Article 15

URC 522 Article 15: “Force Majeure” in Documentary Collections – Explanation

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URC 522 Article 15: Force Majeure

“ARTICLE 15 FORCE MAJEURE Banks assume no liability 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 or lockouts.”

Explanation:

Article 15 of the Uniform Rules for Collections (URC) 522 deals with the concept of “force majeure,” a legal principle that relieves parties from their contractual obligations when certain unforeseen events occur. These events are beyond the control of the parties involved and make it impossible or impractical to fulfill their contractual duties.

The article specifically states that banks are not liable for any consequences that arise due to interruptions in their business operations caused by events such as natural disasters (referred to as “Acts of God”), riots, civil unrest, insurrections, wars, strikes, lockouts, or any other events beyond their control. This means that if a bank is unable to process a collection or perform any related tasks due to such events, they cannot be held responsible for any resulting losses or delays.

Examples:

  1. Natural Disaster (Act of God):
    • Scenario: A bank in a coastal city is responsible for processing documentary collections for an international trade transaction. However, a major hurricane hits the city, causing widespread flooding and power outages. As a result, the bank’s operations are severely disrupted, and they cannot process the collection documents on time.
    • Application of Article 15: In this case, the bank would not be held liable for any delays or financial losses incurred by the parties involved in the transaction because the interruption was caused by a natural disaster, an event beyond the bank’s control.
  2. Civil Unrest:
    • Scenario: A bank is located in a country experiencing significant civil unrest, including riots and violent protests. The bank is forced to close its branches temporarily for the safety of its employees and customers, resulting in a delay in the processing of documentary collections.
    • Application of Article 15: Here, the bank would not be responsible for any consequences of the delay, as the interruption was caused by civil commotions, which are beyond the bank’s control.
  3. Strikes or Lockouts:
    • Scenario: A bank’s employees go on strike, leading to a complete halt in the bank’s operations. During this period, the bank is unable to process any documentary collections, causing delays for several trade transactions.
    • Application of Article 15: According to Article 15, the bank would not be liable for any delays or financial losses suffered by the parties in these transactions, as the interruption was due to a strike, which is explicitly mentioned as a force majeure event in the article.

Conclusion:

Article 15 of URC 522 provides banks with protection from liability in situations where their ability to perform their duties is compromised due to uncontrollable events. By understanding this provision, businesses involved in international trade can better manage their expectations and prepare for potential disruptions caused by force majeure events.

URR 725 Article 15: Force Majeure – CDCS Guide

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Article 15 – Force Majeure

Clause: “A reimbursing 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.”

Explanation:

Article 15 of URR 725 addresses the concept of “Force Majeure,” which refers to exceptional circumstances that prevent a party from fulfilling its obligations under a contract. In this context, it specifies that a reimbursing bank is not liable for any consequences resulting from certain uncontrollable events that disrupt its business operations.

Example:

Imagine a reimbursing bank involved in a letter of credit transaction. If a severe earthquake (an Act of God) strikes and damages the bank’s infrastructure, making it impossible for the bank to process or reimburse transactions, Article 15 absolves the bank from liability. Similarly, if a bank’s operations are disrupted due to a violent riot or a war in its location, the bank cannot be held responsible for any delays or non-performance caused by these events.

To further illustrate, consider a situation where a bank is supposed to reimburse a beneficiary under a letter of credit, but due to a general strike (a strike or lockout), the bank’s operations are halted. According to Article 15, the bank is not liable for failing to meet its reimbursement obligations during this period of interruption.

In essence, Article 15 provides protection for reimbursing banks against claims related to their inability to perform due to extraordinary and unforeseen events beyond their control.

UCP600 Article 15 Explanation – CDCS Guide: Complying Presentation

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Clause a: When an issuing bank determines that a presentation is complying, it must honour.

Explanation: An issuing bank, upon receiving the documents under a letter of credit (LC), has the responsibility to check if the documents comply with the terms and conditions of the LC. If the documents are found to be in compliance, the issuing bank must honor its commitment to pay the beneficiary immediately or accept the documents and pay on due date.

Example: An exporter in India ships goods to an importer in the USA under an LC issued by an American bank. The exporter presents the required documents to the issuing bank. After examination, the bank finds all documents in compliance with the LC terms. The issuing bank then proceeds to honor the payment, transferring the funds to the exporter’s account.

Clause b: When a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank.

Explanation: A confirming bank adds its confirmation to an LC, providing an additional payment guarantee to the beneficiary. If the confirming bank determines that the presented documents comply with the LC terms, it must either honor or negotiate (purchase the documents) and then forward the documents to the issuing bank for reimbursement.

Example: An exporter in Germany receives an LC confirmed by a German bank. The exporter presents the documents to the confirming bank, which checks and finds them in compliance. The confirming bank pays the exporter (honours) and then forwards the documents to the issuing bank in the USA for reimbursement.

Clause c: When a nominated bank determines that a presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank.

Explanation: A nominated bank is authorized to pay, accept, or negotiate under an LC. If the nominated bank finds the documents compliant and decides to honor or negotiate, it must forward the documents to the confirming bank (if there is one) or the issuing bank.

Example: An exporter in China ships goods under an LC issued by a UK bank, with a nominated bank in China. The exporter presents the documents to the nominated bank in China. The bank reviews and finds the documents in compliance, pays the exporter, and then forwards the documents to the issuing bank in the UK for reimbursement.