Please note that the information given in this article is based on the information currently available, taking into account that that situation changes and evolves from day to day.
About Force Majeure
In assessing the wide spread disruption caused by COVID-19, many questions relate to whether or not the coronavirus constitutes a Force Majeure situation.
Force Majeure means “superior force” and is broadly used to describe an event or effect that cannot be reasonably anticipated or controlled. However, for the purpose of trade it is a clause in an agreement or contract which describes the consequences of Force Majeure events (defined in the agreement) for the purpose of the agreement. This means that a party claiming Force Majeure would need to prove that their ability to meet the contract was “impaired” or made “impossible” due to one of the events agreed in the contract – and otherwise based upon the “Force Majeure clause” in the contract. In other words – Force Majeure takes the outset in 1) what has happened and 2) what has been agreed. This applies to both the agreement between the buyer and the seller. However, it applies equally to the applicable Trade Finance rules based upon the relevant product.
The million dollar question is whether the coronavirus situation can be described as a Force Majeure situation. There is no doubt that disruption caused by coronavirus is generally seen as a Force Majeure event as it is something that you have no control of like a natural disaster. However, for the purpose of the agreements, contracts and Trade Finance rules it will depend on the set of circumstances related to each particular case in respect of the actual transaction.
All of the Trade Finance rules (for example International Chamber of Commerce (ICC) rules UCP 600, URDG 758, URR 522 and ISP98) include articles that address Force Majeure situations. Common for all, is that they assume that the business of the affected bank is interrupted and/or that the bank is closed for business. There is only little practice regarding this; however it should at least be so that the effect of the interruption is that presentation of documents / demands, examination of the documents / demands as well as payment are prevented by the situation.
The potential consequence of a Force Majeure event for the purpose of the Trade Finance rules varies a lot. For Documentary Credits (subject to UCP 600) a bank that has been closed due to a Force Majeure event, will not, after it re-opens for business, honour or negotiate under a Documentary Credit that expired during the Force majeure event. The other extreme is Standby Letters of Credit (subject to ISP98) where the last day for presentation is automatically extended to the day occurring thirty calendar days after the place for presentation re-opens for business.
For Nordea, the coronavirus situation means that contingency plans have been activated to ensure that it is still possible to handle customer business. Other banks are doing the same. This of course is the logic and correct approach. However, as long as the bank is open in one form or the other this also means that this cannot be described as a Force Majeure situation for the purpose of the Trade Finance rules listed above.