lcviews CoronAdvice #2: Is the coronavirus a Force Majeure event?
The second blogpost in the segment “lcviews CoronAdvice” follows natural from the first. The first basically asked the question if the business of the affected banks has been interrupted. However, an equally important question is if the coronavirus is indeed a Force Majeure event for the purpose of the Trade Finance rules.
As mentioned in the first “lcviews CoronAdvice,” all of the Trade Finance rules (UCP 600, URDG 758, URR 522 and ISP98) include articles that – in one way or the other – address Force Majeure situations. Those – in broad terms – list the events in scope for the relevant articles.
What are listed in the rules are the following:
* Acts of God (UCP 600, URC 522, URDG 758)
* Riots (UCP 600, URC 522, URDG 758)
* Civil commotions (UCP 600, URC 522, URDG 758)
* Insurrections (UCP 600, URC 522, URDG 758)
* Wars (UCP 600, URC 522, URDG 758)
* Acts of terrorism (UCP 600, URDG 758)
* Strikes or lockouts (UCP 600, URC 522, URDG 758)
* Any other causes beyond its control (UCP 600, URC 522, URDG 758)
* Any reason (ISP98)
As can be seen, pandemics (as the coronavirus has been labelled by the World Health Organization) are not on the list of events mentioned.
For ISP98 there is no doubt that if a bank is closed on a business day due to the coronavirus, then rule 3.14 will apply as it refers to “any reason”.
For the UCP 600, URC 522 and URDG 758, the good question is if pandemics can be classified as “any other causes beyond its control”.
As with anything relating to Force Majeure, there is no black and white answer. However, it must be assumed that:
1) The fact that the coronavirus has been labelled and pandemic by the World Health Organization and
2) that there are in place governmental regulations intended to contain the COVID-19 outbreak, will make it easier by a bank to invoke a Force Majeure clause referring to “any other causes beyond its control”.
The above question however, will most likely only be answered if a case affected by the lockdown is taken to a court of law
Takeaways:
* All of the Trade Finance rules include articles that address Force Majeure situations, and in broad terms list the events in scope for the relevant articles
* For ISP98, if a bank is closed on a business day due to the coronavirus, then rule 3.14 will apply as it refers to “any reason”.
* For the UCP 600, URC 522 and URDG 758, the question is if pandemics can be classified as “any other causes beyond its control”.
Look out for more “lcviews CoronAdvice”.
Meanwhile – as always, take care of the LC – but take special care of each other during these difficult times.
Kind regards
Kim