Payment Obligations Under War Risks

In a volatile global landscape, armed conflicts often lead to shipping disruptions and port blockades. When a seller has shipped goods and obtained Letter of Credit (L/C) documents, but the buyer is unable to collect the goods due to war, can the buyer refuse payment based on "Force Majeure"? The answer depends on the Incoterms used in the contract and the regulations of UCP 600.
1. Core Principle: The "Independence" of Letters of Credit
According to the Uniform Customs and Practice for Documentary Credits (UCP 600), there is a supreme principle in L/C transactions: The Principle of Autonomy.

Banks Deal with Documents, Not Goods: As long as the documents submitted by the seller (Bill of Lading, Invoice, etc.) strictly comply with the L/C terms, the issuing bank is mandated to fulfill the payment.
Decoupled from Physical Delivery: Banks are not responsible for verifying if the goods have arrived or were damaged by war. Consequently, a buyer generally cannot instruct a bank to withhold payment due to an inability to collect the cargo.

2. Risk Assumption Under Different Incoterms
Who bears the loss when war prevents delivery depends entirely on the "Point of Risk Transfer."
A. FOB and CIF Terms (Shipment Contracts)
Under FOB (Free on Board) or CIF (Cost, Insurance and Freight):

Risk Transfer: Risk passes from the seller to the buyer the moment the goods are loaded on board the vessel at the port of export.
The Seller's Position: Once the goods cross the ship's rail, the seller has fulfilled their delivery obligation.
The Buyer's Position: Any subsequent war or blockade preventing delivery is a transit risk borne by the buyer.
Conclusion: The buyer has no right to refuse payment. Instead, the buyer should claim compensation from their insurance provider under "War Risks" coverage.

B. "D" Group Terms (Arrival Contracts: DAP, DPU, DDP)
Under terms like DAP (Delivered at Place):

Risk Transfer: Risk only passes to the buyer when the goods reach the designated destination and are ready for unloading.
The Seller's Position: The seller is obligated to deliver the goods to the specific location.
The Buyer's Position: If war prevents the goods from reaching the destination, the seller has failed to complete the delivery.
Conclusion: The buyer may have legal grounds to refuse payment. Since the risk has not yet transferred, the "Impossibility of Performance" caused by war remains the seller’s responsibility.

3. Comparison Table: War Risk vs. Incoterms

Trade Term	Point of Risk Transfer	Can Buyer Refuse L/C Payment?	Party Bearing the Loss
FOB / CFR	Loaded on board at port of origin	NO	Buyer
CIF / CIP	Loaded on board at port of origin	NO	Buyer (via Insurance)
DAP / DDP	Upon arrival at destination	YES	Seller

4. Risk Mitigation Recommendations for Enterprises

Select Incoterms Wisely: When trading with regions facing political instability, sellers should prioritize F-terms (FCA/FOB) or C-terms (CFR/CIF) to ensure risk transfers upon shipment.
Explicit War Risk Insurance: Standard cargo insurance (ICC A or C) typically excludes war. Parties should explicitly require "Institute War Clauses" in the L/C.
Refine Force Majeure Clauses: Define "Force Majeure" clearly in the sales contract, specifying whether war allows for contract extension, suspension, or termination to avoid legal ambiguity.

Disclaimer: This article is for informational purposes only. Specific cases should be analyzed based on individual L/C terms and applicable international laws. For legal disputes, consulting with a professional maritime lawyer is recommended.
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