Article 36 and reimbursement obligation

[GSham]

According to article 36, a bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business. Depending on the mode of availability, “honour” means to pay at sight, to incur a deferred payment undertaking and pay at maturity, or to accept a usance draft and pay at maturity. Since article 36 mentions only “honour” and “negotiate”, can I understand it as the issuing bank’s reimbursement obligation is not affected by this article?

For illustration, let us look at a situation where a credit is available by negotiation and its place of expiry is the nominated bank’s counter (not the issuing bank’s counter), and the nominated bank has negotiated a complying presentation two days before expiry and forwarded the documents to the issuing bank. Two days later, an earthquake hits the issuing bank’s location. The issuing bank is closed until after the expiry date. Since article 36 does not apply to reimbursement obligation, the issuing bank is required to reimburse the nominated bank upon resumption of its business.

Would anyone disagree?

Regards, Gabriel

[HOANGTHIANHTHU_invalid]

Dear Gabriel,

The earthquake hits the issuing bank’s location while the LC is available at the nominated bank by negotiation and the date and place of expiry is in the nominated bank’s country. The negotiating bank has honoured the documents, hence, it is entitled to reimbursement from the issuing bank.

Article 36 is not applicable to the issuing bank in this situation. Upon resumption of its business, the issuing bank must reimburse the negotiating bank even when the documents forwarded to it were lost in transit (due to the earthquake)..

Best regards,
N.H.Duc