Trade Finance and the coronavirus
There is currently a tragic outbreak of respiratory illness caused by a new coronavirus first identified in Wuhan, Hubei Province, China.
My sympathies go to the people affected by the virus.
A secondary consequence of the coronavirus is that it may be difficult to deliver or receive documents to and from Hubei Province. For example, it has been reported that DHL have stopped delivering to the Hubei Province. This of course is affecting delivery of documents under Trade Finance transactions where the counterpart bank is in the Hubei Province.
For the purpose of the Trade Finance transactions – and the relevant ICC rules the situation is somewhat similar to the situation in 2010 where a volcanic eruption in Iceland led to delays in the presentation of Trade Finance documents.
As was the case in 2010, the coronavirus is – for the purpose of the Trade Finance – not a “force majeure event”. The relevant force majeure rules i.e. UCP 600 article 36, URDG 758 article 26 and URC 522 article 15, all assume that the concerned banks, guarantors and instructing parties are closed for business. This is not the case here; here the issue is that the documents are being delayed in transit to the banks.
The articles from the Trade Finance practice rules that are applicable in this situation are:
UCP 600 article 35:
“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.”
URDG 758 article 28(a):
“The guarantor assumes no liability or responsibility for the consequences of delay, loss in transit, mutilation or other errors arising in the transmission of any document, if that document is transmitted or sent according to the requirements stated in the guarantee, or when the guarantor may have taken the initiative in the choice of the delivery service in the absence of instructions to that effect.”
URC 522 sub-article 14 (a):
“Banks assume no liability or responsibility for the consequences arising out of delay and/or loss in transit of any message(s), letter(s) or document(s), or for delay, mutilation or other error(s) arising in transmission of any telecommunication or for error(s) in translation and/or interpretation of technical terms.”
Below, some comments in respect of the main Trade Finance products.
Documentary Credits
Because this event is not force majeure for the purpose of UCP 600, the undertakings and obligations of the involved banks have not changed. For example, if a complying presentation is made to the confirming bank, that bank is obligated to honour or negotiate.
Likewise, it is the responsibility of the beneficiary, to ensure that the documents are presented to the nominated bank or issuing bank (at the place specified in the LC) within the expiry date / presentation period.
There are different scenarios possible; the main ones are:
1: The LC is available with a nominated bank
When a complying presentation is made to the nominated bank, the obligation of the issuing bank is triggered. I.e. the issuing bank is bound to honour when they receive the documents.
If it is not possible for the nominated bank to forward the documents to the issuing bank, the following should be considered:
* Reach out to the issuing bank to agree the next steps
* Consider different means of sending e.g. via other courier services – or registered airmail. In such situations, also consider the instructions – if any – in the LC.
* Consider if electronic copies of documents will suffice until the situation changes.
* Consider if the documents can be forwarded to the issuing bank – located at another place.
* Ensure to keep copy of the mail/courier receipt – as well as copies of the documents (in order to be able to prove that it was a complying presentation).
2: The LC is available with the issuing bank
Only when a complying presentation is made to the issuing bank, the obligation of the issuing bank is triggered. Hence, when the LC require that presentation be made to an issuing bank that is in an inaccessible location, the beneficiary should consider seeking an amendment that will allow presentation to be made to another bank that is more accessible to them.
Guarantees
Because this event is not force majeure for the purpose of URDG 758, the undertakings and obligations of the involved banks have not changed. For example, if a complying demand is made to the guarantor, that is obligated to honour or negotiate.
In guarantees, often demands must be made directly to the guarantor – at their place of business.
In other words, only when a complying demand is made to the guarantor, the obligation of that bank is triggered. Hence, when the guarantee requires that the demand be made to a guarantor that is in an inaccessible location, the beneficiary should consider seeking an amendment that will allow the demand to be made to another bank that is more accessible to them. Or allow for an electronic demand to be made.
Documentary Collections
The collecting / presenting banks can only act when they receive the collection instruction from the remitting bank. Hence, if the documents are not forwarded from the remitting bank to the collecting / presenting bank nothing happens really. In that respect, I may be wise to consider the new rules for electronic presentations made under collections; i.e. eURC version 1.0. Those may indeed be useful in such situation.
As said, the backdrop on which the above is written is very tragic – ands it is my hope that the situation will be contained as son as possible; not to solve the above – which in reality are technicalities – but to ensure that the virus does not make anymore harm than it already has.
Kind regards
Kim