Force Majeure – Court of Appeal clarification

Eleanor Scudder, Senior Claims Executive and Lawyer at Skuld, has written on a court ruling which clarified the application of force majeure. In Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102   the court of appeal reversed a decision on damages, but upheld the lower court’s reasoning on liability. “Charterers cannot rely on a force majeure clause if they would have failed to provide the cargo in any event”, said Scudder.

This case related to the collapse on November 5th 2015 collapse of the Fundao dam in the industrial complex of Germano in Brazil. The effect of the burst dam stopped production at the iron ore mine.

The Charterers had entered into a Contract of Affreightment (COA) with the Owners for seven shipments of iron ore to be shipped to Malaysia. Due to declining demand in Malaysia the Charterers had failed to provide cargo for the first two shipments and had no defence in this instance. The current case centred on the third to seventh shipments under the COA.

The relevant Clause 32 stated:

“Neither the Vessel, her Master or Owners, nor the Charterers, … shall be Responsible for loss or damage to, … resulting From: Act of God, …Landslips; …accidents at the mine … or any causes beyond the Owners’, Charterers’, Shippers’ or Receivers’ Control; always provided that any such events directly affect the performance of either party under This Charter Party.”

At first instance it was held that Charterers were liable as they could not rely on the force majeure wording if in reality they would not have provided the cargo in any event. It was required that Charterers had to prove they would have performed but for the collapse of the dam. Owners however were only awarded nominal damages ($1 per shipment) with the judge accepting that under the compensatory principle Owners would not have received the freight in any event.

The Court of Appeal reversed the decision on damages only but upheld the ruling on liability. It was held that there were two types of force majeure clauses.

  • Firstly, a clause can be a ‘contractual frustration’ clause whereby the parties may be automatically discharged from an obligation to perform. Here there is no need to meet the test of ‘but for’ causation.
  • The second type of clause, an exemption clause merely relieves a party of liability for a breach. Here the party claiming the benefit must prove that they would have been able to perform but for the force majeure event.

It was held that the clause 32 wording was in fact an exemptions clause. The Charterers therefore had to prove they would have been able to perform but for the collapse of the dam, which they could not do.

In assessing damages the Court of Appeal reviewed two previous cases which were deemed to involve an anticipatory breach, and distinguished them from the present case.

On the facts it was held that the comparison should have been between the freight Owners would have earned with the actual position it was in due to Charterer’s breach, not by drawing a comparison between Owner’s actual position and its position if Charterers had been able and willing to perform.

An application for permission to appeal is currently being made to the Supreme Court.

Skuld noted that this case underlined that the importance lay with the content of any exception or force majeure clauses, not the title or label afforded to them.

Second, and crucially, this case demonstrated that in order to avoid liability Charterers must prove that they would have performed but for the force majeure event.

“Therefore it is now very important for Charterers to preserve evidence throughout the supply chain such as booking notes, email exchanges, stock inventory and storage documentation supporting Charterers’ ability and willingness to perform but for the force majeure event”, said Skuld.

https://www.skuld.com/topics/legal/pi-and-defence/force-majeure-court-of-appeal-clarification/