URDG 758

Article 26: Force Majeure An important new provision regarding force majeure steers an intermediate course between UCP 600 and ISP98. Under article 36 of UCP 600, if an event of force majeure prevents presentation by the beneficiary, and the credit expires before the cessation of the force majeure, the credit will not be honoured. For demand guarantees this was felt to be too draconian since, if the beneficiary seeks to present the demand a day before expiry and is precluded from so doing by force majeure which ceases a day after expiry, the beneficiary is deprived of all benefit under the guarantee. In the case of demand guarantees, such a rule affects, not only the primary beneficiary, but also a guarantor who pays under the guarantee and is then unable to make a presentation under the counter-guarantee. Rule 3.14 of ISP98 goes to the other extreme, extending the time for presentation until 30 days after the place for presentation reopens for business. This was felt to be too open-ended; it could have the effect of extending the guarantee for several months. Consequently, article 26 of URDG 758 takes a middle position, providing a strictly limited extension of the guarantee. The effect of force majeure on the guarantor depends on whether it prevents presentation, examination after presentation or payment after examination. 1. Prevention of presentation If presentation is prevented by force majeure, the guarantee and the counter-guarantee are each extended by 30 calendar days. 2. Prevention of examination of documents presented prior to expiry In this case, the running of time is suspended until resumption of the guarantor's business. The time generally allowed for examination is five business days (sub-article 20 (a)). Therefore, if three business days had already elapsed between the time of force majeure and the time of presentation and the examination had not been completed by then, the guarantor has two further business days after resumption of business to complete the examination. 3. Prevention of payment after examination of complying demand Payment must be made on cessation of the force majeure. The same rules apply to the effects of force majeure on the counter-guarantor, except that the 30-day extension of the counter-guarantee runs from the time the counter-guarantor informs the guarantor of the cessation of force majeure, not from the time the counter-guarantee would otherwise have expired. DCInsight Vol. 16 No.1 January - March 2010 by Professor Sir Roy Goode Under URDG Article 26(a), the force majeure extension provision applies only to events occurring to the guarantor, not the beneficiary. (See, for example, the ICC statement8 on the recent Icelandic volcano eruptions and the resulting delays in the delivery of documents.) URDG Article 26(b) provides for an extension of time for presentation due to

force majeure (unlike UCP600 and the NY UCC) but such extension runs for a maximum of thirty days from the expiration date of the guarantee (unlike ISP98 Rule 3.14(a), which extends the last day of presentation to thirty days after the place of presentation re-opens). In other words, if the force majeure event continues for 31 days or more after the scheduled termination date, the guarantee is terminated. Note, however, that if presentation was made in a timely fashion, but the guarantor was prevented from making payment due to force majeure, the guarantor must pay when the force majeure ceases even if the guarantee has expired in the interim (and the guarantor may present demand to any counter-guarantor within thirty days after the force majeure has ceased not from when the guarantor has resumed business). Another difference between the URDG and ISP98 is that under ISP98 the extension is granted only if the force majeure event prevented the presentation. The URDG seems to allow presentation to be made during the extension period even where the event permitting a demand to be made first occurs during the extension period. This can be advantageous for a beneficiary that would not have been permitted to make a complying demand had there been no force majeure event and had the guarantor remained open through the stated expiration date of the guarantee. Still another difference between the URDG and ISP98 is that ISP98 covers closure for any reason but the URDG is limited to closure for force majeure. This may lead to disputes under the URDG whether a particular closure is due to force majeure or some other cause that does not trigger the extension provisions. The extension for force majeure also applies to a presentation made prior to the force majeure event but not yet examined during the five business day period provided in URDG Article 20 such inspection period commencing again from the day on which it was interrupted after the force majeure ceases for a combined total of five business days. Michael Evan AVIDON
DCW Issue September 2010

Force Majeure (article 26) The URDG 758 include a new article on force majeure. The URDG definition of Force Majeure is: force majeure means acts of God, riots, civil commotions, insurrections, wars, acts of terrorism or any causes beyond the control of the guarantor or counter-guarantor that interrupt its business as it relates to acts of a kind subject to these rules This would for example not include the situation where a demand can not be presented timely to a guarantor because of cancelled flights due to a volcanic eruption given of course that the guarantor is not closed for business due to that situation.

The article describes 3 different scenarios: 1. The guarantee expires at a time when presentation or payment under that guarantee is prevented by force majeure. In this case the guarantee shall be extended for a period of 30 calendar days from the date on which it would otherwise have expired. 2. The presentation has been made but not examined due to the force majeure situation. In such case the examination is suspended until the resumption of the guarantors business 3. A complying demand has been presented but not paid due to the force majeure situation. In this case payment must be made when the force majeure ceases

Non-documentary conditions (article 7)

The URDG 758 make emphasis on the independent and documentary nature of demand guarantees. This means that all requirements in a demand guarantee should also stipulate a document to indicate compliance. In guarantee transactions there are however situations where a document need not be presented and this is duly acknowledged in the article. Consequently the exceptions are: Dates or the lapse of a period For example where the amount of the guarantee is reduced on a certain date if no complying demand is made prior to that date. Guarantors own Index specified in the guarantee. For example the payment of a specified amount to a given account held with the guarantor. An Index specified in the guarantee. For example the use of a Platts index. The rule is that non-documentary conditions are disregarded. It should be noted however that this should be read in conjunction with sub-article 19(b) meaning that data in a document presented must not conflict with data in the guarantee. So for example the requirement Goods of China origin in a guarantee is a non documentary condition. However if a document (for example the commercial invoice) shows that goods are of Swedish origin the presentation is discrepant and may be rejected