Who is responsible for the cargo when force majeure is declared?

Who is responsible for the cargo when force majeure is declared?

Overview

The development of a new BIMCO Force Majeure Clause is progressing and continued last week as the subcommittee met to draft a bolt-on provision relating to situations when cargo has been loaded onto the ship and a party declares force majeure.

The starting point is that while a vessel is carrying cargo there is no right for either party to terminate the contract. This approach has been taken to avoid that the provision acts as a weapon in the hands of the party claiming force majeure. It should be noted that if a contract is terminated while the ship has cargo on board, the owners will remain responsible at law as bailees of the cargo and will have to bear the costs of discharge with no contractual rights vis á vis the charterers.

What does the bolt-on provision then do for the parties? It sets out a number of liberties if force majeure prevents the completion of loading, or the departure from the load port, or discharge, for more than 21 days from when force majeure notice was declared.

Any extra costs incurred in exercising any of the liberties should be allocated in accordance with the contract. In other words, one will have to look at how the responsibility for loading and discharge has been allocated in the underlying contract, for example, if it is on FIOST (Free In Out Stowed and Trimmed) terms.

Relationship between the Force Majeure Clause and other clauses in a contract

The subcommittee also considered other issues in relation to the draft Force Majeure Clause. One such was the relationship between the force majeure clause and other BIMCO clauses such as the war, piracy, and infectious or contagious diseases clauses that may be found in the same charter party.

In order to establish if clauses are overlapping or conflicting, one must look at what the various clauses are intended to achieve. There may be several clauses relating to the same topic. Nevertheless, they will have different purposes.

For example, the purpose of the war, piracy and infectious or contagious diseases clauses are to allow owners to reject proceeding to a risk area, and if they do, to provide a cost allocation mechanism. In contrast, the purpose of the force majeure clause is to protect a party from liability in damages in case of force majeure, and as a last resort to allow termination. The various clauses have different usages and as such are complementing each other – not conflicting.

Force Majeure Clause in time charters

Does a force majeure clause belong in a period time charter party? This is for the parties to decide. However, the triggers for the clause have been set deliberately high to avoid abuse. Firstly, the party claiming force majeure must prove the existence of the force majeure event; that the event was beyond its control; that it could not have been foreseen; and that its effects were unavoidable. Secondly, the right to terminate will only be available if performance becomes impossible, illegal or radically different, or substantially affects the whole contract during an agreed number of days.

Termination under the Force Majeure Clause v frustration

The subcommittee also discussed the difference between the right to terminate under the force majeure clause and termination under the doctrine of frustration under English law. The language in one of the termination provisions of the clause resembles the doctrine of frustration under English law. However, there is an important difference – if a party can bring itself within that termination provision, it will be able to terminate immediately, from day one. Under frustration, the contract would only be considered frustrated and terminated after a very long time compared to the overall contract period. There are two termination provisions in the clause and the other one provides a longstop right to terminate after an agreed amount of time has passed. The number of days will have to be negotiated depending on the contract in question.

The BIMCO Force Majeure Clause and the additional bolt-on provision will be presented for adoption in May this year.

Anna Wollin
in Copenhagen, DK

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