UCP500. (International Affairs Section).(examination of banking law on liability and responsibility)

This tenth commentary on UCP500 examines Articles 17 and 18.

Article 17

The exclusion of liability and responsibility by banks for the "force majeure" circumstances described in Article 17 may cause little surprise--a case of banks looking after their own interests, you may think. But think again. What protection does this Article give and to whom? The first sentence may be non-controversial, but what about the resumption of business provision in the second sentence?

Take the September 11th events in New York. Suppose a U.S. beneficiary planned to present documents to a New York bank on September 12th under an LC expiring on September 13th. New York banks, however, were closed until the following week, by which time the LC would have expired and Article 17 would have applied. Result--the presentation would have been discrepant. Perhaps the applicant would have waived the discrepancy--perhaps not. Technically, the LC had ceased to exist, and the beneficiary was in no position to demand payment.

What if the document to be presented had simply been a draft or coupon or warrant available under a Standby Letter of Credit on precisely one of these closed days? Is payment to be made late, and if so what about interest? Is payment voidable, given that Article 17 makes no provision for late payment? It seems that Article 17 is a double-edged sword--it will probably help one parry, but at the expense of another. The circumstances of a particular situation will determine whose interests are served.

Consequently, it is not uncommon to find the "unless specifically authorized" provision invoked, thereby excluding at least this part of Article 17 in certain situations, particularly Standbys. Indeed, the rules drafted by the U.S. banking industry only a few years ago describing International Standby Practices, published under the title ISP98 and specifically intended for use with Standbys, turn Article 17 on its head. In summary, they provide that the Standby is automatically extended for 30 calendar days after the resumption of business if the place for presentation is closed for any reason on the last day for presentation--unless otherwise provided.

Article 18