that decide to refuse and return discrepant documents or, where the beneficiary/presenter requests the return of the documents? The answer is. "Yes".
