Can Impact Of Coronavirus Be A Force Majeure Event?
In 3Qtr 2020 the COVID-19 pandemic and associated containment measures remain a fluid situation, still somewhat beyond everyone’s control. Throughout the year the coronavirus outbreak and the consequential restrictions and controls introduced by governments has hugely impacted businesses and the global economy. Whether or not force majeure relief is available is very much a case of interpretation of relevant contract wording and the governing law.
The beginning of the year saw forwarders, shippers, receivers, and carriers thoroughly reviewing their contracts to determine whether they could forfeit their shipments, services agreements, or bookings to avoid increased costs and expenditure. The consequences of which ranged from damages, to re-shipping costs, to cancellation of freight. As for the ongoing issues relating to business interruption, the honouring of contract law and extra-contractual claims is still open to interpretation.
What is a force majeure clause?
A “force majeure” clause is normally used to describe a contractual term by which one or more of the parties is entitled to suspend performance of its affected obligations and/or to claim an extension of time for performance, following a specified event or events beyond its control. It may also entitle termination of the contract, usually if it exceeds a specified duration.
Simply, force majeure is defined as “an event, or a series of related events, that is outside the reasonable control of the party affected”, which can include anything from industrial disputes, riots, to epidemics or even an event described by the legal term Act of God.
As circumstances in 2020 have made us all too aware, to successfully invoke a force majeure clause is much harder than commonly believed. Even if it is concluded that there is no force majeure relief under a contract, it is always important to consider if there are any supervening principles of local law that may apply regardless of the governing law of the contract. Many Civil Law countries contain codified provisions covering force majeure and economic hardship relief.
Generally, a delay or interruption in performance will give rise to force majeure, but whether this can be enforced will often come down to the specific wording of that clause in a contract. Getting this correct at the outset could save thousands of dollars, while getting this wrong could lead to a breach of contract and prove to be very costly.
For example, if a government has closed ports, which physically prevent a carrier from discharging cargo, then this would generally support such a definition, but the shutdown of banks or local offices, even for health and safety reasons, may not be sufficient grounds.
To make matters worse, events that lead to knock-on consequences, notably a slowdown on shipments or bookings, will rarely fall into this category. Many services or slot agreements will no longer fulfill bookings, but regrettably, this may not be enough to impose force majeure as it could be deemed as commercial risk.
Most international conventions, such as Hague-Visby Rules, make reference to force majeure, and the majority of contracts will include such a clause to protect both parties. Regrettably, anything except total shutdown of a port, which would prevent discharge, would generally require closer inspection of the clauses and law applicable in a contract.
The analysis of force majeure entitlements benefits from consideration of wider implications. The ability to successfully defend on and/or apply force majeure depends upon the exact factual circumstances, what mitigating actions were taken by the logistics provider, the mode of transport and applicable law, in addition to the forum for dispute resolution, amongst other things.
For bespoke advice on contract wording disclaimers, responses to a claim for loss due to delay, and contesting of extra charges associated with business interruptions, please contact Richard Kamppari Baker, Chief Executive Officer of Cornice Claims Associates.
Legal counsel and review should always be sought for interpretation of specific scenarios and questions relating to force majeure.