Is the Coronavirus Force Majeure?
Everybody reading this article has heard of the coronavirus, but sadly, little is known about it or how its impact will eventually affect trade.
Many forwarders, shippers, receivers, and carriers will be looking over their contracts to see whether they can forfeit their shipments, services agreements, or bookings to avoid increased costs and expenditure. The consequences can range from damages, to re-shipping costs, to cancellation of freight.
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 to riots.
To invoke the clause is much harder than commonly believed, and there are even different interpretations between civil and common law jurisdictions. 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. Getting this correct could save thousands of dollars, while getting this wrong could lead to a breach of contract and be very costly.
If a government has closed ports, which physically prevents the 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 commercial.
Most international conventions, such as Hague-Visby rules, make reference to force majeure, and the majority of all contracts will include such a clause to protect both parties. Regrettably, anything except total shutdown of the port, which would prevent discharge, would generally require closer inspection of the clauses and law applicable to your contract.
To successfully impose force majeure, or to defend against it, will depend on three factors:
- The choice of law or jurisdiction the contract is governed.
- Specific clauses in the contract and/or overriding exemptions.
- (And most importantly) – Always seek legal advice before committing to any decision. It can be a costly mistake if you get this wrong.