Oscar Wilde once said ‘expect the unexpected’. Well, it’s safe to say that 2020 has been anything but expected as the world grapples with the disruptive effects of the coronavirus pandemic. During this chaos, the question I have most often been asked by clients is ‘what about force majeure?’ – a French term that literally translates as ‘superior or greater force’.
For many shipowners, charterers, traders and their lawyers, the apparent convenience of this French notion of ‘force majeure’ has seemed as attractive as a glass of vintage Champagne. The legal concept actually originated under Roman law to describe unforeseeable, irresistible and supervening events which made performance under a contract practically impossible.
Unlike France, Greece and other civil law jurisdictions, the laws of England, however, do not recognise ‘force majeure’ as a standalone legal concept. There is, unfortunately, no inherent right for a party trading under English law contract to invoke ‘force majeure’ unless the contract specifically allows them to do so. Therefore, where a charterparty or any other shipping contract is subject to English law, yet does not have a ‘force majeure’ provision, there is no implied right to claim under this legal concept. For some – this has been a shocking wake-up call in 2020. For others, however, it has admittedly offered an unexpected escape, where such an escape might otherwise have been unexpected.
Whichever side of the contractual table we find ourselves on, the extraordinary events of the last six months have made those of us in the shipping industry acutely aware of what legal steps need to be taken so as to expect the unexpected.
The underlying premise of contact law is certainty. Force majeure provisions provide an opportunity for a party to maintain some level of certainty or control when the unexpected occurs. As legal advisors, we emphasise to our clients that it is often not enough to slot in standard force majeure (or exceptions) wording in a contract. How such a clause is drafted will determine how effective it will be. A bespoke force majeure clause can therefore be drafted to protect the specific commercial priorities of a business. This includes ensuring that the obstacles you wish to protect your business from actually fall within the defined scope – ensuring that the clause clearly defines what a ‘force majeure’ event is (or perhaps isn’t).
Examples include: the shutting down of a terminal or production facilities; a shortage or lack of availability of workers; delays at the load or discharge port including the granting of free pratique and other issues which may be directly impacted by a force majeure event. Similarly, an effective force majeure clause can be customised to suit the performance of the specific contract. This includes contemplating how the actions of third parties such as specific governments, terminals or even the trading power of either contracting party could impact performance during a possible force majeure event during that contract. Of course, considerations under a voyage charter are markedly different, for example, to those under a two-year time fixture.
The next step is for the clause to clearly set out the consequences of the force majeure event. How is risk allocated? Which party is liable for delay? Is this clear? What are the usual patterns and causes of delay at a particular port you intend to trade to and will your force majeure clause cover such a delay? How long must the delay be such that the clause is triggered? What notice is required and how must the notice be issued? Finally, what about liability up or down the chain? For example, can a sub-charterer’s invocation of a force majeure provision for delay be automatically exercised up the chain to the head owner? If the force majeure provisions are not identical, a charterer may find themselves liable on the one hand for hire to the head owner but unable to claim hire or demurrage from their time or voyage subcharterer who has claimed force majeure protection.
Depending on which side of the contractual table you’re sitting on – the scope can be tailored to include very broad terms, including sweep up provisions, or be very specific to specifically limit exposure. The choice of words can be critical. On the issue of causation – in our experience we have found that, while the difference in meaning between, for example, ‘hindered’, ‘prevented’ and ‘delayed’ may not seem important when the contract is being finalised (often to a tight deadline), once the clause is before a court or tribunal the use of particular words can make a difference to the outcome.
If a contract does not have a force majeure clause, however, all may not be lost. Taking a global view of the agreement as a whole, there may be other provisions that address what happens when delays occur following an unexpected event. In the case of a time charter this would require bringing the event within an off-hire provision where, for example, sickness has led to a deficiency of crew. That said, centralising your force majeure protections into one clause will likely offer greater clarity when problems arise.
Finally, there may be the option of invoking the English law doctrine of ‘frustration’ where the contract becomes impossible to perform. In that case, the contract is terminated and performance by either side no longer required from the point of frustration onwards. This is, however, notoriously difficult to prove because what is considered ‘impossible’ to one party may not be ‘impossible’ to another. This is because, despite the unexpected event, performance of the contract can still be achieved through some other means, be it via an alternative terminal or simply by waiting. In such circumstances, how the unexpected event is managed and what is said and done at the time by those at all levels – be it from the vessel’s bridge and engine room to the shipowners’ operations department – can highly influence the outcome, especially where third parties are also involved.
So, while the coronavirus pandemic has arguably been the ‘disruptor of all disruptors’, it has also given the shipping industry an opportunity to focus the mind on how better to protect itself legally when the unexpected occurs.