Force Majeure – Q&A Feb 2020
With the outbreak of the Coronavirus, the Club has been receiving enquiries on Force Majeure (FM) and we have produced a Q&A that provides answers to the most frequently asked questions.
What is FM?
Force Majeure excuses a party from not performing its contractual obligations that become impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled.
Does English law recognise FM?
FM is not an implied term under English law unlike many civil law countries and China. There is no established definition, instead FM is entirely contractual.
The provisions of a FM clause incorporated in a charter party determine the scope and consequences of a FM event between the parties and English Courts adopt a strict and narrow approach to its construction.
When can FM be declared?
FM can only be declared if the event delaying or preventing performance is expressly listed as an FM event in the FM clause incorporated into a charter party.
FM clauses are likely to list several events and there is usually reference to “epidemics”, “quarantine” etc. that may be sufficient to address the Coronavirus situation currently affecting a number of ports. There may be other provisions in the definition which can also be relied upon but we suggest including reference to “epidemics” and “quarantine” when agreeing your FM Clause to put the matter beyond doubt.
Does the FM event delay or prevent performance?
The party relying on the FM event will need to prove that the FM event is in fact delaying or preventing the performance of its obligations under a charter party.
In relation to Coronavirus, the party relying on the FM clause must be able to prove the issues at the relevant load port, discharge port, closure of associated banks that prevent trade etc. which is delaying or preventing the performance.
Is it beyond reasonable control?
Most FM clauses will expressly provide that the FM event should be beyond the reasonable control of the party declaring FM. In the context of Coronavirus and its effect on ports, bank closures, etc. there has so far been no argument on whether the event is beyond reasonable control or not.
However, parties should consider the charter party description of the cargo and range of ports for loading and discharge. If it is possible to perform the charter party with an alternative cargo/nominated port even if this is not the preferred option, the requirements of the FM clause may not be satisfied.
What about supporting evidence?
The party declaring FM is often contractually required to provide independent documentary evidence of the FM event which is affecting the performance of their obligations under acharter party. Evidence may also be required if the facts behind the FM declaration are disputed. Efforts should be made to procure supporting evidence from ports, government authorities and other independent sources.
How is FM declared?
The FM clause may set out notice provisions i.e. the party affected by an FM event may be required to give notice within 48 hours and provide timely updates. The notice provisions have to be adhered to strictly. If there are no notice provisions, then it is recommended to give notice within a reasonable time.
Some FM clauses expressly state that the notice provisions should include documentary evidence of the FM event.
What are the rights and remedies of the party affected by an FM event?
Very often, the FM clause provides that the party affected by the FM event can delay performance, suspend performance or suspend that part of the charter party that is affected and/or cancel the shipment. It is important to understand that the only rights and remedies are the ones that are expressly stated in the FM clause.
What is the impact on laytime/demurrage?
Laytime and demurrage is only excepted if the FM clause expressly provides that time shall not count as laytime or demurrage.
Can one rely on the FM clause when there are other specific clauses in the charter party?
Charter parties often have express clauses dealing with contagious diseases such as the BIMCO Infectious or Contagious Diseases Clause. Under English law, specific clauses take precedence over general clauses. It may, therefore, be that the provisions of a contagious disease clause take precedence ovethe FM clause incorporated in a charter party with regards to delays caused by the Coronavirus outbreak.
To summarise, the provisions of the FM clause dictate what an FM event is, and the rights and remedies available to the party relying on the FM clause.
Assureds are invited to contact the claims department in London, Dubai or Shanghai should they have any questions arising from this bulletin.