Seaspan rejects force majeure from Chinese yard

Seaspan, a wholly-owned subsidiary of New York-listed Atlas Corp, is reported to have rejected a declaration of force majeure from a Chinese shipyard undertaking the construction of a new vessel.

Seaspan has more than 50 containerships, ranging from 7,000 teu to 24,232 teu, on order with Chinese yards.

Chairman Bing Chen said the company was working hard to help mitigate potential impact to deliveries of its newbuilds.

Seaspan is the largest global containership lessor, primarily focused on long-term, fixed-rate leases with the world’s largest container shipping liners. As at March 31st 2022, Seaspan’s operating fleet consisted of 132 vessels with a total capacity of 1,147,980 TEU, and an additional 67 vessels under construction, increasing total fleet capacity to 1,959,380 TEU, on a fully delivered basis.

Legal firm Hill Dickinson noted in March 2020 that, since the outbreak of the Covid-19 in China, some Chinese shipbuilding companies had postponed shipbuilding construction and some had issued force majeure notices to the buyers in favour of the potentially postponed delivery of the newbuilding vessels.

The China Council for the Promotion of International Trade (CCPIT), which is officially accredited by the Ministry of Commerce of People’s Republic of China, announced on January 30th 2020 that it would issue ‘force majeure’ certificates to qualifying applicants, for the purpose of ‘shielding’ the companies from legal damages resulting from the Covid-19. The CCPIT issued these in their thousands.

On February 10th 2020 Zang Tiewei, spokesperson of Commission of Legislative Affairs of the National People’s Congress Standing Committee, said that “for the parties who are unable to perform the contract, the epidemic is an unforeseeable, unavoidable and insurmountable force majeure. According to the Contract Law of the People’s Republic of China, except otherwise provided by law, parties could be exempted from performing contracts in part or in whole due to the event of force majeure.”

Because of China’s epidemic prevention measures, it was an objective fact that there had been delayed resumption of work, traffic control, and restricted dispatch of labour personnel. Hence, the force majeure certificates issued by the CCPIT could arguably constitute a prima facie evidence, or at least persuasive proof of the force majeure event resulting from Covid-19, Hill Dickinson said.

However, for a party to invoke force majeure and get an exemption from its contractual liabilities under Chinese law, proving the force majeure event was only the first step. The next step would require the invoking party to show that the delay, disruption or breach of the contract was caused by the force majeure event (an objective circumstance that was unforeseeable, unavoidable and insurmountable such that it rendered performance impossible), despite that it is not necessarily to be the only reason (as opposed to the English law position). In addition, subject to the terms of the force majeure clause, under the Chinese law the invoking party also has a duty to mitigate the loss, and it shall give a notice to the other party about occurrence of the force majeure within a reasonable time.

However, as Hill Dickinson noted, in most international shipbuilding contracts, the applicable law is English law rather than Chinese law. In English law there is no defined concept of force majeure. In the absence of a force majeure clause, or if the clause is too badly drafted to be relied upon, then the doctrine of frustration would operate.