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May the force (majeure) be with you…

  • United Kingdom
  • Litigation and dispute management

01-11-2018

Force majeure clauses are intended to address contractual risk for an “Act of God” (i.e. an event beyond the control of the parties such as fire or flood). Once triggered, their effect can be to exclude liability for non-performance as a result of the force majeure event.

In this article we explore the implications of Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor [2018] EWHC 2389 (Comm), in which the Defendant charterer (“Limbungan”) attempted to rely on a burst dam to escape liability for its failure to ship products from Brazil to Malaysia.

Limbungan and the Claimant ship-owner (“Classic”) had a long-term contract for shipments of iron ore.  On 5 November 2015, a fatal dam burst stopped production at the local mine and Limbungan subsequently missed five shipments.  In principle, Limbungan could have obtained iron ore from an alternative mine but Limbungan claimed a surge in demand at the second mine prevented it from doing so.

In response to Classic’s claim for damages for breach of contract,  Limbungan sought to rely on the following exception clause in the contract:

“Neither the vessel, her master or Owners, nor the Charterers, Shippers or Receivers shall be Responsible for … failure to supply, load, discharge or deliver the cargo resulting from: Act of God…floods….accidents at the mine or Production facility….or any other causes beyond the Owners' Charterers' Shippers' or Receivers' control; always provided that such events directly affect the performance of either party under this Charter Party…"

Classic, however, argued that the clause did not apply for two reasons.  First, it claimed that Limbungan had not made relevant arrangements prior to the dam burst to prepare the shipments and so would have breached the contract in any event.  Secondly, it argued that, after the dam burst, Limbungan did not take all reasonable steps to ship from the alternative mine.

Judgment

Teare J held that Limbungan could not rely on the exception clause.  It was therefore in breach of contract and liable for the missed shipments.

The Judge held that the relevant test to trigger the clause was the “but for” test.    He found that Limbungan had not made relevant arrangements for the shipments prior to the dam burst.  Accordingly, Limbungan could not show that, but for that event, it was likely to have performed the contract. This was particularly so as Limbungan had missed two shipments before the dam burst.

The Judge also held that, as a matter of law, where there were alternative modes of performance, the defaulting party must make all reasonable efforts to use the alternative after a force majeure event occurs.  On the facts, however, he found that the second mine would not have agreed to Limbungan’s shipments in any event.

As a twist in the tale, Classic was not entitled to recover substantial damages for Limbungan’s breach of contract. Contractual damages are intended to put the parties in the position they would have been in but for the breach.  Here, even if Limbungan had been ready to perform the contract, the relevant shipments could never have been made due to the dam burst.  In that scenario, the force majeure clause would have prevented Classic claiming damages.

Comment

There is always a high bar to enforcing a force majeure clause and this case highlights two important issues for similar clauses:

  1. The party relying on the clause must show that the force majeure event was the sole cause of non-performance. If it would not have performed its obligations in any event, then it cannot rely on an exceptions clause.
  2. Where there is an alternative mode of performance, the party relying on the clause must take all reasonable steps to use that alternative before the clause can take effect. For example, if you can deliver your goods by another means, you must do so.

Accordingly, anyone seeking to rely on a force majeure event to exclude contractual obligations, particularly in circumstances where they have breached contractual obligations in the past, must tread carefully and take appropriate legal advice as soon as possible.

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