The ICC's Response to Covid-19 in Relation to force majeure Under its Rules

Client Alert
April 16, 2020

Written by: Geoff Wynne and Szonja Kolbenheyer (trainee solicitor)

On 7 April 2020, the International Chamber of Commerce (ICC) published a paper titled "Guidance Paper on the Impact of COVID-19 on Trade Finance Transactions Issued Subject to ICC rules."

This paper addressed the question as to whether banks and guarantors could seek to apply force majeure as a result of Covid-19, as a defence to non-performance. The key consideration is whether Covid-19 amounts to an interruption of their respective businesses or to an event beyond their control. This paper also considered the issues currently faced around the delivery of documents in trade finance transactions. The ICC looked at various scenarios relating to the delivery of documents under rules including UCP 600 and ISP 98 for letters of credit (‘LCs’) and URDG 758 for guarantees.

The ICC’s view is that similarly to the volcanic eruption in 2010, Covid-19 is unlikely to be sufficient to amount to a force majeure event. In its view, businesses should focus on developing and implementing business continuity plans. Although it has provided guidance relating to transactions governed by ICC rules, the ICC maintains that whether a collection of specific facts and/or circumstances amount to a force majeure event remains for the appropriate courts and tribunals, governments and respective regulatory authorities to decide. Nevertheless, even if such authority were to decide that a force majeure event has been triggered, if such a transaction is conducted in line with ICC rules, the relevant ICC provisions on force majeure will continue to apply.

To help minimise disruption and disputes, the ICC encourages increased communication between the parties to transactions and the banks, and promotes the use of ICC eRules in future transactions. Whilst no revision to the ICC rules is currently proposed, the ICC highlighted the possibility of modifying certain provisions with the agreement of all parties involved, in line with UCP 600 article 1 for LCs.

In its paper, the ICC sets out specific scenarios and issues relating to the delivery of documents and proposed solutions to deal with each possible situation. It is worth noting that the scenarios and the corresponding guidance appear to expand the strict reading of UCP 600 Article 35 and place the onus almost entirely on the issuing banks, as opposed to the nominated and confirming banks, in scenarios where the LC is silent on delivery of documents or where the required delivery method becomes unavailable, unreliable or significantly slower. Currently there is no case law to support or negate the guidance.

The ICC highlighted that its paper is for guidance only, and only for transactions contracted under ICC rules. It stressed that all claims under force majeure are to be decided on a case-by-case basis, by the relevant courts and tribunals, governments and regulatory authorities and that special attention needs to be paid to the differences between the treatment of force majeure provisions in civil and common law jurisdictions.

The ICC paper also lists the main provisions of the ICC e-Rules relevant to Covid-19.

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