The Sum of All Fears? Letters of Credit, Lockdowns and Force Majeure. Catalyst for Push toward Electronic Presentations.

No thanks to COVID-19, with effect 00:00 25 March 2020, India is on "lockdown" for 21 days. According to news reports, commercial and private establishments shall be shut down, with exceptions. Banks are exempted. All transport services - air, rail, roadways - will remain suspended, with exceptions. "Transportation for essential goods only" is allowed. Movement by people is restricted. The lockdown is meant to stop the spread of the coronavirus, which has had a reported toll of 10 lives in India as of yesterday.

How the above will impact delivery of documents for trade purposes is to be seen. Whilst it appears that postal and courier services are exempted from business closure, reports are that courier service providers are not picking up documents since Monday this week. With the curfew, it is doubtful that customers could hand deliver documents to their banks.

What is the impact on the operation of documentary credits / letters of credit?

For exporters, the chief concern is the timely presentation of documents. That is, where shipments have already been made. (There are obviously concerns also about disruption to shipments, but those are beyond the scope of this article.)

An LC beneficiary has the following important deadlines to comply with:

• Latest date for shipment
• Last day for presentation

The rule in UCP 600 concerning presentations involving a transport document covered in its articles is that the presentation must be made not later than 21 days after the date of shipment, and not later than the expiry date of the LC (sub-article 14(c)). An LC may stipulate a presentation period of a shorter or a longer duration. A presentation means delivery of documents to the issuing bank or nominated bank. A nominated bank is a bank with whom the LC is available (normally stated in field 41a of an LC issued via SWIFT MT700), other than the issuing bank. Provided a complying presentation is made to a nominated bank by the last day for presentation, the issuing bank must honour (sub-article 7(a)) even if there is a delay in the forwarding of documents by the nominated bank to the issuing bank.

In case of force majeure resulting in the LC beneficiary's inability to make a presentation before the expiry of the LC, there is no provision in UCP 600 for an automatic extension of the time for presentation. I discussed the impact of force majeure on LCs in this past article. Apart from the one day mandatory closure on a business day (31 January 2020) in China on account of the coronavirus situation, it appears that banks, regarded as providing an essential service in probably all jurisdictions, have remained open so far in all locations. An LC beneficiary derives no benefit from the force majeure provision in UCP 600.

The concerns an LC beneficiary would have concerning making a timely presentation are:

1. Can it get all the documents required in the LC? E.g., can it receive the documents issued by third parties such as the shipping line, insurance company or chamber of commerce?
2. Can it get the documents to the nominated bank or issuing bank?

What can the LC beneficiary do if it knows it cannot make a timely presentation?

For LCs on hand, options available to the beneficiary are to contact the applicant to request for an LC amendment to extend the last day for presentation to a later date mutually agreed, or to modify the force majeure provision to allow for a presentation on the resumption of business by the nominated bank. Applicants might assure the beneficiary that they (the applicants) will waiver discrepancies for late presentation or expired LC, but it is risky for beneficiaries to rely on such assurances - after all, the issuing bank (and any confirming bank) may choose to refuse without reference to the applicant.

What if electronic presentations could be done? If the nominated bank is open, and its data processing system is able to receive an electronic presentation, the physical constraints of forwarding paper documents will be overcome if electronic records could be presented instead. For this to be possible, the applicable rules need to be eUCP (latest version), documents must be available as electronic records, and presentation needs to be made to an electronic address. It might be useful to have pointed out that if a bank is open but its system is unable to receive a transmitted electronic record on the LC's expiry date and/or the last day for presentation, the expiry date and/or last day for presentation will be extended to the next banking day on which the bank is able to receive an electronic record (eUCP sub-article e6(e)(i)). In case of force majeure, the provision of UCP 600 remains, i.e. a bank will not upon resumption of its business honour or negotiate under an LC that expired during such interruption of its business - however, for an eUCP credit, it is expected that save for inability to access a system or failure of equipment, software or communication equipment due to force majeure events (see article e14 of eUCP Version 2.0) and availability of the requisite electronic records, the beneficiary ought to have much more means to make a timely presentation electronically than that if paper documents were used.

I have previously asked if force majeure might be a case for electronic presentations (see here). The COVID-19 pandemic has forced a lot of change upon our way of living, including forcing many to work from home - might this be a catalyst for greater adoption of eUCP credits? The challenges of moving paper will likely be acutely felt by many in the current situation, and the time has come for all actors in the trade ecosystem to take seriously the need to digitise documentation. For years, the argument for digitisation has focused on efficiency that it brings, how much cost savings it generates, and lower risk of electronic transmissions compared to that of sending physical paper - perhaps with the lockdowns that we are seeing in many places today, digitisation will be seen as not only an enhancement for better commerce, but a necessity to keep commerce going.