Clause 1:
Clause: “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.”
Explanation: This clause specifies that banks are not liable for any interruptions in their services caused by events that are beyond their control, commonly referred to as “force majeure” events. These events include natural disasters (Acts of God), social or political unrest (riots, civil commotions, insurrections), wars, acts of terrorism, and labor disputes (strikes or lockouts). The clause ensures that banks are protected from being held responsible for disruptions in their business due to these uncontrollable events.
Example: Imagine a bank in a country experiencing severe flooding due to a hurricane (an Act of God). The flooding disrupts the bank’s operations, making it impossible to process transactions or honor letters of credit. Under UCP600 Article 36, the bank is not liable for any financial losses or consequences that customers might face due to this interruption.
Clause 2:
Clause: “A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business.”
Explanation: This clause indicates that if a letter of credit expires while a bank’s operations are interrupted due to a force majeure event, the bank is not obligated to honor or negotiate the credit once it resumes business. This provision ensures that banks are not forced to process expired credits after their operations have been restored.
Example: Consider a bank that had to close its offices for two weeks due to a violent civil commotion in the city. During this period, a letter of credit that was issued by the bank expired. According to UCP600 Article 36, once the bank resumes its operations, it is not required to honor or negotiate the expired letter of credit. The beneficiary of the credit cannot demand payment or negotiation of the credit post-expiry due to the force majeure event that caused the interruption.