Letter Of Credit And Force Majeure

Introduction

Letter of Credit ('LC') is a very common document used in international trade. It is a letter issued by the buyer's bank, guaranteeing payment to the seller upon fulfilment of conditions mentioned therein. Generally, these conditions are with respect to presentation of certain documents evidencing transportation/ shipping of goods.

In recent times, due to Covid-19 situation, many parties have invoked Force Majeure clause in their contract/ agreement. There were cases, wherein the seller had transported the goods up to the landing ports, but the buyer could not take delivery due to lockdown and invoked Force Majeure clause. In such cases, the buyers have approached court to restrain banks from honouring LC. We will analyse the concept of LC and its governing laws in order to understand that, whether the Buyer can restrain banks from honouring the LC.