Incoterms 2020 Seminar

Force Majeure Related Questions from Seminar at Dubai Chamber on March 16 2020.


During the recent Dubai Chamber Incoterms 2020 workshop styled seminar in Dubai the question of Force Majeure surfaced frequently in the form of direct practical questions from participants.

One delegate asked the facilitator Vincent O’Brien of the ICC Banking Commission “Say we are shipping CFR Named Port (INCOTERMS 2020) and the vessel cannot dock at the port of destination due to the Covid-19 can we claim this as a force majeure event” O’Brien answered “your practical question highlights why INCOTERMS 2020 are such important rules – as far as your contractual obligation are concerned the failure of the vessel to dock at the port of destination has no impact on your delivery obligation under your contract – The CFR rule makes it clear that the seller deliver the good when they are on board the vessel at the port of loading” The questioner though delighted found this hard to believe and replied “Sounds like good news but your logic Mr. O’Brien it would appear to infer that the risk transfer to the buyer at that point, so even the ship sunk the buyer would already have fulfilled their delivery obligation at the port of loading without the goods arriving at the port of destination. O’Brien underlined his earlier answer with “That is correct, once the goods are on board the seller has fulfilled their delivery obligation whether or not the goods arrive at the port of destination, for any reason, including Corona Virus”.

Another participant was concerned about commercial and shipping documents getting delayed or lost in transit between an exporters nominated bank and the bank that issued a letter of credit undertaking payment for the goods “I guess, if the documents do not get to the issuing bank the issuing bank will not pay” O’Brien replied “With the Corona outbreak escalating in China this was a big problem with documents getting to Chinese Banks but I must admit that the Chinese Banks handled this in an exemplary manner – however to answer your question. “If you export and then present complying documents to the nominated bank then the issuing bank must honour or reimburse the nominated bank even when the documents have been lost in transit between the nominated bank and the issuing bank”. So, now more than ever presenting complying documents is mission critical.

Another participant had a very urgent question and wished to know what would happen if due to force majeure the commercial and shipping documents could not be presented under a Standby Letter of Credit before the expiry date “will the bank do the decent thing and provide an extension?. O’Brien replied “it is better to know the rules when doing high value contracts than hoping any party will do the decent thing” It was explained that if the documents cannot be presented because the banks is closed due to force majeure or other acts then the bank obligation expires on the expiry date and the bank has no obligation to extend – this would be the case under Article 36 the most widely used rules for Standby Letter of Credit known as UCP600”.

The delegate was not happy and considered this was unfairly stacked in the banks favour against the export customer. O’Brien agreed the rule was harsh and recommended that it is better for the exporter to insist on Standby Letters of Credit being issued subject to a set of rules specifically designed for standby’s known as ISP98. “Sorry for my long winded answer on this one but rule 3.14 of ISP 98 provides that if on the last business day for presentation of documents the place for presentation of documents is closed and the presentation Is not made on time then under this important rule “the last day for presentation is extended to the day occurring thirty calendar days after the place for presentation re-opens for business”. This insightful answer was greatly appreciated by the delegates but it was met with a follow on question “Two points, is this extension automatic and does then rule apply even in a situation like the current Corona Virus”. O’Brien replied “yes this rule was drafted to protect the export beneficiary, the extension is automatic and yes it applies if the closure is for any reason, including Covid19”.

The feedback from the participants made it clear that understanding the INCOTERMS rules and the other international trade & finance rules put them in a much more secure position doing international business, especially in the current challenging environment where force majeure can turn up unexpectedly. Consistent with feedback to ICC UAE training events 95% rated the event as “excellent’ and 89% rated the discussion of critical issues as “excellent’.